Proposed Medicaid changes would shift risks to the most vulnerable

A policy brief about Congressional Republicans’ bill to replace the Affordable Care Act has two Medicaid provisions that could prove seriously detrimental to public health and states’ finances: Gutting the ACA’s Medicaid expansion, and changing the current Medicaid financing structure. A Center on Budget and Policy Priority analysis of these two changes calculates that they would shift hundreds of billions in costs from the federal government to the states over the next 10 years. I’ll explain what these two policies are, but first I want to highlight a few things about the Medicaid program.

(Update, 3/7/17: Republicans released their plan late on March 6th, and it does indeed involve much less Medicaid funding in the coming decades.)

Who Medicaid Covers

Medicaid is one of the ways the US provides healthcare coverage to our most vulnerable residents: low-income children and their families, seniors with low incomes, and low-income people with disabilities. Medicaid pays for nearly half of all births in the US, and allows low-income pregnant women to receive prenatal care to increase the likelihood those births will be healthy. Children are the largest group of Medicaid enrollees (37 million in 2015), and the comprehensive coverage they receive is associated with "better health outcomes, lower rates of mortality, stronger educational and economic achievements, and a significant return on public investment." Medicaid provides long-term services and supports – including nursing home care, which Medicare doesn't cover – to 70 million seniors and people with disabilities.

Providing coverage to people in these categories not only allows these beneficiaries to live healthier lives; it can also help their families’ finances. A large share of bankruptcies are due to healthcare expenses, and studies have found less healthcare-related financial strain since the ACA was implemented. In Oregon, where prior to the ACA new Medicaid coverage was offered by lottery, researchers found that those who received the coverage experienced less financial hardship and, perhaps relatedly, less depression. These benefits go not only to the beneficiaries themselves, but to family members who might otherwise have to quit their jobs or sacrifice other financial goals in order to meet a loved one’s needs.

The Medicaid program’s costs have risen substantially over the past several decades because healthcare costs overall have risen substantially. Medicaid beneficiaries who require long-term services and supports accounted for 6% of enrollees in 2012, but 45% of the program’s spending. Since the ACA’s implementation, Medicaid costs have also risen because millions of adults became newly eligible for it and signed up. Although not all states accepted the ACA’s Medicaid expansion – which was mandatory in the legislation, but rendered optional by the Supreme Court – it has helped 31 states and the District of Columbia dramatically reduce uninsurance.

Medicaid Economics

Traditional Medicaid – i.e., not the ACA’s Medicaid expansion – is a joint federal-state program under which the federal government assumes a percentage of the healthcare costs for eligible beneficiaries. The federal share (or, technically, the FMAP – federal medical assistance percentage) must be at least 50% but can be substantially higher based on a state’s per-capita income and other criteria. For fiscal year 2018, the federal government will pay 72% of Medicaid costs for beneficiaries in New Mexico and South Carolina, 73% for West Virginia, and 76% for Mississippi. This means federal dollars flow into states and on to healthcare providers.

Some healthcare providers deliver a lot of care for which they’re never compensated, mainly because the people they’re treating don’t have adequate health insurance. Hospital emergency departments are required to treat and stabilize anyone who arrives in labor or experiencing a medical emergency, regardless of whether those people have insurance. Community health centers – specifically, those designated federally qualified health centers, or FQHCs – provide primary care and other services regardless of insurance or ability to pay, and charge sliding-scale fees that rarely come close to covering their actual costs. Federal grants can make up for some of the shortfall, but a more sustainable system is for more of the patients showing up at hospitals and community health centers to have insurance. The Medicaid expansion has benefited hospitals and health centers in the states that adopted it, and many administrators now worry about their financial stability if the expansion is undone.

Medicaid coverage doesn’t just affect uncompensated care. Having health insurance allows beneficiaries to receive more preventive and routine care, as well as care for acute problems. This means more revenue for hospitals, clinics, pharmacies, and other providers – and they in turn can hire more staff and buy more goods and services, which results in more economic activity and more tax revenues.

Another important aspect of Medicaid is that it functions as an “automatic stabilizer” during economic downturns. Programs like Medicaid and SNAP (food stamps) are available without any additional legislative activity when financial conditions worsen. A Brookings Institution report from David Boddy and co-authors explains:

As soon as a recession arrives, participation in these programs expands as incomes fall and unemployment rises—and in some cases, participation increases because of automatically reduced eligibility requirements for participants. The result is that additional funds are automatically disbursed (or taxes reduced), immediately providing fiscal stimulus. The United States makes considerable use of automatic stabilizers, which amounted to about 2 percentage points of GDP during the depths of the Great Recession (Congressional Budget Office [CBO] 2016a).

As job losses mount and workers’ hours are cut, more people become eligible for Medicaid, and more federal money flows to the states. This also requires more money from states for their share of the Medicaid program expenses, but Congress increased the share covered by federal dollars during the Great Recession.

