Originally published on Pelican Institute.

When the government makes it illegal to open new nursing homes or add beds where people need care, that is not health policy. It is protectionism. 

And in Louisiana, HB 199 would keep that protectionism in place for years longer by extending the state’s moratorium on new nursing facilities and additional beds. Supporters may call that stability. Economically, it is something else: a state-backed restriction on supply that protects incumbent providers while leaving seniors and their families with fewer options at higher costs. 

To be fair, supporters of the bill are not inventing concerns out of thin air. Long-term care is a difficult sector. 

Nursing homes depend heavily on Medicaid financing, face workforce shortages, and serve medically fragile people. Some lawmakers worry that allowing too much new capacity too quickly could strain staffing, weaken existing operators, or create uneven access to labor. 

Those are legitimate concerns. But they are not a convincing case for extending a moratorium. They are arguments for addressing workforce, reimbursement, and quality oversight directly—not for making new supply illegal.

That distinction matters. Louisiana already has a facility need review process to determine whether additional nursing home capacity is allowed. On top of that, it has a moratorium. In other words, the state is not merely regulating quality and safety. 

It is actively suppressing competition. That may help existing providers avoid pressure from new entrants, but it does not help families searching for better care, closer locations, or more modern facilities. It replaces consumer choice with political gatekeeping. 

And Louisiana is doing this just as the state gets older. The Louisiana Department of Health says older adults are the fastest-growing demographic in the state and now make up nearly 20 percent of the population. 

Nationally, the Administration for Community Living reports that someone turning 65 today has nearly a 70 percent chance of needing some form of long-term care. That does not mean every senior will need a nursing home bed, of course. But it does mean demand for long-term services is rising, not falling. 

Extending a moratorium in the face of that reality is like seeing storm clouds and outlawing umbrellas. 

The economic problem is straightforward. When the government restricts supply, it reduces the incentive to compete on quality, price, and innovation. Existing firms become insulated from challengers. New providers with better models, more private rooms, newer facilities, or stronger service have a harder time entering the market. 

Families are left with fewer choices, especially in fast-growing areas. That is not how healthy markets work. Competition is not a threat to quality. In most sectors, it is one of the best ways to improve it.

Louisiana already licenses nursing homes and can enforce health and safety standards directly through the Department of Health’s regulatory framework. Families can also compare providers using the federal Care Compare and Five-Star system.

If the concern is poor care, staffing weakness, or bad inspections, then target those failures. A moratorium does none of that. It is a blunt instrument that avoids the real problem while preserving the market position of those already in it. 

Even the amended version of HB 199 quietly reveals the weakness of the case for extension. Lawmakers added a requirement for the state to gather more data on nursing facility occupancy, hospital days tied to discharge problems, and reasons facilities refuse admissions. 

But this also raises an obvious question: if the state still needs better data to assess whether the moratorium is justified, why extend the moratorium first? That is backward policymaking. The economically sound approach would be to gather the evidence, identify actual shortages and bottlenecks, and then remove barriers where demand is strongest. 

So yes, there are arguments for HB 199. Supporters can claim it offers short-run stability for existing providers in a difficult market. But those benefits are narrow and largely concentrated among incumbents. 

The broader costs are bigger: less entry, less investment, weaker competitive pressure, fewer options for families, and a long-term care system that is less able to adapt to an aging population.

Louisiana does not need more nursing home protectionism. It needs more accountability, more transparency, and more capacity. 

Lawmakers should reject HB 199 and stop confusing government-imposed scarcity with sound policy. A provider that can meet the rules, hire the staff, and earn families’ trust should be allowed to compete.

Originally published at The Daily Signal.

​Seventeen House Republicans gave California Democrats a late Christmas present this month when they crossed the aisle to vote for extending enhanced Obamacare premium subsidies for another three years.

Not only did they move these massive handouts one step closer to permanent entitlement status, but they failed to advance reforms that would actually lower health care costs, like closing the Intergovernmental Transfer loophole that has cost taxpayers tens of billions over time.

The Senate should stop this bill in its tracks and—in anticipation of pushback from those who have never seen a government expansion they didn’t like—prepare to argue to the public why propping up a broken system won’t reduce health insurance premiums. As I argued in The Hill, these subsidies just mask the true cost of government distortion.

​Since the Affordable Care Act passed, average family premiums have exploded to more than $25,000 per year. Government subsidies haven’t stopped that rise. They’ve enabled it—by insulating insurers from competitive pricing and reducing any pressure for meaningful reform.

And while Washington debates whether to extend temporary tax credits, states like California are quietly siphoning off billions in federal Medicaid dollars through legalized budget fraud tied to the Intergovernmental Transfer loophole.

It works like this: State-run hospitals or county agencies send funds to the state Medicaid program. The state counts those as its own Medicaid spending, uses them to trigger a higher Federal Medical Assistance Percentage match from the federal government, and then sends most of the money back to the local provider—often with a bonus.

No new services are delivered. No patients are helped. But billions in federal money change hands—and California is the poster child for using this racket to cover its budget gaps it.

The Paragon Institute calls this the “Local Loop.” I call it Medicaid fraud with federal approval.
And it’s not new. The Government Accountability Office warned Congress about these tactics in 2004. Back then, Medicaid was a fraction of its current size. In March 2025, Paragon estimated that improper Medicaid payments totaled $1.1 trillion between 2015 and 2024—double what the federal government officially reports.
​
California leads the pack. Gov. Gavin Newsom just introduced a $348 billion state budget, despite running a $3 billion deficit—again. His administration continues to lean on Medicaid Intergovernmental Transfer schemes to extract more money from Washington instead of enacting real fiscal discipline.
This scam doesn’t just fleece taxpayers. It undermines care.

