In the past 60 years since Medicaid was established, its budget has grown from $1 billion to $835 billion in 2024. You do not have to be a math wizard to imagine the trend line: it started out low in 1965, rising gradually over the next few decades before turning upward and skyrocketing in recent years. As the Paragon Institute explains, Medicaid’s open-ended funding structure created perverse incentives for states to administer their programs inefficiently.
The increase in Medicaid spending is due to more than just expanded Medicaid eligibility. It is also due to mission creep. As I’ve written about in the past, public health advocates want Medicaid to address the social determinants of health. That is a fancy way of saying other factors correlate with health status and could potentially improve health. There is significant disagreement, however, about whether the correlation is causal. For instance, income and education are correlated with better health. But does giving money to poor people make them healthier? Or do some people just have better genes and / or beneficial behaviors that make them both healthier and wealthier? The answer to that question could determine whether it is better to give poor people cash, food, housing or Medicaid coverage, for example.
The Clinton Administration signed 1996 legislation into law reforming welfare away from open-ended cash payments and placed limits on benefits. States and the federal government have been slowly expanding welfare piecemeal ever since. Another is expanding nonmedical spending within Medicaid to potentially address the so-called social determinants of health. The Kaiser Family (KFF) Foundation Health News reported that the first Trump Administration approved such an experimental plan in North Carolina. The following is from KFF Health News:
During his first administration, President Donald Trump’s top health officials gave North Carolina permission to use Medicaid money for social services not traditionally covered by health insurance. It was a first-in-the-nation experiment to funnel health care money into housing, nutrition, and other social services.
Some poor and disabled Medicaid patients became eligible for benefits, including security deposits and first month’s rent for housing, rides to medical appointments, wheelchair ramps, and even prescriptions for fresh fruits and vegetables.
Such experimental initiatives to improve the health of vulnerable Americans while saving taxpayers on costly medical procedures and expensive emergency room care are booming nationally. Without homes or healthy food, people risk getting sicker, becoming homeless, and experiencing even more trouble controlling chronic conditions such as diabetes and heart disease.
Medicaid experiments on nonmedical spending increased during the Biden Administration.
Former President Joe Biden encouraged states to go big on new benefits, and the availability of social services exploded in states red and blue. Since North Carolina’s launch, at least 24 other states have followed by expanding social service benefits covered by Medicaid…
The second Trump Administration is putting the brakes on the use of Medicaid funds for nonmedical purposes, saying:
“This administration believes that the health-related social needs guidance distracted the Medicaid program from its core mission: providing excellent health outcomes for vulnerable Americans,” CMS spokesperson Catherine Howden said in a statement.
“This decision prevents the draining of resources from Medicaid for potentially duplicative services that are already provided by other well-established federal programs, including those that have historically focused on food insecurity and affordable housing,”
The purpose of a pilot project, or an experimental program, is to learn what works and what does not work. In that regard, the states become laboratories of experimentation. One problem with allowing states to experiment is whether the state officials are really measuring results or if increased social services spending is the primary goal. In addition, states are only using their own money for just a small portion of new spending. When there is little state money as risk, the outcomes can sometimes be dismissed as ambiguous, as little more than welfare funded by the federal government.
Experiments to see if there are ways to reduce overall Medicaid spending by targeting other nonmedical needs is a worthy goal. The key is finding how to conduct these experiments in ways that ensure unbiased results. Future experiments need to ensure they reduce spending, rather than boost welfare expansion.
Read more about this topic at KFF Health News: Housing, Nutrition in Peril as Trump Pulls Back Medicaid Social Services