Medicaid Is Still Breaking State Banks, and It's Only Going to Get Worse

Medicaid is consistently among the top two categories in all state budgets. In 2022, states spent a whopping $804 billion of federal and state tax revenues on Medicaid programs. And this spending shows little sign of slowing down: by 2031, the Center for Medicare and Medicaid Services (CMS) projects that Medicaid and the closely- related Children's Health Insurance Program will cost over $1.2 trillion annually. Medicaid has an open- ended matching design under which states pay for the medical services provided to Medicaid beneficiaries. The federal government then partially reimburses the state's Medicaid expenses. This structure encourages waste, abuse, and fraud. As such, Medicaid's runaway expenses are a program feature, not a bug. The most effective reform would be to replace this open- ended matching structure with block grants. Through block grants, states would receive a fixed amount of federal Medicaid funds per fiscal year. This policy would give state policymakers the power and the incentive to rein in costs and should be a priority for future Congresses.