Medicaid is a federal state partnership with different pots of money for different beneficiary groups. For instance, some funds pay for long term care. Other funds pay for children’s health coverage. Most funds provide medical care for poor people. Each type of coverage comes with a different federal matching rate.
In fiscal year 2024, total Medicaid spending was approximately $919 billion. The federal government paid $614 billion, or about 69%. States kicked in $305 billion, but the exact matching rates vary by state and by beneficiary group. The Kaiser Family Foundation tracks state Medicaid spending here.
States that want to customize their Medicaid program can apply to the U.S. Department of Health and Human Services using a Section 1115 waiver application. Here is the problem: While the federal government pays 69% of the cost of Medicaid spending, states pay less than one-third (only 31%). That means states have only about one-third of the incentive to manage spending efficiently. States only have one-third of the incentive to root out fraud. That also means states are tempted to use federal Medicaid funds as an economic development slush fund for welfare programs since they’re paying less than one-third of the cost.
The San Francisco Chronical reports that Louisiana Senator John Kennedy criticized California for wasting Medicaid funds on services that are not medical related, saying:
[S]pending state and federal Medicaid money meant for basic medical treatment on unconventional services such as housing and nutrition assistance, gym memberships, and even tribal prayers and, he claimed, exorcisms.
“The California Medicaid program will pay for herbal medicines, meal deliveries. They’ll pay for housing,” Kennedy said. “I don’t know what housing has to do with healthcare.”
“California, they’re just setting all kind of records,” he added. “They’re wild people.”
California Governor Newsome and other proponents counter that the state’s approach to Medicaid is more holistic. More from SF Chronical:
It’s a multibillion-dollar experiment to help medically frail patients meet their housing, food, and other social needs that Newsom says is not only legal but also a more cost-effective and evidence-backed approach to providing healthcare for Californians with complex health conditions. He counters that investing in services outside clinical settings can help people avoid emergency rooms and hospital admissions, improve their long-term health, and ultimately save taxpayers money.
“It’s about whole-person care,” Newsom said, adding that he hopes President Donald Trump’s administration sees California’s leadership and agrees with the “reforms we’re advancing as national best practices.”
I have written before about the social determinants of health (SDoH). This theory posits that poor people are in worse health due to merely being poor. Poor people are in poor health because they’re under stress to afford housing. They live in food deserts. The question becomes, which SDoH are merely correlated with better health status, and which are causal (i.e., leads to better health). If stable housing is correlated but not causal then spending Medicaid funds on housing should be at California’s expense, not taxpayers from Texas. Stated another way: is there any evidence that spending money on housing reduces hospitalization, or emergency room visits? Do Meals on Wheels reduce medical costs, or add to Medicaid expenditure? These are all important questions, but I know of no research that finds spending on housing reduces medical spending in the long run. More from the SF Chronical:
Lucy Rodriguez… said her life turned around this year once an intensive case manager with Titanium Healthcare, which contracts with health insurers to provide services, began helping her manage her chronic diseases and stay on top of her medical appointments and prescriptions, even picking up free food boxes for her.
“This has been a godsend,” said Rodriguez, who has diabetes, high blood pressure, and kidney disease. “I was getting so stressed out and depressed. It’s really hard when you’re on a fixed income. Groceries are so expensive, and with summer, electricity gets even more expensive. But this is really improving my life.”
It remains to be seen whether California spending Medicaid funds on social services offsets medical spending or merely adds to total spending. The state is probably not particularly worried about the answer since it is paying only a fraction of the cost. In the anecdote quoted above, could the intensive case manager help manage Ms. Rodriquez’s chronic conditions without subsidies for housing, utilities, and food? California is apparently not conducting controlled experiments to see which interventions have the most effect on health.
There is certainly nothing wrong with the California experiment. However, California should be on the hook for the costs. A block grant would allow states the flexibility to experiment without putting taxpayers in other states on the hook for waste, fraud, and abuse.
Read more at San Francisco Chronical: California defends social services in Medicaid as GOP cries fraud