In California, public ambulance providers that participate in funding transfer schemes are reimbursed more than $1,000 per Medicaid transport. Private ambulance services often receive a quarter of that. The result? Private providers leave the market, rural patients suffer, and public-sector monopolies get even stronger.

The real path forward is not more subsidies, whether via the Affordable Care Act or Medicaid. It’s structural reform.

We should start by shutting down Intergovernmental Transfer abuse—ending circular transfers, enforcing transparency in Medicaid financing, and tying federal dollars to real services delivered to real patients.

Then we need to empower patients directly. In my Empower Patients Initiative with Dr. Deane Waldman, we propose giving Medicaid recipients no-limit Health Savings Accounts, funded through state block grants. These accounts allow individuals to pay providers directly, shop for care, and make health care decisions on their terms.

​Paired with time limits and work incentives for work-capable adults, this model would reduce dependency, lower costs, and improve outcomes. It would also inject long-overdue competition and price transparency into a system that’s been shielded from both.

We shouldn’t spend another dollar on expanding a broken health care system where waste, fraud, and restricted access are the norm.

The Senate has a chance to do something the House didn’t: say no to making pandemic subsidies permanent. Say no to another taxpayer-funded bailout for insurers. And say yes to fixing the corruption and distortion that actually drive- up health care costs.

Let the subsidies expire. End the Medicaid shell games. And finally start empowering patients—not bureaucracies—to take charge of their care.

Originally published on Substack. 

​A recent Wall Street Journal investigation into Medicaid’s “ghost networks” exposes a hard truth that policymakers refuse to confront: government is very good at expanding healthcare coverage, but consistently fails at delivering health care.

Millions of Americans with taxpayer-subsidized Medicaid receive insurance cards listing dozens of “in-network” doctors. But when they try to book an appointment, they face waits, disconnected phone numbers, inaccurate directories, or specialists who haven’t treated a Medicaid patient in years.

This isn’t a fluke. It’s the predictable outcome of a healthcare system built on distorted incentives, rigid price controls, and decades of federal policy that disconnect patients from prices, providers, and responsibility.

As Washington debates shifting ACA tax credits, the real crisis lies much deeper. What America needs is a structural shift toward personal responsibility, transparent market prices, and competitive markets—the principles behind the Empower Patients Initiative.

A 1940s Tax Policy Still Distorts Healthcare Today

America’s employer-based insurance system didn’t emerge because it worked better. It arose as a workaround to World War II wage and price controls and was later cemented by the federal tax code. That temporary fix has grown into one of the largest tax expenditures in the federal budget—roughly $27,000 per family in untaxed compensation.

As outlined in the Empower Patients initiative, this exclusion:

• hides the actual cost of insurance,
• reduces wage transparency,
• traps workers in employer plans,
• inflates premiums by subsidizing overconsumption, and
• shifts power away from patients and toward employers and insurers.

Any reform that leaves this exclusion untouched cannot fix healthcare’s incentive problem. Redirecting subsidies—no matter how cleverly designed—still props up a system that treats insurers and government agencies as the primary decision-makers rather than individuals.

The real free-market correction is straightforward: end the current tax exclusion and redirect some or all of it into portable, no-limit Health Savings Accounts (HSAs). This would immediately strengthen price discipline, force insurers to compete directly for consumers, and restore patient autonomy.

Why Medicaid Fails: Misaligned Incentives and Rationed Access

The WSJ findings reinforce what health-policy scholars have long understood: Medicaid’s incentive structure guarantees limited access. Reimbursement rates far below market levels discourage specialist participation.

A more humane approach—central to Empower Patients—is for the federal government to give block grants to states so they can experiment with options like allowing Medicaid enrollees to have HSAs that roll over, paired with access to catastrophic private insurance. This model:

• empowers low-income families to choose their providers,
• expands access by integrating them into competitive markets,
• encourages preventive care and responsible spending, and
• reduces long-run costs by restoring price signals.

Redirecting ACA Credits Doesn’t Fix the Core Problem

Proposals to send ACA subsidies directly to individuals instead of insurers are a marginal improvement—but they leave the core structure intact. They subsidize comprehensive, high-premium plans shaped by federal mandates. They insulate consumers from prices. And they entrench third-party payment systems that drive costs higher.

Real reform—consistent with the Empower Patients initiative—requires:

• ending the employer tax exclusion,
• allowing no-limit HSAs to everyone, and
• deregulating provider supply.

That’s how you shift healthcare from bureaucracy to consumer sovereignty.

This Also Helps Solve Washington’s Spending Crisis

Healthcare is the dominant driver of America’s long-term fiscal imbalance. Medicaid, Medicare, ACA subsidies, and healthcare tax expenditures account for trillions in unfunded liabilities.

Ending the employer exclusion and realigning incentives through HSAs would:

• reduce long-run federal tax expenditures,
• lower premiums by increasing price sensitivity,
• reduce reliance on federal subsidies,
• encourage preventive and cost-effective care, and
• naturally slow the growth of federal health spending.

This is one of the rare reforms that addresses both the access crisis and the spending crisis simultaneously.

