Jul 25, 2017

Shifting hard Medicaid decisions to the states

David Eggert / AP

The Medicaid spending reductions in the Senate health care bill would force states to choose between multiple unpleasant options when it comes to covering even traditional enrollees like the aged and disabled.

The bottom line: The bill's per-capita caps reduce the amount the government spends on Medicaid by about $180 billion compared to current law, according to the Center on Budget and Policy Priorities. That means states — which must balance their budgets — must choose between three main options: raise taxes, cut spending elsewhere (like education), or cut Medicaid eligibility, benefits or provider payments. The best case scenario is that some states may be able to make their programs more efficient.

Why this matters: It's the reason why some moderates are so uncomfortable with the GOP bill. The Medicaid cuts are too painful for them.

What the bill does: Beginning in 2020, federal Medicaid funding switches from its current open-ended matching system to the per-person funding cap. At first, it grows with medical inflation, but then slows down in 2025 to grow with normal inflation.

This substantially reduces the amount of funding available over time, particularly once the growth rate slows. This funding reduction applies to most Medicaid enrollees, including the elderly, the disabled, pregnant women and children — not just the Affordable Care Act's expansion population.

"The challenge with Medicaid is there are benefits you can cut and don't result in people dying, but those don't save you any money," said Matt Salo, executive director of the National Association of Medicaid Directors, which has said the cuts in the bill are too deep.

"And then there are benefits that save you a lot of money, but what, are you going to cut prescription drugs? Are you going to cut home and community services? That's hard to do."

Unlike the federal government, states have to balance their budgets every year. Medicaid is one of the biggest spenders already, and taking on a greater responsibility for the program means states would be hard-pressed to figure out how to make the numbers work.

And the cuts probably wouldn't spare the elderly and people with disabilities — because while they make up less than a quarter of Medicaid enrollees, they're responsible for more than 60 percent of spending. "Why do you have to cut services to the elderly and disabled? Because those are where the big dollars are," said Diane Rowland of the Kaiser Family Foundation.

Here are the options:

Option 1: Raise state revenues, aka taxes. Some states would be more prone to do so than others.

Option 2: Cut spending elsewhere, and then use that money for Medicaid instead. But it's not like most state budgets are teeming with obvious places to cut spending. It'd be from programs like education or infrastructure.

Option 3: Make changes to the Medicaid program itself. There are several ways to do this.

  • Cut eligibility and/or benefits: State Medicaid programs cover certain mandatory groups, but others are optional. The same is true of benefits. For example, while it requires certain elderly and disabled people to qualify for coverage, others above certain income levels are optional. And while Medicaid has to cover hospital benefits, prescription drug coverage is optional.
  • Cut provider reimbursement rates: Medicaid already pays providers less than private insurance. The problem with cutting these rates even more is that it could make it difficult for enrollees to find doctors and hospitals that accept Medicaid.
  • Institute payment reforms and other cost-control measures: Many states are already doing this, said Lanhee Chen, a member of the Axios board of experts and a Stanford University research fellow. "The reality is it depends on what state you're talking about," he said, adding that many states can make their systems more efficient without making painful cuts. "The notion that states don't have any options at all is a false notion."

Yes, but: Because of these politically tough decisions, "it's going to be really hard for Congress to actually have that thing go into effect," said Ben Ippolito, a research fellow at the American Enterprise Institute. "Even if it gets passed, in my view, it's not necessarily a done deal."

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