Republican lawmakers proposing cuts to the Medicaid program cite concerns about growing federal spending. But the federal government has a greater ability to deficit spend, and sending more money to the healthcare sector while averting health or financial collapse in Medicaid beneficiaries seems like a worthwhile way to spend it. Such expenditures can reduce recessions’ harmful impacts and help the economy grow – in other words, they're a good investment.

The Fate of the Medicaid Expansion

Traditional Medicaid only requires that states extend coverage to people in the categories mentioned above – low-income children, pregnant women, seniors, and individuals with disabilities. Under the ACA’s Medicaid expansion, states can provide coverage to legal residents with incomes up to 133% of the federal poverty level (FPL), and the federal government covers a greater share of the costs (100% in 2014, falling in increments to 90% in 2020 and thereafter) for this population. According to the Congressional Budget Office, 10 million adults were newly enrolled in Medicaid by 2015 thanks to this expansion.

House Speaker Paul Ryan and his colleagues have yet to disclose many specific details about their plans for the ACA’s Medicaid expansion, but the policy brief states that the law’s “Medicaid expansion for able-bodied adults enrollees would be repealed in its current form” after an unspecified date. States could keep covering this population but “would be reimbursed at their traditional match rates for these beneficiaries.”

Here's some useful context for that “able-bodied adult” phrase: In 2015, the Kaiser Family Foundation analyzed the characteristics of uninsured adults who could gain Medicaid coverage if the remaining states accepted the Medicaid expansion, and reported that the majority (57%) were working full- or part-time; most of them were employed by small firms or in industries where few employers offer health insurance. Of those not working, 29% reported being home caring for family; 20% said they were looking for work; 18% were in school; 17% were disabled or ill; and 10% were retired. If there is a problem with uninsured adults being able to work but not wanting to (as Republican lawmakers seem to suggest), it is dwarfed by the problem of people who are working (with or without pay) but can’t get health insurance.

The mention of “traditional match rates” for low-income adults might sound not that bad, but my read is that it means 0% for adults without children. Kelly Whitener of Georgetown University’s Center for Children and Families explains:

[Before ACA implementation], some states covered parents at higher income levels than others, and some states covered childless adults. But they did so using state only dollars or through an 1115 waiver. And in order to get federal approval for such a waiver, states had to show budget neutrality – either by redirecting existing federal Medicaid money or by offsetting additional expenses with cost savings achieved elsewhere. In order to meet these tests, states that wanted to cover more people often limited the benefit package to make it as inexpensive as possible.

In fact, in 2013 – the year before the ACA coverage provisions including the Medicaid expansion went into effect – the median eligibility threshold was 61% of the FPL for working parents, 37% for jobless parents, and 0% for childless adults.

In other words, states could continue to provide Medicaid coverage to adults with incomes up to 133% FPL who aren’t in a traditional eligibility category, but they would have to spend a lot more of their own revenue to do it. Many states probably won’t be able to afford this, and millions could lose coverage as a result – with damaging effects on their states’ economies, as well as their families’ stability.

Changing Medicaid Financing

Currently, the federal government pays its share of all eligible Medicaid costs for as many people as qualify, and this is one of the reasons it serves as a stabilizer during economic downturns. The fact that states are also on the hook for a portion of those costs serves as an incentive to limit the services that are covered and the amounts they pay healthcare providers. On the other side, the public health benefits that come from having a population with access to the healthcare services they need provides an incentive for states to offer more benefits and pay providers more. In addition to these differing incentives, states must consider their budgets as well as the standards that the federal government sets for Medicaid programs.

The Republicans’ policy brief proposes a different system. Instead of paying the federal percentage on all eligible services for all eligible enrollees, they would offer states two options: a “per-capita cap” or a “block grant.” Under a per-capita cap, states would receive a capped amount for each enrollee in each eligibility category (“aged, blind and disabled, children, and adults”). A block grant would give the states a fixed amount each year to spend on Medicaid. In both cases, the amount is almost certain to grow more slowly than healthcare costs do. Republicans also want to give states more flexibility to change benefits and enrollment rules – which, if the federal contribution is growing more slowly than costs, will almost inevitably mean reducing services, covering fewer people, or both.

Harold Pollack, a professor at the University of Chicago, is an eloquent defenders of Medicaid. He has some personal experience with the program, because he and his wife are responsible for his wife’s brother, Vincent, who has a serious intellectual disability as well as other substantial healthcare needs. As he notes in this YouTube video, the fact that Medicaid and Medicare cover Vincent’s care meant he and his wife were able to use their money to send their two daughters to college. Back in January, he wrote an important post for called “Could Republicans Wreck Medicaid?”, in which he explains the likely outcomes of the these two proposed changes:

[A block grant] approach also provides the clearest incentives for states to cut and limit services. A state can do this openly, or it can follow many quieter paths to reach the same goal. One can require Medicaid applicants to show up to state offices in inconvenient places at limited hours. One can impose ostensibly reasonable paperwork requirements that scare away poor people. One can impose long waits. And so on.

