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Why Medicaid cuts are different

Caitlin Owens
Mar 6, 2023
Illustration of a sweating and nervous health plus surrounded by looming elephants.

Illustration: Aïda Amer/Axios

It's harder to find Medicaid cuts that don't hurt people in the program than it is for Medicare — as Republicans may be about to find out.

Why it matters: With Medicare, there are ways to reduce payments to health providers or insurers while keeping benefits intact for seniors. But Republicans will have a much harder time cutting Medicaid spending without facing the prospect of coverage and benefit losses.

Driving the news: Republicans are looking for ways to reduce federal spending, and both programs present big targets given how much of the federal budget they consume.

  • House Republicans have vowed not to cut Medicare in the context of the debt ceiling negotiations, although some have urged Democrats to work with them generally on reforms to the programs' finances.
  • But they haven't made the same commitments about Medicaid, as my colleagues reported last week, and some are pushing for changes such as work requirements.

Between the lines: Medicare "cuts" fall into two buckets: reductions to the benefits seniors receive, and reductions in payments to health care industry groups.

  • Semantic games aside, the second option allows lawmakers to plausibly say they're reducing spending on the program without cutting benefits. (The health care industry argues that patients would suffer the trickle-down effects of such cuts.)
  • Medicaid is very different, thanks to its combination of federal and state funding. Most major financing reforms that the GOP has proposed in recent history essentially reduce the amount of money the federal government pitches in, which would then force states to decide how to respond.

Details: CBO has recently scored big Medicaid overhauls — including repealing the ACA's Medicaid expansion — as leading to large coverage losses.

  • Remember the per capita caps the GOP pushed in 2017? CBO laid out states' potential responses in its report on those and other parts of one repeal and replace bill:
  • "With less federal reimbursement for Medicaid, states would need to decide whether to commit more of their own resources ... or to reduce spending by cutting payments to health care providers and health plans, eliminating optional services, restricting eligibility for enrollment through work requirements and other changes, or (to the extent feasible) arriving at more efficient methods for delivering services," it wrote.
  • Work requirements — which some Republicans have said they're eyeballing — would be more of a direct policy change but would almost certainly lead to coverage losses. CBO said last year that work requirements "have reduced benefits more than they have increased people’s earnings."

The other side: Technically, states could choose to forgo coverage or benefit cuts if federal funding were reduced — but only if they're willing to boost their own funding or find ways to reduce the cost of the program to make up the difference.

  • “Part of the issue is that states say they have balanced budget requirements and so they need more federal money," said Brian Blase, president of Paragon Health and a former Trump administration official. “States could always cut spending or raise taxes if they found Medicaid to be worth the expense."

What we're watching: Democrats and left-leaning groups are already going on offense about any potential GOP Medicaid changes, warning about the effects of work requirements and spending caps.

  • The threat of large coverage losses helped prevent the GOP from passing these reforms in 2017 when it held the House, Senate and White House. So Republicans will have to decide how hard they want to push for similar policies this year — especially when President Biden's veto pen makes it very unlikely any of this would ever become law.
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