Uwe Reinhardt identifies one problem:
Consider next two individuals, A and B, with the same money income. Individual A is a poor but healthy adult; Individual B is poor and severely disabled…After adding to their (identical) money incomes the imputed, risk-based value of Medicaid coverage, severely disabled Individual B appears to be much richer than Individual A. Do we really think Individual B is better off than Individual A?
Here is another:
Suppose a state government kindly raised the fees that Medicaid pays physicians by, say, 10 percent. This would inject millions and possibly billions of additional dollars into the bank accounts of physicians, who typically reside in the top fifth percentile of the distribution of family incomes, with quite a few in the top 1 percent.
At the same time, however, the fee-increase would instantly lift many poor families from below to above the federal poverty line, without their having a penny more to spend. One can image this puzzling headline in the daily press: “Governor Reduces Poverty by Paying Physicians More.”