Hard choices ahead for states on Medicaid

The big picture: The states are settling into a "new fiscal normal" with tax revenue falling, growing fixed costs and federal pandemic aid a distant memory, said Justin Theal, a senior officer at the Pew Charitable Trusts who researches state fiscal trends.

• Medicaid already is one of the largest costs in most states. While enrollment has dropped over the past two years, it's still higher than before the pandemic, and a costlier, aging population is stressing budgets, according to a Pew analysis.

Case in point: State lawmakers in Indiana last week unveiled a plan to contain Medicaid expenses, which are the fastest-growing piece of the state budget, Axios Indianapolis reported.

• The proposal would add work requirements and cap the number of enrollees in the state's Medicaid expansion program at 500,000. The program currently covers more than 700,000 people.
• Some Idaho lawmakers want to repeal the state's Medicaid expansion or add restrictions like lifetime limits on how long a person can enroll in Medicaid. They say it's costing the state too much, though health advocates say Medicaid expansion has saved money in other areas, the Idaho Capital Sun reported last month.

Medicaid directors have been bracing for austerity moves.

• "Almost all of our directors are in a position of not pursuing new initiatives that would involve new appropriations," said Kate McEvoy, who leads the National Association of Medicaid Directors.
• Many are being asked for shortlists of savings options, she said. Rolling back optional benefits that state Medicaid programs can cover, like adult dental services, is one potential strategy.
• States also likely won't expand or initiate Medicaid coverage of GLP-1 drugs to treat obesity, McEvoy added, though a Biden administration proposal could force the issue by requiring the coverage.

Zoom out: As they craft their new budgets, governors and legislatures are closely watching whether Congress goes through with proposals to cut federal Medicaid spending, said Patricia Boozang, senior managing director at Manatt Health.

• Some of the options under discussion could "change states' budget pictures and really require legislators to come together to figure out ... what else can they do," she said. "All of that is just an unknown."

• Conservative-led states may also pursue Medicaid work requirements and other controversial changes to enrollment processes, arguing the program is squeezing out other priorities like education. The Trump administration is expected to be more open than Biden's to accommodating such requests.

Friction point: Patient advocates and progressive groups caution that states could use fiscal difficulties as an excuse to make unnecessary Medicaid changes that erode health coverage.

• State lawmakers looking to cut Medicaid may "claim that their proposals are necessary because state resources are scarce, often ignoring the impact of costly tax cuts many states have enacted in the past few years that have drained state revenues," the Center on Budget and Policy Priorities wrote in a recent policy brief.

The other side: Some state governments may prioritize keeping their Medicaid programs whole.

• In Maryland, which faces one of its largest budget deficits in decades, the Democratic state Senate president said earlier this month that lawmakers will need to find other places to cut costs, Maryland Matters reported.
• States across the political spectrum that have invested in Medicaid over the past couple of years, including by raising the rates they pay health care providers and expanding postpartum coverage, also don't appear to be walking back those investments so far, Boozang said.