Are Medicaid and Medicare Reducing Spending on State and Local Social Programs?

I support Medicaid and Medicare because they have improved the lives of so many Americans.

I want to see these programs continue to be supported.

The challenge here is how to manage increased health care costs while continuing to invest in public health, which will ideally prevent more downstream expenses.

The big challenge is that 80% of health outcomes are determined by social factors, as well articulated by Sir Michael Marmot.

In this article, I investigate whether this trade-off has occurred and why continued investment in public health is so critical.

For context, Medicare and Medicaid are taking up a growing share of the federal budget. In 2023, these two programs together consumed about $1.85 trillion—roughly 26% of all federal spending.

• Medicare: Spent nearly $1 trillion in 2023 to provide health care for about 66 million elderly and disabled individuals.

• Medicaid: Used an estimated $849 billion in federal and state funds to cover around 90 million low-income Americans.

  • For states, Medicaid is one of the most expensive budget line items.

Critics argue that this may reduce spending on other social programs.

The concept referred to as 'squeezing' encompasses a range of social policy areas, including family benefits, unemployment benefits, housing support, and retirement supports, as outlined by the Organisation for Economic Co-operation and Development (OECD).

This issue, however, is not solely due to Medicaid and Medicare but is part of a broader problem involving how we allocate spending for social programs, the wider challenges of health care, and the current funding mechanisms of health insurance.

The Evidence of Health Care Squeeze

There is limited peer-reviewed data available to validate this claim, particularly when trying to establish causal relationships in changing political environments at the federal level. These complexities may make it difficult to prove through data alone.

However, examining state-level data can offer a clearer perspective on the validity of these claims.

One study highlights the complex relationship between health care and social spending in California.

In California, the rising cost of health care has significantly impacted the state budget over the last 25 years. Medical spending increased from 14% to 21% of the state’s budget during this period, leading to reductions in other critical areas, including public health initiatives.

As health care costs climbed, public health funding fell by a similar percentage, demonstrating a clear trade-off between these two budget priorities.

One thing to note is that CalAIM has been working to more closely integrate public health and medical services, which was not included in this analysis.

Even with CalAIM, this does not account for the trends we are seeing in the proposed decreases in post-COVID public health spending for California.

This illustrates the critical need for more strategic and proactive spending decisions, ensuring that health care funds are used efficiently while also addressing other SDOH that can lead to better outcomes across the board.

Medicaid and Medicare Are Not Solely Responsible for the Rise in Health Care Costs

The solution is not necessarily to remove those on Medicaid and Medicare.

Private insurance spending per enrollee is most likely higher than Medicaid and Medicare, so it doesn’t make sense to push people off Medicaid and Medicare only to place them on a more expensive private insurance plan.

Commercial payers reimburse hospitals at 223% of Medicare rates on average (240% for outpatient services, 182% for inpatient services).

Commercial payers reimburse physicians at 129% of Medicare rates overall (144% for specialty services, 117% for primary care).

Medicaid reimbursement averages only 72% of Medicare rates nationally for physician services.

Medicaid rates can be close to or even exceed Medicare rates for certain states, while others are much lower.

Contrary to popular belief, hospitals don’t need to use commercial health plans to subsidize the cost of Medicare and Medicaid.

While there are real challenges with Medicaid and Medicare, as mentioned in Anderson et. al 2019, lowering prices in the U.S. will need to start with private insurers and self-insured corporations.

The Impact on Social Care Spend

In the U.S., social spending is disproportionately low compared to health care spending.

Papanicolas et al. 2019 found that spending more on social programs in a country doesn’t necessarily mean that country will spend less on health care.

Tikkanen et al. 2019 found this as well. However, they also found that although total social spending per capita may be similar in the U.S. and other high-income countries, the U.S. allocates relatively less to the social needs of families with young children and working-age adults.

What Tikkanen et al. 2019 highlighted is that, in contrast, the U.S. allocates relatively more to supporting older adults. This allocation may not optimize overall population health.

As the saying goes, an ounce of prevention is worth a pound of cure.

This means that a healthier population will require fewer resources in the long term, freeing up funds for other critical areas like education, infrastructure, and public safety.

Preventing minor issues from escalating into major, costly problems can reduce the long-term burden on the health care system.

This issue is reflected in poverty rates across different age groups. In the U.S., childhood poverty rates are nearly double those found in other wealthy nations.

Similarly, about 15% of working-age adults live in poverty, compared to 10% in comparable countries.

This underinvestment can lead to a cycle of intergenerational poverty, which, if not addressed, can have long-term harmful effects on health.

Getting Value from What We Spend

The key question isn't just about how much we should spend on health care and social programs, but how we can spend more effectively to enhance the health and well-being of Americans.

This isn’t just a matter of Medicaid and Medicare—it’s a broader challenge facing our entire health care system and is deeply intertwined with broader social and economic disparities.

Health care and social spending are about fiscal responsibility and investing in the health of the American people.

The federal government must understand that these two objectives are interconnected and mutually reinforcing.

Thank you, Sara Gallo, for your edits.