The Path Forward

A functional, humane, and economically sustainable healthcare system must rest on three principles:

• Universal, portable, no-limit HSAs funded by redirecting tax exclusions directly to individuals
• Block grants to states for Medicaid HSAs with rollover, integrating low-income families into the same competitive marketplace
• A supply-expanding, price-transparent market driven by competition, innovation, and voluntary exchange

​Coverage is a statistic reported to government agencies. Care is what people actually need. And only a market-driven system—rooted in personal choice, transparent prices, and direct accountability—can reliably deliver it.

Originally published on Substack. 

​Another week, another blockbuster story showing why America keeps paying more for “coverage” while getting less actual healthcare. The Wall Street Journal just dropped a devastating investigation into Medicaid’s provider “networks” — and it’s exactly the kind of systemic failure you’d expect when government tries to centrally manage a $900 billion program through giant insurers who get paid whether patients receive care or not.

The headline says it all: Medicaid insurers promise lots of doctors. Good luck seeing one.

This isn’t a glitch. It’s the inevitable result of a government-run system built on incentives that reward paperwork, not healing.

Let’s walk through what’s happening — and why it’s yet another reminder that coverage ≠ care.

​A System That Pretends to Work, Until You Actually Need It

The Journal found something stunning but not surprising: More than one-third of doctors listed in Medicaid networks never saw a single Medicaid patient last year. In psychiatry and other key specialties, almost half saw zero. That’s not a network. That’s a ghost town with a phone directory.

And behind every one of those ghosts is a real family left waiting, pleading, or driving 90 miles for care that should be accessible in their community.

A few examples that hit hard:

• A mother in Illinois desperately searching for a child psychiatrist after her son repeatedly ran away — placed on a 12–18 month waitlist despite dozens of “in-network” options.
• A man in Texas told by every rheumatologist in his plan that they aren’t accepting Medicaid patients. His fallback advice? “Don’t get sick.”
• A baby in East Texas with a rare neurological disorder — forced to travel to Dallas, only to miss the appointment when Medicaid’s ride-share system failed.

This is not a safety net. It’s a web of bureaucratic illusions.

Why This Happens: Bad Incentives, Bad Data, Big Gatekeepers
​
Here’s the uncomfortable truth: Medicaid pays providers far less than private insurance.

That means many specialists have to choose between treating a patient at a loss or keeping their doors open. So they do the rational thing under a distorted system: They limit Medicaid slots, or stop taking Medicaid altogether.

Meanwhile:

• Insurers get paid by the state whether patients are seen or not.
• States rely on insurer-reported networks rather than outcomes.
• Directories are filled with misidentified, out-of-state, retired, or long-gone doctors.
• Federal rules focus on maintaining “adequate networks,” not on actual access.

​That’s how you end up with South Carolina counties supposedly full of neurologists who live in Florida, or Texas networks that list nurse practitioners as psychiatrists.

Central planning strikes again!

Coverage Isn’t Care — and It Never Has Been

Medicaid enrollment has exploded in the last decade. Costs have surged. Insurer revenues have soared into the tens of billions.

But none of that magically increases the number of specialists. None of it shrinks waitlists. None of it fixes workforce shortages created by regulations, licensing bottlenecks, scope-of-practice restrictions, and reimbursement ceilings so low that many clinics simply cannot survive.

The result?

A massive program where patients technically have coverage, but practically have access to… nothing. And politicians still pat themselves on the back for “expanding” it.

The Human Cost: Delays, Desperation, and Declining Health

We’re not talking about mild inconveniences. These failures hit the most vulnerable:

• Kids with autism who need psychiatric care now, not in 18 months.
• Patients with fungal meningitis seen by primary-care doctors because specialists are booked until 2027.
• Families forced to choose between a 2-hour drive or no care at all.

When government coverage crowds out private coverage and overwhelms clinics, the people who should benefit most end up at the back of the line. And the tragedy is predictable — because Medicaid is designed to expand enrollment, not solve underlying supply shortages.

We Need a Healthcare System Built on Voluntary Exchange, Not Bureaucratic Promises

If you take one insight from the Journal’s reporting, let it be this: A system based on inaccurate networks, bureaucratic contracts, and centrally dictated prices can’t possibly deliver timely, high-quality care.

People need choices. Doctors need flexibility. Patients need direct access. Markets need freedom to innovate, compete, and meet demand.

We don’t need more “coverage.” We need more care — delivered through a system where providers are rewarded for serving patients, not gaming directories. The big insurers play the government’s game because the money is too good. Families play by the rules and still lose. It’s time to flip the incentives.

The Path Forward

Real reform starts with simple principles:

• Pay directly for care, not intermediaries.
• Remove the regulatory bottlenecks that restrict supply.
• Empower patients with portable dollars in no-limit HSAs and transparent market prices.
• Encourage innovative delivery models outside bureaucratic control.

Healthcare flourishes when people exchange value freely — not when states procure care like they’re buying office supplies. The Journal exposed the façade. Now policymakers need the courage to build something real.
​
Don’t miss the WSJ article where you can find the charts above and more stories:

Medicaid Insurers Promise Lots of Doctors—Good Luck Seeing One: https://www.wsj.com/health/healthcare/medicaid-insurers-doctor-networks-appointments-72f9c11f

More soon. Stay well — and let’s keep fighting for a system that actually lets people prosper.

Originally published on Kansas Policy Institute. 

