Medicaid Policy: A Modern-Day Trojan Horse or Manhattan Project – or Both?

Medicaid policy is currently having a Warhol moment, with a throng of media, Congressmen, lobbyists and advocacy groups beclowning themselves with lies, damn lies and statistics about alleged “Medicaid cuts” in the House version of the “One Big Beautiful Bill Act” that are in fact a proposed reduction in the growth of future spending. The most recent example was this histrionic Modern Healthcare article decrying things like Congressional Budget Office estimates of reduced Medicaid spending for people who aren’t eligible for Medicaid. In the real world, more knowledgeable health economy stakeholders are undoubtedly relieved, if not quietly celebrating, the relatively minor “Medicaid cuts” in the House version and hoping for a “cut to the cuts” in the reconciliation process with the Senate.  

Chuck D reminds everyone that “false media, we don’t need it do we…don’t believe the hype,” and Wall Street is always a more reliable barometer of the fiscal implications of Federal policy than the media. On February 13, 2025, the House Budget Committee advanced a budget resolution that included revisions to Medicaid. On May 22, 2025, the House of Representatives sent its version of the budget reconciliation bill to the Senate. Here is Wall Street’s current verdict about the impact of the proposed legislation on two health economy stakeholders with a vested interest in Medicaid policy:  

For health economy stakeholders whose financial success depends on Medicaid, it is economically rational, arguably a fiduciary duty and perhaps even laudable to advocate for maximal Medicaid reimbursement. At the same time, it is myopic, arguably unwise and perhaps even fatal for any “free market” business to depend on Federal and state government for its financial success, as Booz Allen has recently demonstrated.  

In contrast to the obligations of health economy stakeholders, Congress has the power “to collect Taxes…and provide for the…general Welfare of the United States” and “to borrow Money on the credit of the United States.”¹ However, “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.”²  

Implicit in Congress’ fiscal power is the responsibility to exercise it prudently, as summarized by President Thomas Jefferson: 

It is a wise rule, and should be fundamental in a government disposed to cherish it’s [sic] credit, and at the same time to restrain the use of it within the limits of it’s [sic] faculties, ‘never to borrow a dollar without laying a tax in the same instant for paying the interest annually, and the principal within a given term: and to consider that tax as pledged to the creditors on the public faith.’³ 

Alexander Hamilton, another Founding Father and the first Secretary of the Treasury, wrote this of himself in the third person: 

that he ardently wishes to see it incorporated, as a  fundamental maxim in the system of public credit of the United States, that the creation of debt should always be accompanied with the means of extinguishment. This he regards as the true secret for rendering public credit immortal.⁴ 

Hamilton also observed this:

The debt too may be swelled to such a size, as that the greatest part of it may cease to be useful as a capital, serving only to pamper the dissipation of idle and dissolute individuals; as that the sums required to pay the interest upon it may become oppressive, and beyond the means which a government can employ, consistently with its tranquility, to raise them; as that the resources of taxation, to face the debt, may have been strained too far to admit of extensions adequate to exigencies, which regard the public safety.⁵  

Messrs. Jefferson and Hamilton would undoubtedly be concerned about this trend: 

Willie Sutton said that he robbed banks “because that’s where the money is.” In Medicaid, knowledgeable health economy stakeholders, state legislatures and even the media have known for years that “provider taxes” are where the money is. 

In a November 2012 editorial, The Washington Post wrote this about provider taxes... 

Any serious plan to reduce the federal debt has to deal with spending, and, given the foregoing numbers, any serious plan to deal with spending has to address Medicaid. The question is how. 

A health-care program for low-income people should not be first on the chopping block when substantial savings can be had by trimming entitlements that benefit better-off Americans… 

What can be justified are changes that trim costs while making the hideously complex program more transparent and accountable. We refer specifically to reforming the so-called provider taxes that 46 states and the District use to fund increased payment rates to Medicaid providers – and to shift the cost to the federal government. 

Congress and the Department of Health and Human Services limited the worst provider-tax abuses when they first came to light a couple of decades ago. But provider taxes still enable states to manipulate the statutory funding mechanism, adding to the federal deficit.⁶ 

(Emphasis added) 

Notably, the House version of the One Big Beautiful Bill Act didn’t do anything to limit the ability of “states to manipulate the statutory funding mechanism, adding to the federal deficit” except to “prohibit states from establishing any new provider taxes or from increasing the rates of existing taxes.”⁷ 

In the Federalist No. 33, Hamilton wrote this: 

The Convention probably foresaw, what it has been a principal aim of these papers to inculcate, that the danger which most threatens our political welfare is that the State governments will finally sap the foundations of the Union;⁸ 

Whether Medicaid policy is the manifestation of Hamilton’s fear that “State governments will finally sap the foundations of the Union” is a question for every health economy stakeholder, if not every American. 

How did we get here? Following the wisdom of Maria Von Trapp, let’s start at the very beginning, a very good place to start. 

On July 30, 1965, President Lyndon B. Johnson signed the Social Security Amendments of 1965 in Independence, Missouri. At the signing, President Johnson was introduced by President Harry Truman, who first proposed a national health insurance plan in 1945. President Truman believed that “[e]veryone should have ready access to all necessary medical, hospital and related services” which could be solved “by distributing the costs through expansion of our existing compulsory social insurance system.”⁹ 

In his remarks, President Johnson described the provisions of what is now known as Medicare in significant detail. In contrast, he used the words “poor” and “poverty” only once, and his most detailed reference to what is now known as Medicaid was a quote from the Old Testament: 

Thou shalt open thine hand wide unto thy brother, to thy poor, to thy needy, in thy land.^10,11

Section 1905(a) of Title XIX of the Social Security Act – Grants To States For Medical Assistance Programs defined medical assistance as follows: 

(a) The term ‘medical assistance’ means payment of part or all of the cost of the following care and services (if provided in or after the third month before the month in which the recipient makes application for assistance) for individuals who are –  

(i) under the age of 21, 

(ii) relatives…with whom a child is living if such child…is…a dependent child under Title IV, 

(iii) 65 years of age or older,  

(iv) blind, or  

(v) 18 years of age or older and permanently and totally disabled, 

but whose income and resources are insufficient to meet all of such cost –¹² 

Following the description of those eligible for medical assistance is a list of almost every type of acute, post-acute, ambulatory or home-based healthcare service. 

Section 1905(b) defined the term “Federal matching assistance program,” aka FMAP, a formula explicitly designed to account for differences in per capita income among the states, “except that (1) the Federal medical assistance percentage shall in no case be less than 50 per centum or more than 83 per centum…”¹³  

The Social Security Amendments of 1965 also included amendments to Title V – Grants to States for Maternal and Child Welfare. Section 501 of the Social Security Act of 1935 stated the following: 

SECTION 501. For the purpose of enabling each State to extend and improve, as far as practicable under the conditions in such State, services for promoting the health of mothers and children, especially in rural areas and in areas suffering from severe economic distress, there is hereby authorized to be appropriated for each fiscal year, beginning with the fiscal year ending June 30, 1936, the sum of $3,800,000. The sums made available under this section shall be used for making payments to States which have submitted, and had approved by the Chief of the Children’s Bureau, State plans for such services.¹⁴ 

Notably, the “$3,800,000” set forth in Section 501 of the Social Security Act of 1935 is now “$850,000,000.”¹⁵ 

The 1965 Amendments also added a new section at the end of Section 504:

(d) Notwithstanding the preceding provisions of this section, no payment shall be made to any State thereunder for any period after June 30, 1966, unless it makes a satisfactory showing that the State is extending the provision of maternal and child health services in the State with a view to making such services available by July 1, 1975 to children in all parts of the State.¹⁶ 

In summary, the Constitution clearly empowers Congress to implement social welfare programs like Medicare and Medicaid pursuant to its power “to provide for…the General Welfare of the United States.” In turn, the legislative history of the Social Security Act clearly demonstrates Congress’ almost century-long commitment to those who are aged, disabled, mothers and children. Here are the fiscal ramifications of that commitment. 

While Medicaid funding has increased in every year but one since 1966, there were no meaningful policy changes until the passage of the Affordable Care Act (the ACA) in 2010.  

That growth has resulted in per capita Medicaid spending that exceeds the total per capita health spending of America’s peer countries. 

