The Covid Medicaid Money Grab

In March 2020, Congress started giving states extra Medicaid funding on the condition that they maintain enrollment for everyone, even recipients who start making too much money to qualify. This policy, which is tied to the federal public-health emergency, was supposed to be temporary, lasting as long as the Covid pandemic required it. Though President Biden declared victory over the pandemic more than a year ago, his administration is set to renew the emergency declaration for the 12th time in January, likely keeping it in effect until April 2023.

Washington is driving up the national debt at a time when government spending is already fueling inflation, and the states are dealing with so many ineligible Medicaid recipients that the federal boost isn’t enough. We estimate that states are losing a combined $1.6 billion a month, on top of more than $14 billion in federal red ink. Eventually, taxpayers must pick up both tabs.

Governors and state lawmakers know they have a crisis, but they’ve waited for the emergency declaration to end. At that point, under current policy, the extra funding would dry up and the restrictions on removing ineligible people would disappear. No elected official wants to be accused of kicking vulnerable people off health insurance, so waiting has likely seemed the politically safer move.

But the Biden administration has made clear that it has no intention to end the program. In August, the Centers for Medicare and Medicaid Services proposed a mandate that it claims will ensure “continuity of coverage for eligible beneficiaries.” In reality, the new rule would do the opposite, making it much harder for states to determine which recipients are ineligible and remove them. The mandate, which concluded its comment process on Nov. 7, will likely be rolled out before the Biden administration ends the public-health emergency. The timing is deliberate: The administration is trying to keep the maximum number of ineligible people on Medicaid—a sneaky step closer to socialized medicine or essentially Medicaid for All—even though that means doing massive damage to taxpayers.

The mandate would ban states from conducting in-person interviews, a common tool for discovering who shouldn’t be on Medicaid. It would also limit the information states can request from recipients, while restricting eligibility reviews to once a year at most, with “limited exceptions.” Before the pandemic, many states conducted these reviews more often to protect taxpayers.

The proposal would also force states to help ineligible enrollees find different coverage before removing them from Medicaid—essentially turning state bureaucrats into health-insurance navigators. That would add enormous administrative burdens to cash-strapped states, making them less likely to go through the hassle of removing ineligible people.

The administration says these new rules would add another nearly $100 billion in taxpayer costs over five years. Facing this massive fiscal hole—and without the extra federal spending—states will either have to cut back other funding priorities or, more likely, soak taxpayers. And it could still be worse: The Biden administration also says costs may be as much as 50% higher than that estimate.

Governors and state lawmakers can protect taxpayers from this disaster by opting out of the extra federal funding now, instead of waiting for the public-health emergency to end. They could begin removing ineligible recipients right away—before the mandate comes down.

This would be the politically savvy thing to do, as well as the better policy decision. Virtually all ineligible Medicaid recipients are eligible for other coverage options that they can afford. That’s why Medicaid requirements normally would kick them off the program; they don’t need it and keeping them on diverts resources from going to truly vulnerable people. The Urban Institute, a liberal think tank, found that more than a third of those ineligible adults whom the Covid rule has kept on Medicaid would qualify for taxpayer subsidies on the ObamaCare exchanges and that almost all the others have access to affordable employer-sponsored coverage. Less than 1% of ineligible Medicaid recipients would lack access to either of these options, and even for them other coverage choices still exist, such as private coverage on the ObamaCare exchange and employer-sponsored coverage.

There is precedent for such decisive leadership. Twenty-six governors took a similar step when they opted out of higher federal unemployment-insurance payments shortly before they expired in September 2021. Just as that decision helped states bounce back economically, opting out of extra Medicaid funding now would save state taxpayers untold billions of dollars.

If governors and state lawmakers wait, it will be too late. For the sake of taxpayers, they should unshackle their states from Washington’s Medicaid handcuffs before the Biden administration throws away the key.

Mr. Bragdon is CEO of the Foundation for Government Accountability. Mr. Adolphsen, the foundation’s policy director, served as chief operating officer of the Maine Department of Health and Human Services, 2015-17.