Governor Laura Kelly’s Healthcare Access for Working Kansans (HAWK) Act was sold as a “middle-of-the-road” plan to expand Medicaid to 150,000 more Kansans when it was introduced during the 2025 legislative session. But there’s nothing moderate about growing a failing federal program that already leaves millions of patients nationwide waiting in line for care. Expanding bureaucracy isn’t compassion — it’s doubling down on what’s broken.

As I explained recently in my column at the American Institute for Economic Research’s The Daily Economy, America’s healthcare crisis isn’t a market failure — it’s a government failure. The U.S. now spends nearly $5 trillion a year on healthcare, almost one-fifth of the entire economy. But half of that spending never reaches a doctor or a patient. It disappears into what Dr. Deane Waldman and I call BURRDEN: Bureaucratic, Unaccountable, Rigid, Regulated, Distorted, Expensive, and Needless costs.

Our research finds that as much as $2.5 trillion in annual waste is spent on paperwork, compliance, and red tape — not on care. Those dollars don’t heal anyone; they feed bureaucracies. Expanding Medicaid in Kansas would only make this worse by adding more layers of administration without improving access to doctors.

The Myth of “Coverage”

Governor Kelly argues that expansion will “protect rural hospitals” and “ensure affordable care” by bringing billions of federal dollars to Kansas. But coverage does not equal access. Nationwide, more than 80 million Americans are enrolled in Medicaid, yet many can’t find a doctor who will take them. Reimbursement rates are so low that fewer physicians accept new Medicaid patients — especially in rural areas. Those who do are overwhelmed, leading to long waits.

This is what we call death by queue: a Medicaid card promises care, but patients wait months for appointments while their conditions worsen, or even result in death. Adding 150,000 Kansans to this system won’t shorten the lines; it will lengthen them.

Kelly also claims expansion will “create 23,000 new jobs.” But history shows most of those jobs will be bureaucratic — not medical. The Bureau of Labor Statistics projects that medical administrators will grow 23 percent over the next decade, compared to just 3 percent for physicians. America is producing more paper-pushers than healers. That’s not a sign of success — it’s the symptom of a broken system.

Medicaid Expansion Crowds Out Care

Kansas already spends more than 20 percent of its state budget on Medicaid, diverting resources from priorities like education, infrastructure, and tax relief. The HAWK Act would deepen that dependency, tying Kansas more tightly to Washington’s mandates and debt.

Supporters claim the program will be “free” to Kansans because of federal matching funds. But those funds come with strings attached — and they won’t last. When the federal share drops, Kansas taxpayers will be left footing the bill for a larger, slower, and less effective bureaucracy.

Worse, expanding Medicaid doesn’t just harm state finances. It harms innovation. By imposing government-controlled prices and rules, Washington discourages investment in new treatments and technologies. A study from the National Bureau of Economic Research shows that price caps can slash early-stage drug R&D by up to 60 percent — meaning fewer cures and longer waits for patients.

A Better Path: Empower Patients

​There’s a better way forward — one that restores access, affordability, and accountability without expanding bureaucracy. The Empower Patients Initiative, which I co-authored with Dr. Waldman, lays out reforms that could transform Kansas’s healthcare system by freeing it from federal micromanagement:

• No-Limit Health Savings Accounts (HSAs): Let Kansans save and spend their own healthcare dollars tax-free, without arbitrary caps. 
• Medicaid Block Grants: Give Kansas the flexibility to tailor its own system — integrating Direct Primary Care networks and local clinics that better serve rural areas. 
• Direct Patient-Doctor Relationships: Cut out middlemen like insurance companies and government billing schemes so doctors answer to patients, not bureaucrats. 
• Transparency in Pricing: Encourage hospitals to post real prices upfront, as successful private models like the Surgery Center of Oklahoma already do. 

If we cut BURRDEN in half, $1.2 trillion could be redirected nationally from bureaucracy to patients and providers. That would reduce family costs, raise take-home pay, and expand access to care — all without growing government or debt.

The Moral Case for Kansas

This debate isn’t abstract. It’s about Kansans forced to choose between prescriptions and groceries, about rural families losing access to care, and about doctors burning out while administrators multiply. The moral case is simple: stop rationing by bureaucracy and give patients the dignity of choice.

Healthcare should not be a government favor distributed by politicians. It should be a service exchanged freely between people: doctors and patients. Expanding Medicaid won’t fix Kansas’s healthcare system — it will expand its problems. If lawmakers truly want to expand care, they should empower patients, not bureaucrats.

Originally posted at The Center Square. 

There are many domestic issues of sufficient magnitude to be honestly labelled crises. President Donald Trump has begun to address illegal immigration issues, the woke virus, and even the deep state. But the budget budget deficit and “entitlements” are still considered untouchable.

Health care has been a crisis for more than 60 years, increasingly unaffordable and even harder to get medical care. That is despite federal “fixes” such as Medicare, Medicaid, EMTALA, HIPAA, and ACA to name the more well known of a myriad of health care acts, executive orders, mandates, directives, rules, and regulations.

Washington’s solutions for health care have exacerbated the crisis. Wait times for primary care can now be as long as 132 days. Americans are dying while waiting in line for medical care – death by queue. In 2024, U.S. tax revenue collected was $5 trillion while total health care expenditures were $4.8 trillion, most of it from taxpayers. Average household medical expenses were $32,066.

