Examining the Medicaid Program and its Cost Factors

Medicaid was designed to grow and is now a significant portion of the federal budget, creating perverse state spending incentives. The program is a federal-state partnership where the federal government pays a share of medical costs and the state covers the rest, with the federal share varying based on state income. From its inception, the Medicaid program lacked cost-effectiveness and had strange incentives leading to escalated spending. For example, in 1966, New York State expanded the definition of 'low income' to include a large portion of the population, causing spending to far exceed federal projections.