Medicaid's Mission Creep: The Shift Towards Housing Initiatives

Medicaid, established in 1965 as a federal-state partnership to provide essential health care to low-income individuals, has seen its spending surge to $914 billion in fiscal 2024. This expenditure now accounts for nearly 9 percent of the federal budget and 30 percent of state budgets. While rising health care costs contribute to this increase, a significant portion of Medicaid funds is being redirected towards housing initiatives, a shift referred to as "mission creep."

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The financial structure of Medicaid incentivizes states to allocate funds towards housing. For every dollar spent by a state on Medicaid, more than a dollar in federal matching funds is generated, with no cap on these federal contributions. Although the Centers for Medicare and Medicaid Services (CMS) theoretically limits non-health care spending, including housing, to 3 percent of Medicaid's budget—approximately $30 billion—actual spending may far exceed this figure due to opaque reporting practices. States often bundle health and non-health services in contracts with Medicaid Managed Care Organizations, obscuring the true extent of housing-related expenditures.

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Section 1115 waivers allow states to address local priorities with the condition that such spending remains "budget neutral." However, a recent Government Accountability Office report indicates that CMS's assessment of budget neutrality has become ineffective. The Biden administration has permitted states to use outdated spending projections, inflating their budgets and enabling increased waiver spending by tens of billions of dollars. As of August 2025, 31 states have received waivers to fund various housing-related supports, including rental assistance and medical respite.

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Proponents of integrating housing support into Medicaid argue that such investments can reduce overall health care costs. However, evaluations of programs like California's Whole Person Care initiative reveal mixed results. While the program reported annual savings of $383 per enrollee, a deeper analysis showed only a 15 percent cost reduction over five years, compared to a 32 percent reduction in a control group. Furthermore, rigorous studies, including those conducted by the National Academies, have failed to demonstrate significant savings or improved health outcomes from these initiatives.

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In light of these findings, experts advocate for reforms to address Medicaid's mission drift. Recommendations include enhancing transparency by requiring detailed reporting of expenditures across various categories—such as hospital care, physician services, and housing. This could reinforce the 3 percent cap on non-health care spending. Additionally, transitioning Medicaid financing from uncapped federal matching funds to per-capita allotments could yield estimated federal savings of at least $53 billion annually. These savings could be redirected to tackle the underlying housing crisis or contribute to deficit reduction.

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As Medicaid continues to evolve, it remains a critical safety net for millions of Americans. However, the program's increasing diversion from its original health care mission necessitates a careful reevaluation of spending practices. Policymakers face a crucial decision: either enforce discipline and transparency within Medicaid or risk allowing inefficiencies to undermine other essential priorities. The future of Medicaid hinges on targeted, evidence-based spending that aligns with its foundational vision.

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