Washington’s regulatory approach has consistently produced fixes-that-fail-or-backfire (archetype from systems thinking). The third-party payment structure disconnects patients from their money and usurps medical autonomy. Federal regulations divert half of all healthcare spending from paying for care to fund federal BURRDEN: bureaucracy, unnecessary rules and regulations, directives, enforcement, and noncompliance activities.

The lack of free market forces causes shortages, poor quality, slow service, and overspending, just what Americans experience today.

Health care must be fixed, or two things will happen: increasing numbers of Americans will die needlessly, and the U.S. will go broke.

A different approach has been suggested that involves unwinding the federal regulatory apparatus, reconnecting people with their physicians, and regaining control of personal health care spending. This plan, called the Empower Patients Initiative will immediately meet intense resistance from political realists who will shout the following.

• Health care is a right – that makes it a federal responsibility.
• Congress will never, ever go for EPI.
• We couldn’t possibly undo all those regulations.
• People can’t shop for health care like they do for a car.
• Think of all those people thrown out of work.
• Entitlements are the third rail: touching them is political suicide.
• Government health care works in countries like the U.K. and France.  So, we need total federal control, like single payer.

Medical doctors and economists, like us, don’t think like political realists. First, they seek out the etiology of sickness or the root cause of system failure, giving no credence to what is considered politically possible. Then, they “dissolve” the root cause, thereby curing the patient or system.

The root cause of our health care crisis is federal control. The cure is to return control to individuals, called we the patients. The Empower Patients Initiative does that.

EPI is a multi-step, multi-year plan that gradually restores financial control to Americans, reduces federal bureaucracy, saves taxpayers trillions of dollars, and achieves affordable, accessible health care for Americans.

Some of the EPI steps include:

1. Preparation: Campaign to educate and energize the public includes writings, videos and public service announcements. Books for the general audience are released in English and Spanish titled, Empower Patients – Two Doctors’ Cure for Healthcare.
2. Transfer current employer-sponsored contributions from insurance companies – average $23,968 in 2023 – to employee paychecks. Tax-free if placed in no-limit HSA.
3. No-limit HSA: New family medical spending account with no restrictions on health care spending or deposit limits.
4. Medicaid block grants: States know best how to serve their residents; fixed amount given annually by Washington.
5. Medical safety nets: States choose how to provide for the medically vulnerable; one size definitely does not fit all.
6. Deregulate insurance: Allow people to purchase whatever policies they want.
7. Medicare: Transfer funds to senior no-limit HSAs.
8. Radical reduction of unnecessary bureaucracy saves taxpayer dollars.

These actions will transfer financial and thus medical control from third parties – private insurance and the federal government – to individuals and reestablish free market forces. Consumers – we the patients – will be well-funded payers; with a powerful incentive to economize, spending will decline. Sellers – providers, care institutions, and insurance companies – will have to compete for patients’ dollars, driving prices down and greatly improving service.

While resistance to EPI will start with the political class, others will initially be skeptical.

Congress will vigorously oppose EPI as it takes away power and money from their control. It is up to the voters to put people into Congress who will prioritize patients first and adopt the EPI.

The public may initially object as EPI is a big change, and change makes people nervous. Hopefully, the preparation campaign, particularly the “Empower Patients” booklet, will resolve the misconceptions and false facts that plague healthcare.

Medical doctors are likely to resist, at least at first. They are socialized so as not to compete with each other and will be reluctant to advertise or market their services.

However, those who embrace EPI with its free-market principles will quickly experience the advantages: bureaucratic hassle gone, greater income, more time with their patients, and a return to professional satisfaction.

In the fable of the lady and the tiger, the man doesn’t know which door holds what. In health care today, there are two choices: federal control or EPI, but we know which one leads to death (by queue).

EPI may be unknown to many people, but anything is better than dead and broke, which is where health care is currently taking we the patients.

Originally posted to The Daily Economy.

​Imagine finishing high school and realizing that no matter what path you take — college, a job, or starting a business — your money doesn’t go as far as it should. Your car loan is more expensive, rent keeps rising, and groceries cost more monthly. If you go to college, tuition is higher; if you don’t, more of your paycheck disappears in taxes. This isn’t just bad luck — it’s the result of reckless government spending that fuels inflation, drives up interest rates, and makes it harder for everyone to get ahead.
​
In fiscal year 2023, federal funds to state and local governments totaled $1.1 trillion, nearly one-fifth of all federal spending and 4 percent of US GDP. This money doesn’t come free — it’s taken from taxpayers, borrowed from future generations, or printed by the Federal Reserve, creating inflation.

Even states that claim to be fiscally conservative are hooked on federal money. Texas took in $102 billion for its 2024-2025 budget, nearly one-third of its total budget. That means Texas, like all states that average 36 percent of their budget from federal funds, is highly tied to federal mandates for what it wants to do.

The biggest driver of this dependency is Medicaid, which received $616 billion in federal spending in 2023, over half of all federal funds to states. Many states expanded Medicaid with temporary federal funds, but when Washington inevitably pulls back, states will be forced to raise taxes, cut services, or both, burdening many families. The same pattern applies to federally backed education and transportation spending. 

The more states rely on Washington, the less control they have over their policies.

This isn’t just about wasteful spending — it directly hits American households. More deficit spending contributes to higher interest rates, making mortgages, student loans, and car payments more expensive. The Fed buying Treasury debt to keep interest rates lower by increasing the money supply creates inflation, forcing families to stretch their scarce budgets further. 

