During deficit reduction discussions about entitlement programs much attention is being paid by the media and members of Congress to Medicare and Social Security.  Little is being said about Medicaid, although this program serving 58 million people has been threatened with massive cuts.  Advocates are concerned that a lack of understanding about Medicaid and who it serves will make the program vulnerable to restructuring and unacceptable cuts.  These changes could be included this summer in a deficit reduction package that is part of an agreement on raising the debt ceiling currently being negotiated by members of Congress and the Administration.
Today Medicaid provides health coverage to low- to moderate-income children, parents, seniors, and people with disabilities and is administered by the states and federal government.  Medicaid is the primary source of funding for long-term care for seniors, who comprise one-quarter of the beneficiaries but account for two-thirds of Medicaid spending.  The federal government pays a fixed share (percentage) of the cost of Medicaid depending on the state (50 percent for New York, a wealthier state, and 74 percent for Mississippi, a poorer state), no matter how high the cost of providing the service.  States pay the remainder of the cost.  As a condition for receiving federal funds, states must serve certain populations including children 6 years of age and younger in families with incomes of up to 133 percent of the poverty line, and low-income seniors and people with disabilities who receive Supplemental Security Income (SSI) benefits.  States’ Medicaid programs must also provide certain mandatory benefits like hospital and physician care and Early Periodic Screening, Diagnostic and Treatment services for children.

Severe cuts in Medicaid could come in either of two ways legislatively (both being discussed by some in Congress) – by placing global funding caps on overall federal spending or by direct restructuring of the program into a block grant.  The bottom line would be the same – devastating cuts to Medicaid.  Funding caps would limit spending to a fixed percentage of the Gross Domestic Product (GDP).  One proposal, the CAP Act (S. 245), sponsored by Senators Bob Corker (R-TN) and Claire McCaskill (D-MO), would limit total federal spending to no more than 20.6 percent of the GDP.  Currently spending is between 24 and 25 percent of GDP.  If the cap were not reached through legislation, it would trigger automatic, across-the-board cuts (a so-called ‘sequestration’) to discretionary and mandatory programs to close the gap. If the caps were tight like those in S. 245, the cuts would be so deep to Medicaid that it would necessitate a radical restructuring of the program, likely by changing it to a block grant.  The House-passed Budget (also referred to as the Ryan plan, named after Budget Committee Chairman Paul Ryan (R-WI)) and the budget offered by Senator Patrick Toomey (R-PA) both block-grant Medicaid, cutting the program by $771 billion and $1.1 trillion respectively over 10 years.  On May 25 the Senate rejected both of those budgets (see article “The Senate Rejects a Bunch of Budget Plans;
Action on the Floor Still a Sideshow to Biden Debt Ceiling Negotiations” about these votes in this issue).

Under a block grant the federal government would pay only a fixed dollar amount of the state’s Medicaid cost, with the state responsible for all costs that exceed that amount.  Block grant proposals typically give states more flexibility over programs.  In the case of Medicaid, states would likely be able to cap enrollment, substantially scale back eligibility and coverage and raise the out-of-pocket costs of beneficiaries. Many governors, particularly Republican governors, favor the flexibility that a Medicaid block grant provides.  Under a block grant, states would still be required to continue paying a share of the cost, referred to as ‘maintenance of effort’.  But by gaining authority to cut benefits or eligibility beyond current law, states could reduce the growth in their Medicaid costs.  They would be doing so at the expense of low-income individuals and families.

Over time funding caps or block-granting would shift costs to states, to beneficiaries and to providers, because neither would keep pace with the actual cost of the program.  Most block-grant proposals allow for an annual adjustment to reflect some degree of growth.  The Center on Budget and Policy Priorities estimates that under the Ryan plan, federal funding for Medicaid would rise about 3.5 percentage points per year less than under the current program.  (See theCBPP report.)  The difference compounded over time would be substantial and not enough for the states to maintain their programs without significantly increasing beneficiaries’ share of the cost, cutting payments to providers, cutting eligibility or benefits or a combination thereof.  Block-granting Medicaid would be particularly problematic in times of economic downturns when federal spending would not increase to respond to the growing needs.  Limiting funding to a fixed dollar amount as a block grant does also restricts the ability of Medicaid to cover higher health care costs resulting from new medical treatments or a new epidemic.

Under the Affordable Care Act (ACA) passed last year, beginning on January 1, 2014, states will be required to expand Medicaid to all non-elderly individuals with incomes up to 133 percent of the poverty line.  Converting Medicaid to a block grant would not leave room for this expansion, fatally undermining ACA.  A newly-released Kaiser Commission report finds that if ACA is repealed and Medicaid is converted to a block grant like the one proposed in the Ryan plan, federal spending would be reduced by 34 percent over the 10-year time period from 2012 to 2021, and enrollment in the program would be reduced by 48 percent. (See Kaiser report for state-by-state cuts.)

Subscribe: