Medicaid is a colossal waste of money

Medicaid provides health care to 75 million Americans. It's also a hideously expensive program that is at the center of the raging health-care debate in Washington. Republicans want to scale back the program, and Democrats warn that doing so will cause nothing short of mass death.

But that is not a credible — or responsible — claim.

ObamaCare extended Medicaid eligibility to able-bodied adults at up to 138 percent of the poverty level. To do this, the federal government promised to pick up 100 percent of the tab for the first three years, and then 90 percent in perpetuity in participating states. Republicans want to trim back Medicaid eligibility to the pre-ObamaCare days, when "only" the poor, children, the disabled, the elderly, and pregnant women qualified.

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Conservatives also want to take the opportunity to fundamentally reform the program, which consumed half of most state budgets and a tenth of the federal budget even before the ObamaCare expansion. To this end, Republicans want Uncle Sam to stop handing states on average 50 cents for every Medicaid dollar they spend and instead give them a fixed lump sum on a per-patient basis and tie its growth to general inflation.

If Senate Republicans' plan is enacted — a big "if" at this stage — federal Medicaid spending would drop from $4.6 trillion between 2018 and 2026 to about $3.9 trillion.

This reduction is hardly draconian. However, given that liberals want health-care spending to go in only one direction — up — it's hardly surprising that they'd fight this. But their claim that the cuts will kill Americans — about 208,500 over the next decade, per a Vox analysis — is pure sensationalism.

Let's think about it.

Vox's calculations are based on straightforward projections from a Congressional Budget Office report that estimates that scaling back ObamaCare spending would mean loss of insurance for some 22 million Americans. Vox also claims that every 830 people covered means one life saved, hence, presto, the GOP plan will mean killing 208,500 people.

The first problem with this analysis — apart from its chutzpah — is that it assumes that all insurance saves lives, even a substandard plan like Medicaid, which accounts for the vast majority of the people covered by ObamaCare. That is emphatically not the case.

As I have argued before, Medicaid is perhaps the civilized world's worst program. It costs just as much as private plans — about $7,000 per patient — but produces worse outcomes, including higher mortality, than private coverage. So given that one of ObamaCare's dirty little secrets is that many of its Medicaid enrollees are folks kicked off their private plans due to the Medicaid expansion, the law may have actually cost — rather than saved — lives in this cohort.

But what about the uninsured? Extending Medicaid to these people improved their health and diminished mortality, right? Wrong. Plenty of reputable studies suggest that this might not be the case:

The main evidence to support Vox's claim that Medicaid improves mortality rates comes from Massachusetts' experience with universal coverage. Vox claims ObamaCare emulates Massachusetts' system, but as the Manhattan Institute's Oren Cass points out, that comparison doesn't fly: In contrast to ObamaCare, Massachusetts' private plan component accounted for about 80 percent of coverage, while Medicaid comprised 20 percent at most.

And even if Medicaid's mortality outcomes were somewhat better for the uninsured, it would still not necessarily follow that extending the program would save lives on balance — or that eliminating the program would do the reverse. In a world with finite resources, one also has to consider the opportunity costs or other ways of spending that may potentially save more lives.

Indeed, a 2016 study in the journal Health Affairs found that states that spent a smaller portion of their budgets on Medicaid and Medicare than on social programs such as housing, nutrition, and even public transportation, showed "significant" gains on a myriad of health factors, including mortality, over states that did the reverse. It is possible that this is purely coincidental. But it may also be the case that these programs improved general quality of life and lowered stress levels, thus bettering baseline health and preventing people from falling prey to life-sapping illnesses in the first place.

And what holds true for state-level spending might be doubly true for individuals spending out-of-pocket.

The main advantage of health insurance in general and Medicaid in particular is not really to prevent death but to protect against catastrophic illnesses that wipe out patients financially — in other words, to provide a psychic comfort. But patients are not willing to pay any amount for any insurance product to receive that comfort, presumably because at some point, other uses of the money — like a car fitted with state-of-the-art safety features or a more expensive home in a low-crime neighborhood — can offer an even stronger sense of security. As George Mason University economist Alex Tabarrok recently pointed out, in Massachusetts, buy-in for Medicaid-like programs fell precipitously when patients were asked to bear more of their cost. Medicaid recipients value the program at about one-fifth its actual cost, research shows.

In other words, they'd buy only after an 80 percent discount.

By liberal logic, if they declined to buy in, they'd be courting death. But the calculus of health insurance is much more complicated than their simplistic arithmetic.

Editor's note: This article originally mischaracterized the conclusions of the Oregon study. It has since been corrected. We regret the error.