Every dollar the federal government spends on state programs is taken from the economy, where businesses and individuals could have put it to far more productive use. The ongoing budget fight in Washington makes one thing clear: states can’t count on federal funds forever. 

Through the Department of Government Efficiency (DOGE), President Trump and Elon Musk have started freezing wasteful grants and unnecessary spending — steps that should have happened long ago. Critics claim this is an overreach, but the real issue is decades of reckless spending leading to a $36 trillion national debt and a Congress unwilling to act.

The Keynesian idea that government spending fuels growth is a myth. Milton Friedman warned that spending is a cost, not a benefit. Every dollar Washington spends is taken from the productive private sector, where real wealth and innovation are created. More government spending crowds out private investment, reduces productivity, and leaves taxpayers with higher costs.

States that are the most dependent on federal aid — Louisiana, Alaska, and New Mexico, where over 50 percent of revenue to cover their budgets comes from Washington — also tend to have some of the weakest economies. The more states rely on federal funds, the less incentive they have to keep taxes low, cut regulations, and encourage private investment.

Trump’s spending freezes have upset politicians who depend on federal funds to prop up bloated budgets, but the real issue is that states allowed themselves to become dependent.

Excluding federal funds, state spending has grown by 61.1 percent from 2014 to 2023, far outpacing the 31 percent in compounded population growth plus inflation. But of course, much of that state spending increase is matched by as much, if not more, in federal funds, creating perverse incentives for states to spend more. But excluding federal funds from state spending over that decade helps to remove much of the increase in federal funds to states for those states that expanded Medicaid. Ultimately, had states kept their spending in check, they could have saved taxpayers $454 billion in 2023.

With Washington facing a growing debt crisis, states must act now to prepare for less federal funding. 

That starts with transparency — understanding exactly how much money comes from Washington, where it goes, and which programs will be at risk when federal dollars dry up. Then, states must rein in spending, eliminate inefficiencies, and take back control over education, healthcare, and transportation so they are not at the mercy of federal strings.

Some states are already moving in the right direction. 

Nearly a dozen — including Oklahoma, Louisiana, Iowa, Texas, and Florida — have launched a DOGE to expose waste and inefficiency. Oklahoma’s Division of Government Efficiency has already uncovered millions in unnecessary spending, providing accountability for spending with taxpayer money.

Long-term spending relief, however, requires Congress and state legislatures to act. While Trump and DOGE are taking steps, only Congress can make these cuts permanent. Without legislative action, future administrations could reverse spending freezes. Lawmakers who claim to be fiscal conservatives must prove it.

Some states have already shown that spending restraint works. Alaska, Colorado, North Dakota, Oklahoma, and Wyoming have kept their entire budget growth below inflation and population growth over the last decade, ensuring taxpayers aren’t overburdened. Others, like Louisiana, Massachusetts, and North Carolina, have slowed state spending growth below this key rate but remain too dependent on federal funds that grew more rapidly.

The Sustainable Budget Project by Americans for Tax Reform found that if governments had capped federal and state spending growth at population growth and inflation, taxpayers could have saved $2.5 trillion in 2023. That money could have been invested in businesses, used to create jobs, or saved for the future. Instead, excessive spending has made our lives more difficult.

Rising interest rates and national debt will eventually force Congress to reduce spending, leaving states with two painful choices: massive tax hikes or severe service cuts. There are no more excuses. Congress must spend less. To prepare for this inevitability, states must spend less, reject federal money with strings attached, and embrace free-market principles before it’s too late.

Originally posted to The Daily Economy.

​In April 2023, nearly 80 percent of Wisconsin voters supported an advisory referendum favoring work requirements for work-capable adults receiving taxpayer-funded benefits. The message was clear: people want welfare programs encouraging work and self-sufficiency, not permanent dependence. Yet, despite overwhelming public support for reforms that promote economic mobility, Washington remains unwilling to act. 

This leaves an opportunity — indeed, a responsibility — for states to lead the way.

For decades, the federal government has poured trillions of dollars into anti-poverty programs, yet poverty rates have barely budged. The problem isn’t a lack of money. It’s a system that too often treats people like statistics — inputs in a formula designed to calculate how much assistance they need, rather than individuals capable of achieving independence. 
The federal welfare state functions on the assumption that people will respond to government benefits like animals to food pellets, modifying their behavior in predictable ways based on financial incentives. But people are not creatures to be trained by handouts. They are individuals with dignity, aspirations, and the ability to flourish when given real opportunities to work and improve their lives.

State governments can reshape welfare to serve as a safety net that helps people when they fall but doesn’t trap them in a cycle of dependence. 

The welfare reforms 1996 proved that when states are given flexibility, they can implement policies promoting work and economic self-sufficiency. Those reforms led to a sharp decline in welfare caseloads and a significant increase in employment among lower-income households. 

Unfortunately, many of those gains have been reversed as states have once again received waivers allowing people to collect benefits without working or seeking employment.

Wisconsin provides an example of both the potential for success and the risks of backsliding. In the 1990s, the state pioneered a model requiring recipients to either work, train, or actively look for a job. The results were undeniable — welfare recipients plummeted, more people entered the workforce, and household incomes rose. 

But over time, those policies have been eroded by political compromises and bureaucratic inertia. A 2023 analysis found that after work requirements were waived, Wisconsin’s number of adults receiving FoodShare benefits surged by more than 56,000. This isn’t because the economy worsened. It’s because the incentive to work was removed.

When work requirements are in place, people respond. They find jobs, gain skills, and build better futures. When those requirements are lifted, many drift back into dependency. The difference isn’t the size of the benefit check — it’s whether the system treats them as individuals with potential or as passive recipients of government aid.

Some argue that requiring work is harsh or punitive, but this gets it entirely backward. There is nothing compassionate about trapping people in government dependency. 

True compassion is providing the opportunity and expectation that they can support themselves, contribute to their communities, and take pride in their achievements. A system that asks nothing in return for benefits does not respect the dignity of the person receiving them. It assumes they are incapable of more.

Beyond work requirements, states should take additional steps to reform welfare and foster economic freedom. 

One critical reform is replacing income limits with time limits for recipients, allowing them to transition smoothly into self-sufficiency rather than facing benefit cliffs discouraging higher earnings. 

Currently, many welfare programs punish work and productivity. If —  recipients earn even slightly above a cutoff, they lose benefits abruptly, creating a disincentive to accept better-paying jobs or work additional hours. A time-based system would provide temporary assistance while ensuring that no one is punished for trying to improve their financial situation.

Welfare programs should also undergo independent efficiency audits to identify waste, fraud, and redundancy. Too often, these programs are filled with overlapping administrative costs, inefficiencies, and misallocated funds. A transparent audit system would help states streamline their programs, ensuring that benefits go to those needing temporary assistance rather than being siphoned off by bureaucratic mismanagement.

To make the welfare system more effective, states should consolidate benefits into a single Empowerment Account rather than maintaining a maze of disconnected programs. 

Currently, people in need must navigate a fragmented system of food stamps, housing vouchers, Medicaid, and other services, each with its own paperwork and eligibility rules. By streamlining these into one account, states can simplify the system and empower recipients to allocate funds toward their most pressing needs, encouraging personal responsibility and financial literacy.

If the federal government continues spending on welfare, states should demand that funds come from block grants rather than federal mandates. Block grants allow states to design welfare policies that fit their unique economic conditions rather than being tied to one-size-fits-all Washington regulations that often create perverse incentives. 

The 1996 welfare reform succeeded precisely because it shifted control from the federal government to the states. That model should be expanded, not reversed.

Ultimately, however, the best welfare system is where government assistance is rarely needed. 

Historically, the private sector, churches, and families have been far more effective at helping people escape poverty than bureaucratic programs. The government should not replace these institutions but allow them to thrive by reducing taxes, eliminating excessive regulations, and fostering an economy where job creation is the priority. 

A job is the best anti-poverty program, and when businesses are free to grow, more people can earn a living, provide for their families, and achieve financial independence.

State leaders should recognize that real welfare reform is more than balancing budgets or reducing caseloads. It’s about restoring a vision of human dignity where people are not reduced to mere recipients of aid but are encouraged and expected to build better lives for themselves. 

The best welfare policy is one that helps people move off welfare. That means reinforcing the expectation that work is not just possible but necessary, that government assistance is temporary, and that people should be treated as capable human beings rather than statistics to be managed.

The 2023 Wisconsin referendum shows voters understand this truth, even if many politicians refuse to acknowledge it. Welfare was never meant to be a way of life. It was meant to help people in need while they got back on their feet. States serious about fighting poverty should reject policies promoting long-term dependency and instead embrace reforms encouraging work, self-sufficiency, and human dignity.

If states act boldly, they can reshape welfare in a way that truly helps people — not by making them comfortable in poverty, but by empowering them to leave it behind. That is the difference between treating people like problems to be managed and treating them like individuals with the potential to prosper. 
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It’s time for states to lead where Washington has failed.

Originally published at Real Clear Policy.

​Elon Musk and Vivek Ramaswamy recently published the legal background, justification, and their plans for the Trump-created temporary, non-governmental DOGE, Department of Government Efficiency. They have numerous ideas of how to clean up what the military calls a “target-rich environment” of federal sloth, waste, inefficiency, corruption, and demonstrably illegal activities by the administrative or “deep” state.    

Start with Medicaid. It is highly dollar inefficient, spending too much while getting too little value – timely access to medical care – wasting billions of taxpayer dollars.

In 2023, CMS (Centers for Medicare and Medicaid Services) in Washington spent more than $860 billion running a program it is legally prohibited from running. When regulated by Washington, Medicaid is ILLEGAL!

Section 1801 of the Amendment to the Social Security Acts of 1965 that created Medicaid reads as follows. Note the Section’s title and Congress’ explicit prohibitions.

SEC. 1801. PROHIBITION AGAINST ANY FEDERAL INTERFERENCE
“Nothing in this title [the law] shall be construed to authorize any Federal officer or employee to exercise any supervision or control over the practice of medicine or the manner in which medical services are provided, or over the selection, tenure, or compensation of any officer or employee of any institution, agency, or person providing health services; or to exercise any supervision or control over the administration or operation of any such institution, agency, or person.”

Despite the specific intent of the law, over decades, CMS (Centers for Medicare and Medicaid Services) has taken control of eligibility standards, benefits, i.e., medical care provided, and the payments allowed. Washington applied a one-size-fits-all approach for Medicaid enrollees in every state program.

If the DOGE wants to cut nearly one trillion dollars from the federal budget, and  simultaneously improve (!) access to medical care, follow the Medicaid law as written. 