While the stated goals of the ACA are certainly within Congress’ Constitutional power, the legislative history in support of those goals is scant, as most memorably summarized by Speaker Pelosi’s infamous comment that “we have to pass the bill so that you can find out what is in it.” From a legislative perspective, it is interesting that the ACA leveraged the Social Security Act’s FMAP framework as the statutory lynchpin to “encourage” states to expand Medicaid coverage to “non-elderly, nonpregnant adults at or below 133% FPL,” with 100% FMAP from 2014 through 2016, declining gradually to 90% after 2019.¹⁷ The combination of FMAP with the innocuously named “Medicaid provider taxes” and “state directed payments” have led to this: 

That historical context leads to this question: Is Medicaid expansion a modern-day Trojan Horse for “healthcare for all,” the fulfillment of President Truman’s dream by a devoted few with the discipline and skill to play the “long game” over almost a century or, instead, a modern-day Manhattan Project, an atomic fiscal bomb that will hasten the bankruptcy of America? 

The argument that Medicaid policy is a Trojan Horse for “healthcare for all” is straightforward. An idea articulated by President Truman in 1945 was the impetus for the Social Security Amendments of 1965, which in turn were the foundation for Medicaid expansion under the ACA as championed by President Obama in 2010:  

On March 23, 2010, I sat down at a table in the East Room of the White House and signed my name on a law that said, once and for all, that health care would no longer be a privilege for a few. It would be a right for everyone.¹⁸ 

In 2016, President Obama made these remarks: 

So because of this law, because of Obamacare, another 20 million Americans now know the financial security of health insurance… 

 
Now, that doesn’t mean that it’s perfect.  No law is… But we’ve also always known – and I have always said – that for all the good that the Affordable Care Act is doing right now – for as big a step forward as it was – it's still just a first step.  It's like building a starter home – or buying a starter home.  It's a lot better than not having a home, but you hope that over time you make some improvements. 
  
And in fact, since we first signed the law, we’ve already taken a number of steps to improve it.  And we can do even more…¹⁹  

Whether Medicaid as a Trojan Horse is a noble idea is different than whether it is an American idea. President Truman’s belief in national health insurance might have been influenced by the Beveridge Report, a 1942 survey of Great Britain’s social welfare policy that preceded the creation of the England’s National Health Service. While some percentage of Americans believe that healthcare is a “right,” America has never had that national conversation. Perhaps it is time. 

Whether Medicaid as a Trojan Horse is an American idea is different than whether current Medicaid policy is sustainable. As noted above, Medicaid (and Medicare) clearly fall within Congress’ enumerated powers to “provide for the Common Defence and the General Welfare of the United States.” However, “General Welfare” is, by definition, a general concept, whereas “Common Defence” is specific, implying that the Founding Fathers intended Congress to prioritize appropriations for defense over social welfare.

The political irony of the current discussions about Medicaid policy is that there is no health policy more inequitable than Medicaid, which from inception has differentiated among the poor based on the state of their residence, an inevitable outcome of partial Federal funding of state-led initiatives. The ACA’s “enhanced” FMAP percentage furthered that inequity, adding a layer of differentiation – or discrimination – based on the level of poverty, with higher funding for “non-elderly, non-pregnant” adults who were also “less poor.”²⁰  Fifteen years after the ACA, the House version of the One Big Beautiful Bill Act does nothing to reduce that inequity.  

The argument that Medicaid policy is a modern-day Manhattan Project is less obvious, which makes it more concerning.  

In Federalist No. 30, Hamilton wrote this: 

Money is, with propriety, considered as the vital principle of the body politic; as that which sustains its life and motion, and enables it to perform its most essential functions. A complete power, therefore, to procure a regular and adequate supply of it, as far as the resources of the community will permit, may be regarded as an indispensable ingredient in every constitution. From a deficiency in this particular, one of two evils must ensue; either the people must be subjected to continual plunder, as a substitute for a more eligible mode of supplying the public wants, or the government must sink into a fatal atrophy, and, in a short course of time, perish.²¹ 

President Truman had a sign on his desk that said “The Buck Stops Here.” With respect to Federal Medicaid policy, the buck stops with Congress, but Congress has been passing the buck for decades.  

