COMMENTARY: Taxpayers deserve more Medicaid cuts in the OBBBA

The One Big Beautiful Bill Act (OBBBA) has become law, and misconceptions about the legislation are a dime a dozen. While many detractors have slammed the (deeply flawed) bill as canceling the health coverage of 20 million Americans, the truth is that the OBBBA’s Medicaid changes are far too small for what needs to be done.

More comprehensive changes to the program, which were shot down during the amendment process, could not only save taxpayers hundreds of billions of dollars but also make lives better for Medicaid patients. The act failed to live up to the promise of fiscally responsible lawmaking. Now, Congress must take strides to slash red ink and get America back into the black.

Medicaid, a federal health insurance program for low-income Americans, costs taxpayers $1 trillion annually. Per-enrollee spending has been rising by more than 9 percent yearly. The OBBBA laudably introduces work requirements to Medicaid.

The legislation stipulates that to receive Medicaid benefits, individuals must be working, engaged in community service (e.g., volunteering), or receiving education or work training 80 hours monthly. While certain exceptions allow frail individuals and parents of dependent children a pass from these work requirements, the provisions are wide enough to affect millions of Americans.

The hype (positive and negative) about this provision is not warranted. Taxpayers will save $30 billion annually from the enactment of Medicaid work requirements and $100 billion yearly once other Medicaid provisions of the bill (e.g., more frequent eligibility checks, curtailing state-directed payments) are taken into account. That still leaves 90 percent of the pricey program untouched at a time of nearly $2 trillion annual deficits and a national debt of $37 trillion.

There is a more comprehensive way to reform Medicaid that would not only provide more significant savings for taxpayers but also give beneficiaries better coverage. A far better approach would be a means-tested, refundable tax credit of $550 monthly for individuals to go out and purchase the private health care plan of their choice. This would allow households to buy mid-tier “silver” health insurance plans (which typically cost less than $550 monthly in low-income states such as Mississippi). Assuming a beneficiary population base of 75 million, this would save taxpayers $300 billion annually. Even if Congress used half of those annual savings to reimburse miscellaneous expenses (e.g., high co-pays, out-of-pocket medication costs), taxpayers would still save $150 billion annually on top of OBBBA savings.

Alternatively, policymakers could pursue a combination of lower tax credit subsidies (say, $400 monthly) and direct reimbursements to hospitals providing free care. These alternative policies would not only be better for taxpayers but also give low-income households a far better (private) insurance product. According to a 2021 analysis by the Medicaid and CHIP Payment and Access Commission, “physicians were significantly less likely to accept new patients insured by Medicaid (74.3 percent) than those with Medicare (87.8 percent) or private insurance (96.1 percent).”

Only 63 percent of doctors practicing internal medicine accept Medicaid, compared with 99 percent acceptance of private plans. This large discrepancy is not just because Medicaid reimbursement rates are lower. About a fifth of Medicaid claims are not paid in full, compared with just 5 percent of private claims.

As a Vox health care correspondent explains, “The health care providers then must invest time and money to sort out any rejected or disputed claims. … And when you consider the disparity in the initial claims, with Medicaid already paying much less than Medicare or private insurance, these costs of incomplete payments eat up 16 percent of the value of a Medicaid visit for doctors, significantly more than the 7 percent for Medicare and 4 percent for private coverage.”

Taxpayers and Medicaid patients deserve far better than the flawed status quo. While OBBBA’s Medicaid changes were a small step in the right direction, lawmakers need to focus on getting spending under control right away.

The future of the country and millions of lives and livelihoods depend on forging a new and sustainable path forward.

Ross Marchand is a senior fellow for the Taxpayers Protection Alliance. He wrote this for InsideSources.com.