States begin living with Medicaid austerity
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Republicans' massive Medicaid overhaul and rising health costs are forcing state legislatures to begin cutting medical spending for the poor, raise taxes and take other steps to deal with a first-of-its-kind budget squeeze.
Why it matters: State budgets are due to shrink by $664 billion over the next decade because of the cuts in last year's GOP budget law, while medical costs are rising and state tax collections are lagging.
- That's creating a perfect storm for a program that typically accounts for about 30% of a state's budget each year.
Congress delayed the biggest changes until 2027, but Medicaid programs are "like massive ocean liners," said Kathryn Costanza, a fellow at the National Conference of State Legislatures. "They're in the process of pivoting this year" as they also deal with other pressures, she said.
Where it stands: Idaho legislators this week approved $22 million in cuts to Medicaid disability services.
- Iowa legislators approved a new tax on certain health insurers to help cover an existing Medicaid shortfall and the looming federal cuts from last year's GOP budget law.
- Colorado, which faces a $1.5 billion budget shortfall driven largely by Medicaid spending that predates the congressional changes, is debating controversial benefit cuts and lower provider payments.
- But lawmakers in the state have also introduced a bill that would tax large employers who have part-time employees enrolled in Medicaid. Similar policies have been floated in Washington state and New Jersey.
What they're saying: "Everyone is pissed and everyone is stressed," said Colorado state Rep. Lisa Feret (D), the lead sponsor of the new tax proposal.
- But as her bill advances, "there's a growing number of people that are starting to rally and say, 'Let's do this. You're trying. We appreciate it.'"
States with more of a budget cushion are making investments in hopes of easing possible coverage losses.
- New Jersey Gov. Mikie Sherrill (D) proposed $10 million in her budget last month to strengthen the state's Medicaid enrollment system.
- Wisconsin, Vermont and other states are in talks to pay millions to consultants like Deloitte and Accenture to help set up improved Medicaid eligibility tech systems, KFF Health News reported.
- Some are also repurposing state revenue to fill gaps. Oregon passed a bill allowing state funds to pay nonprofit reproductive care providers like Planned Parenthood, which federal Medicaid dollars no longer cover.
What we're watching: The Trump administration's crackdown on fraud, waste and abuse could add unexpected pressure on state Medicaid budgets if federal officials determine there's cause to cut off funding.
- States are also waiting on more guidance from the Department of Health and Human Services on how to implement first-time work requirements and other Medicaid changes.
- Nine states enacted new or revised taxes on Medicaid providers last year, but it's not clear whether those will remain in effect since the budget law places a moratorium on new taxes, NCSL's Costanza said.
- This fall's elections could also scramble priorities if Democrats flip statehouses and take more steps to head off the biggest Medicaid changes.
The bottom line: Budget austerity will become the new normal with nearly $1 trillion in federal Medicaid cuts and new eligibility and financing rules on the way.
- "This is the start of lots of tough choices around Medicaid policy going forward," said Robin Rudowitz, director of KFF's program on Medicaid and the uninsured.