As an officer of the United States, every member of Congress takes this oath of office: 

I do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God.²² 

More than 2M businesses are incorporated in Delaware, including more than 300 companies listed in the Fortune 500.²³ Officers of those businesses are subject to the fiduciary duty of care, which requires making “informed business decisions” based “on the information that is material to the decision before them.”²⁴ The standard for meeting the fiduciary duty of care under Delaware law is gross negligence, a stringent standard "which involves a devil-may-care attitude or indifference to duty amounting to recklessness."²⁵ 

An oath to “well and faithfully discharge the duties of office” is a less strict standard than gross negligence, and any CEO or CFO of a company incorporated in Delaware would be deemed grossly negligent – and potentially personally liable – for continuing to incur debt to increase social welfare spending as Congress continues to do. Whether Hamilton would judge Congress grossly negligent for incurring “oppressive” levels of debt, he would undoubtedly believe that these trends represent “deficiencies” that could subject Americans to “continual plunder” and sink the United States of America “into a fatal atrophy.”  

In healthcare’s negative-sum game, stakeholders can win by maintaining what they have or losing less than their competitors, which means that many health economy stakeholders are “winners” in the House version of the One Big Beautiful Bill.  

As healthcare practitioners and executives, these stakeholders should contemplate whether their victory is Pyrrhic, a sign that their business is a proverbial house built on the sand.  

As citizens, these stakeholders should assess whether Medicaid policy is both a Trojan Horse for “healthcare for all” and a financial Manhattan Project that will contribute significantly to the bankruptcy of the United States of America because of continued Congressional gross negligence. 

As Hamilton implied, public credit is not immortal. It would certainly be ironic if a program that was meant to provide a helping hand to poor Americans resulted in America being in the poorhouse. Do you want the members of Congress to do your bidding or do their job? 

Hal Andrews, President & CEO, Trilliant Health

By the Numbers

Following a brief decline in closures from 2020 to 2021, rural hospital closures began increasing again through 2023. Currently, 300 rural hospitals are at immediate risk of closing. While many rural hospitals may not have sufficient demand to sustain operations, they fulfill a critical medical and economic role. 

Connecting Dots

🧾 A measurable trend toward higher-acuity billing across several settings of care has raised questions about “upcoding” – the implications of which extend beyond payer reimbursements. For patients with cost-sharing, higher-level codes translate into greater out-of-pocket expenses, and, system-wide, these patterns contribute to escalating healthcare expenditures without improved outcomes. As these dynamics continue to emerge, stakeholders across the health economy must consider: Are current reimbursement models incentivizing better care, or simply more expensive care? More in our latest study.

📊 While the U.S. has talked about healthcare quality since 2007, there is still reason to question how serious health economy stakeholders are about improving it. Fewer than half the hospitals in the U.S. report on all four quality measures and less than 80% of physicians are participating in MIPS. Without this data, it is impossible to generate a relevant (and universally accepted) benchmark for healthcare quality. More on measuring healthcare quality in my conversation on 4Sight Health’s How Healthcare Revolutionaries Think podcast.

🏪 Americans are increasingly turning to urgent care centers over traditional healthcare settings. Our 2024 Trends Shaping the Health Economy report shows a 39% rise in urgent care visits from 2019 to 2023, while utilization of services like home health, primary care and emergency departments declined. Though urgent care is convenient, it may hinder long-term doctor-patient relationships essential for ongoing care management. More on shifting care settings from our Executive Director of Research in her recent conversation with Chief Healthcare Executive.  

Points To Ponder

→ Medicare Part D relies heavily on Federal subsidies to keep premiums and out-of-pocket costs low, but this structure distorts drug pricing by shielding insurers and patients from true market costs. While reforms like the Inflation Reduction Act capped out-of-pocket spending and negotiated lower prices for drugs like Apixaban, the actual savings are modest compared to existing costs after rebates. Equivalent generics remain far cheaper, but incentives favor high-cost branded drugs. The current system sustains inflated prices with little correlation to better outcomes, suggesting that reducing third-party involvement could improve affordability and efficiency for most medications. (Dr. Anish Koka’s Newsletter) 

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