… [The per-capita cap approach] provides greater protection to states that experience economic downturns. It can be designed to provide less brutal incentives to chase recipients away. This approach still provides strong incentives to impose service cuts.

These aren’t accidental features. Proponents want to enact block grants because they want to cut programs. They want to shift financial risk from the federal government onto patients, families, states, and local governments. Medicaid block grants would encourage states to enroll fewer people, and to do less for those who actually sign up.

Republicans aren’t wrong to be concerned about the risk to the federal budget from mounting Medicaid expenses. But the federal government, which collects revenue from across the country and has substantial borrowing power, is in a better position to shoulder the risks of economic downturns. When some states are benefiting from a tech boom while others are suffering from a loss of manufacturing jobs, the federal government can spread the wealth to those facing the harsher circumstances.

By shifting risk from the federal to the state governments and thereby making Medicaid cuts extremely likely, this Republican plan would also force more risks onto families. When low-income families lose or can’t get Medicaid coverage, they’re vulnerable to financial ruin when a serious health need arises.

Erasing Past Guarantees?

Sara Rosenbaum, a professor at the George Washington University Milken Institute School of Health (where I also work), puts some numbers on the shifted risk in a post for the Commonwealth Fund’s To the Point. She cites CBO figures to warn that per-capita caps could result in a loss of as much as $600 billion in federal funding over 10 years, and the block grant up to $700 billion. She also warns that the guarantee of Medicaid coverage looks much weaker under either scenario:

Where Medicaid’s guarantee of coverage is concerned, nowhere does the [per-capita cap] proposal guarantee that states would receive as many per capita allotments as there are people entitled to coverage. Indeed, it appears to suggest the contrary: state allotments would be subject to a “total,” which conceivably could function as an aggregate cap divorced from the actual number of eligible individuals. Few if any states would be able to make up the lost funds needed to not only reach an appropriate level of coverage but also cover all eligible people.

The second option would allow states to receive a “Medicaid block grant” or “global waiver” (an undefined term). As with past Medicaid block grant proposals, this option likely would eliminate virtually all current Medicaid requirements that reflect its status as insurance. Indeed, the proposal’s only obligation is that states taking this option would have to “provide required services to the most vulnerable elderly and disabled individuals who are mandatory populations under current law.” This option offers no insight as to what might be a “required” service. Furthermore, under current law, the only elderly and disabled people for whom Medicaid coverage is mandatory are those who receive Supplemental Security Income (SSI) benefits, which are restricted to the very poorest disabled people. In short, it is conceivable that under the block grant option, a state could offer no services—much less no guarantee of coverage—to anyone other than SSI recipients, who number around 10 million nationally.

Before they pass legislation that would threaten or erase these guarantees, I hope Republicans will revisit the words of President Johnson when he signed into law the Social Security Amendment Act that created Medicare and Medicaid:

No longer will older Americans be denied the healing miracle of modern medicine. No longer will illness crush and destroy the savings that they have so carefully put away over a lifetime so that they might enjoy dignity in their later years. No longer will young families see their own incomes, and their own hopes, eaten away simply because they are carrying out their deep moral obligations to their parents, and to their uncles, and their aunts.

… there is another tradition that we share today. It calls upon us never to be indifferent toward despair. It commands us never to turn away from helplessness. It directs us never to ignore or to spurn those who suffer untended in a land that is bursting with abundance.

Do we really want to return to the kind of conditions our predecessors worked so hard to fix? Are we really ready to spurn those who suffer, and do so in order to allow for military buildup and tax cuts?


More like this

According to Florida Republicans, these are freeloading parasites not worthy of your tax dollars (Ricardo Ramirez Buxeda/Orlando Sentinel) We typically think of budgets as boring, dry things, the charge of the green eyeshade brigade. But they are a profound statement of what we think is important…
In the most recent edition of the New England Journal of Medicine, there is a perspective piece by Sara Rosenbaum that bluntly describes how the Bush Administration's opposition to S-CHIP (the State Children's Health Insurance Program) is based on ideology and not economic cost (italics mine): Why…
Because nothing says compassionate conservatism like cutting funding for poor disabled children. From the Washington Post: The Bush administration issued a new rule Friday that eliminates Medicaid reimbursement for certain transportation and administrative tasks undertaken by schools on behalf of…
I've described before how there is a significant correlation between poverty and educational performance when we use state-level data. But as I pointed out, one of the interesting things is that the residual--the difference between the expected scores for a given state and the actual scores--can…

Thanks for this excellent post. The Texas Alliance for Health Care published a report last week on the impact on low-income Texas residents and healthcare providers if Medicaid becomes a block grant. There are 4.3 million Medicaid recipients in Texas. 60% of the expenditures provide assistance to the aged and disabled. Texas has the highest number of uninsured in the country. Switching to a block grant for Medicaid will increase that health disparity.
Here's a link to the report: