Republicans in Congress don’t have to look far to save taxpayers money. As the Senate prepares to take up the reconciliation bill passed by the House, it should focus on the nation’s capital, which has a sweetheart deal on Medicaid that bilks federal taxpayers while benefiting D.C.’s rich lobbyists and lawyers. The current bill doesn’t touch it, but as I show in a new study, repealing this costly and unfair deal will save nearly $10 billion over the next decade, while striking the right kind of populist notes.
D.C.’s Medicaid deal has been in place since 1997, when Congress passed a law that funds 70% of the supposedly low-income healthcare program in the city. Under the normal federal matching rate, such a high percentage would only go to lower-income jurisdictions. Arkansas, with a per capita personal income of less than $60,000, has a 69% matching rate. New Mexico is nearly at 72%, and it has a per capita income of roughly $57,000. These states arguably need the higher money to cover the costs of their low-income residents.
But D.C. doesn’t need the money — because it’s rich. In fact, it’s the richest jurisdiction in the United States, with a per capita income of $108,233. The city is filled with people who’ve become wealthy through their proximity to the levers of power, and more to the point, their ability to influence how and when those levers are pulled. The fact that D.C. is so wealthy makes its Medicaid matching rate not only an outlier, but an unjust exception to the national rule.
Under federal law, states with higher incomes get a 50% matching rate. That’s the case for Massachusetts — the wealthiest state with a per capita income of more than $90,000 — which gets a dollar in federal money for every dollar it spends. Ditto New York and Connecticut, where incomes are well above $80,000. Even D.C.’s neighbors of Maryland and Virginia, which are wealthier than the national average but not as wealthy as D.C. itself, get significantly less than the nation’s capital. Maryland gets 50%, while Virginia gets 50.4%.
The double standard for D.C. is a costly one, with federal taxpayers covering $8.5 billion in Medicaid spending over the last two decades. Yet Medicaid is already on an unsustainable fiscal trajectory, and D.C.’s sweetheart deal has only made it worse. To understand how unaffordable it is, consider that if all states received such favoritism, Medicaid spending would be $1.3 trillion higher over the next decade. Thankfully, that’s not on the table, but taking away D.C.’s special treatment should absolutely be on the table.
I estimate that if Congress ended D.C.’s 70% federal matching rate, taxpayers would save $9.7 billion over the next 10 years. The savings would be even higher if Congress eliminated the 50% matching floor for states and jurisdictions with higher per capita incomes. Wealthier places could easily fund more of their own Medicaid programs and, given Medicaid’s rapidly growing impact on the national debt, their extra effort would help right America’s sinking fiscal ship. Beyond the monetary need, there’s also a moral mandate. Why should wealthy states get federal support for something they could do themselves, paying their fair share instead of letting lower-income states pick up the slack?
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D.C. is a case in point. While the city’s per capita income is the highest in the nation, it also has one of America’s highest poverty rates, at 14%. Some low-income D.C. residents likely need Medicaid. But the city’s many wealthy lawyers, lobbyists, and other government hangers-on could easily cover the cost of the program. The city would likely have to cut other spending or find new sources of revenue, but those are much better options than shifting the burden to taxpayers in West Virginia, Wyoming, and the rest of the nation. D.C.’s pork-seeking lobbyists should foot the bill, not pig farmers in Iowa.
As far as finding savings goes, ending D.C.’s sweetheart deal should be an easy political lift. All Republicans need to do is say that the wealthiest place in the nation shouldn’t get special treatment. This message firmly fits within President Donald Trump’s populist appeal, and it’s a fiscal and moral winner, too. The elites who live in D.C. will fight this idea tooth and nail, but they’ve been let off the hook for long enough. As a matter of fairness and common sense, they should pay for D.C.’s Medicaid program — not the rest of America.
Paige Terryberry is a senior research fellow at the Foundation for Government Accountability.