Medicaid’s current structure incentivizes states and private health insurers to enroll more patients, which has resulted in declining care quality and escalating costs for taxpayers. Spending on Medicaid is rapidly approaching $1 trillion annually, making it one of the largest taxpayer-funded programs in the United States.

From 1973 to 2023, the total inflation-adjusted Medicaid spending per enrollee increased by 141 percent. During the same period, government-sponsored health insurance expanded from 29 percent to 49 percent of all health care spending, according to data from the Centers for Medicare and Medicaid Services.

More than 78 percent of Medicaid beneficiaries—approximately 66 million Americans—are enrolled in managed-care plans operated by private insurers. These insurers gain millions of new patients not by providing better care or reducing costs, but because states direct patients to them. This structural flaw leads to an estimated $9 billion in wasted taxpayer money annually, based on analysis by the 1 percent Steps for Health Care Reform Project.

The problem extends beyond isolated incidents of fraud or duplicative payments, reflecting systemic waste that begins at enrollment. Advocates suggest that market-based incentives could improve care quality and reduce costs within Medicaid.

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