The Affordable Care Act is a good example of over-regulation of Medicaid by Washington, but there were dozens of others. Most annual OBRAs (Omnibus Budget Reconciliation Acts) since 1975 have contained some section that increased Medicaid benefits, expanded eligibility, or reduced payments.

A program originally intended for less than four million “Old-age, Survivors, and Disab[led]" Americans, exploded by December 2022 to include 92.3 million enrollees. The federal government gave 27.6 percent of the U.S. population no-charge-to-consumer Medicaid coverage paid by taxpayers. The already exorbitant cost of this program will increase even further because California and Oregon have added illegal immigrants to their Medicaid rolls.  

Musk and Ramaswamy intend the DOGE to use three approaches to improve federal efficiency: regulatory rescissions (canceling regulations), administrative reductions (“reductions in force”), and cost savings, such as radical simplification and rigorous auditing of government procurement. They utilize all three approaches when implementing Section 1801. As prescribed by law, stop federal interference in state Medicaid programs other than providing block grants. Eligibility, benefits, payments to insurance companies as well as to providers should be decided by the states, not the federal government. Reports on medical and financial results of Medicaid programs should go to respective state legislatures, not Washington.

Discontinue the FMAP (Federal Medical Assistance Percentage) formula which incentivizes spending and discourages saving. Currently, the more a state spends on its Medicaid program, the more taxpayer funds it receives from Washington. Make federal funding a negotiated, fixed amount. Washington can then budget for a known quantity, not a variable dependent on states’ budgeting. With block grants, states will operate their programs as they know best, adding whatever state funds are necessary to support their medically vulnerable residents.   

In their Wall Street Journal blueprint for improving government efficiency, Musk and Ramaswamy wrote, “we will focus particularly on driving change through executive action based on existing legislation rather than by passing new laws.” They could have been (and hopefully were) writing about Section 1801. Activating the legal prohibition against “any federal interference” with state-controlled Medicaid programs is precisely what needs to be done to cut billions in costs and at the same time save American lives.

All current federal regulations that control state Medicaid programs would be rescinded. The current CMS/Medicaid actuaries and accountants, administrators, bureaucrats, compliance officers, enforcement agents, oversight inspectors, and rule and regulation writers would be gradually transitioned into the private sector. This very large reduction in force would save taxpayers billions in wasteful, illegal federal spending.
​
By following the Medicaid law as written, DOGE can rein in an out-of-control federal bureaucracy. The 47th President can use Section 1801 to drain the Medicaid portion of the swamp.

Table 1 shows the results of the CBO’s projection of the total for mandatory outlays and our estimates for each growth cap scenario for the upcoming 10-year window. ​

​Overall, the only approach to a balanced budget by 2034 is the 1% growth cap, but faster economic growth would help the other two spending restraint approaches reach a balanced budget in about a decade. All three spending restraint approaches would improve the budget picture substantially compared with the CBO’s baseline budget. Also, we have kept the CBO’s projections for tax revenues or used the President’s latest estimates with faster economic growth, so our approach is very conservative. The results would most likely be substantially higher tax revenues by limiting government spending in the productive private sector and not hurting economic activity by raising taxes, as noted above, but rather providing pro-growth tax reform.

Fiscal Reform Initiatives and Their Outcomes
Various fiscal reform initiatives have been proposed and implemented over the years, with varying degrees of success. The most effective have combined spending restraint with pro-growth economic policies.
​
Sustainable Budgeting Practices
Adopting sustainable budgeting practices involves setting strict limits on spending growth and focusing on essential services. This approach helps to stabilize debt levels and create a more predictable fiscal environment. The federal government's enactment of a sustainable budget would assist these reforms. This would be a fiscal rule of spending limit similar to the Swiss debt brake or Colorado’s TABOR, whereby federal spending would be capped at no more than the rate of population growth plus inflation. Of course, federal spending should be much lower than this rate to correct for past excesses and bloated national debt. However, the spending limit will force Congress to reform mandatory programs and reduce the national debt. Had this spending limit been in place from 2004 to 2023, the federal debt would have increased by $700 billion instead of the actual increase of $20.2 trillion (Figure 3).

Because the CBO projects that spending on income security programs will decline in 2026 and 2027 and then increase again, its average growth rate is 1.1%. Hence, the primary savings from our approach is on Medicaid spending.

Discretionary Spending
Capping Medicaid and other safety net programs will help provide some fiscal relief but not much over time. We also consider our approach with discretionary spending, which is expected to be $1.7 trillion or about 27% of $6.4 trillion in total outlays in FY 2024.  Figure 6 shows what this looks like under these caps. ​

​Table 6 shows the results of the CBO’s projection of the total for discretionary outlays and our estimates for each growth cap scenario for the upcoming 10-year window.

The only scenario that reduces discretionary outlays compared with the CBO’s baseline is the 1% growth approach. Of course, this is less than 30% of total outlays, so major cuts would be needed to improve the unsustainable fiscal trajectory. 

Mandatory Spending
Capping discretionary spending alone will not solve the long-term fiscal problem. While we understand this will be politically challenging, evaluating what else must be done to provide a sustainable fiscal path is important. We consider our approach for mandatory outlays, which includes Social Security, Medicare, and other programs. The CBO expects mandatory outlays to be $3.8 trillion, or about 73% of $6.4 trillion in total outlays in FY 2024. Figure 7 shows what this looks like under these caps. ​

​Table 9 shows the results of the CBO’s projection of Medicare's total and our estimates for each growth cap scenario for the upcoming 10-year window.