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BOHANON & CUROTT: States need freedom to try to fix Medicaid

January 19, 2018

Economic Analysis Cecil Bohanon and Nick CurottIn an unprecedented move, the Trump administration opened the door for states to require able-bodied, working-age Medicaid recipients to work or lose coverage. What we like about this decision isn’t so much the policy per se, but rather that it demonstrates a willingness to allow states the freedom to experiment with changes that might improve the Medicaid program.

Everyone knows Medicaid as currently constructed has problems: For instance, it is a costly program that will put an increasingly large fiscal burden on state taxpayers. And it too often fails to deliver good health outcomes for birthing mothers and their babies. But what is the best way to reform Medicaid? Yes, there are conflicting views, but no shortage of ideas. What’s missing is a mechanism for testing these ideas to find out which ones work best.

That’s why it is important to decentralize the decision-making process and allow states freedom to explore many options. A great strength of our federalist system of government is that it allows for trial and error. Each state acts like a laboratory, with successful experiments being copied by other states. Unfortunately, the bureaucrats in Washington often think that, because they are experts, they must know the best solution. They then force conformity on all jurisdictions.

What about the policy of requiring healthy Medicaid recipients to work? First, the working requirement won’t apply to the handicapped, elderly or pregnant—the majority of recipients—so the effect on overall employment in the economy will be small. But there are surely some able-bodied Medicaid recipients who do not work because they are afraid they will lose their benefits. To require them to work is probably good for them, as it builds work skills and earning power that, we hope, will allow them to escape dependency.

However, the whole point of Medicaid is to benefit poor households. Once a household earns enough income to stop being poor, it loses the benefit. So there is still a strong incentive for such households to suppress earnings to preserve their Medicaid benefit. A work requirement does little to remove this flaw.

It is unclear whether work requirements will do much at all. But this is precisely the reason we need experimentation—to generate information about what works and what doesn’t. This is a move in the right direction, and we hope it signals more freedom to come.•

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Bohanon and Curott are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.

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