Why Is Medicaid Ailing?

By Gus Tyler

Published May 20, 2005, issue of May 20, 2005.
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Medicaid is a program that was introduced in 1965 as a piece of companion legislation to Medicare, which was effected the same year. Medicare and Medicaid were different in two important respects. First, Medicare was based on age — 65 or older. Medicaid was based on need. Second, the federal government ran Medicare directly; Medicaid was run by the states — in coordination with, and with financial aid from, the federal government.

For 40 years, things ran smoothly. But not anymore. Proposals made by governors and by state legislatures prepared the ground for Congress to cut Medicaid spending by $10 billion over the next five years. John Adams Hurson, a member of the Maryland House of Delegates and president of the National Conference of State Legislatures, explained the reason for this: “I am a Democrat, a liberal Democrat, but we can’t sustain the current Medicaid program. It’s fiscal madness. It doesn’t guarantee good care, and it’s a budget buster. We need to instill a greater sense of personal responsibility so people understand that this care is not free.”

In part, this statement is true. The money needed to finance Medicaid is just not there. But why was the needed financing there 40 years ago and not now? Shall we blame the needy recipients of aid for needlessly draining the resources because they are lazy or greedy, or are there more rational explanations?

Let’s take a look at the record. Shortly after Bush came into office, the country was hit with a recession. Bush was not to blame; the recession was a result of forces in motion before he was even inaugurated. But Bush is responsible for what he did not do to speed up the recovery. He had a historic model to follow. When Franklin Delano Roosevelt came into office in 1933, the country was in a deep Depression. FDR set an example of what could and should be done.

He started by putting people to work at government expense — doing things that needed to be done but were not being done, because they promised no profits for private entrepreneurs. The many agencies he created were famous for their initials — such as OWM WPA, NYA, CCC, et. al. The plan, referred to as “the alphabet soup,” added millions of jobs to the nation’s economy. And, equally important, it added to the purchasing power of the aging — a growing market that is indispensable for a “market economy.”

In 1935, he enacted the Social Security system for those too old to work. Their monthly checks added billions to an expanding market.

In 1938, he enacted the minimum-wage law, which boosted hourly wages to 25 cents an hour in 1938 from as low as 4 and 5 cents an hour, and to 40 cents an hour in 1940.

What did Bush do? None of the above. In fact, the minimum wage that was set at $5.25 an hour in 1997 remains, because the Republican delegation in Congress has blocked any change — even under the Clinton administration.

Instead Bush has decided that the way to revive the economy is by cutting the taxes of the richest in the land. Quite ironically, even cutting aid to those on Medicaid will reduce the buying power of the American people and thereby add another push to the downward direction of the economy.

So, why are they cutting aid to those on Medicaid? Because Bush’s philosophy is that despite all past experience, when the rich are enriched they will use their newfound riches to create jobs: it’s referred to as the drip down theory of economics. Its essence can be summed up in a simple two-liner:

The way to aid the neediest

Is to enrich the greediest.

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