Just weeks before the severity of the novel coronavirus outbreak in the United States became unmistakable, President Donald Trump’s administration offered states a way to make significant cuts to their Medicaid programs, which provide health care coverage for just over 20% of the population.
The rapid spread of the disease is now making a clear case for why this initiative would be harmful to vulnerable Americans. According to one estimate, the cost of COVID-19 treatment can exceed $20,000.
The policy, which the federal Centers for Medicare and Medicaid Services calls “Healthy Adult Opportunity,” is the Trump administration’s attempt to accomplish a long-held Republican goal: to shrink Medicaid by establishing annual caps on how much federal money goes to state Medicaid programs.
That would be a massive change from how the program currently works, with federal and state governments together spending whatever it costs to treat beneficiaries. This setup allows Medicaid funding to expand during economic downturns and public health emergencies.
Proponents of the new policy tout the “flexibility” it provides states to remake their health care programs for low-income people, but the reality is that flexibility would translate into states cutting enrollment, cutting benefits or both.
“It is code for doing less,” said John Holahan, a health policy researcher and fellow at the Urban Institute. “It would be literally cuts, of one form or another, if they couldn’t live within the caps that they agreed to, which in this situation where we are today, they clearly couldn’t.” Holahan published a policy brief on Wednesday outlining the negative effects of limiting federal Medicaid spending during the coronavirus pandemic.
Republicans generally favor reducing government spending and enrollment in safety net programs. But kicking people off benefits is unpopular, so it’s politically easier to push reforms that sound bureaucratic and benign. The new policy’s block grants, for instance, are an administrative maneuver masking a clear goal: reduced spending and fewer people getting benefits. In the 1990s, the Republican Congress and Democratic President Bill Clinton converted cash welfare into block grants, resulting in significantly less aid being provided to low-income families.
More than 70 million people in the United States were covered by Medicaid as of December, according to the Centers for Medicare and Medicaid Services. About 30 million potentially could be subject to the new Trump limits on the program’s funding, according to the Henry J. Kaiser Family Foundation.
The coronavirus pandemic and the recession that’s very likely to hit the U.S. economy offer a case study in how this kind of financing scheme puts Americans who earn very little at risk of getting sick or losing a job ― or both ― during a crisis.
A Poorly Timed Bad Idea
The concept behind block grants and similar proposals for Medicaid is simple: Instead of open-ended federal funding to cover whatever costs the state’s Medicaid beneficiaries require, the state gets a flat amount of money it must stretch over the year. And that amount is less than states get now.
The Trump initiative would allow states to choose between receiving a block grant ― a flat dollar amount per year ― that increases slightly faster than medical price inflation or a per-capita cap based on the number of current Medicaid enrollees that rises at the same rate as medical inflation. The per-capita cap option is less problematic than the block grants and offers states more financial leeway, but both would result in benefit and enrollment cuts, Holahan said.
As the Urban Institute policy brief illustrates, this financing mechanism wouldn’t be adequate to cover current costs, let alone higher expenses associated with growth in the number of people using Medicaid or the costs of COVID-19 treatments. The Centers for Medicare and Medicaid Services projected last year that Medicaid spending would increase 6% annually between 2019 and 2027. By contrast, medical inflation has risen less than 3% in recent years, according to the brief.
While states that participate may request additional federal Medicaid funds during an emergency, those funds are not guaranteed and would require swift approval to be useful to states during crises. Under traditional Medicaid, the funding would automatically flow.
Under the Trump policy, announced in January, a state facing increasing Medicaid enrollment or higher spending on medical care for enrollees could choose to jettison people from the program or eliminate covered benefits. The alternative would be for the state to increase its own spending to maintain coverage and benefits, which would be significantly challenging because nearly all states must balance their budgets and can’t turn to deficit spending. And given that this proposal is designed to appeal to Republican state officials, tax increases to finance additional spending would be unlikely.
“It would put [states] in a horrendous position if they have a significant outbreak,” Holahan said. “It would either be bad for them fiscally if they decide to serve everybody or it would be bad for people if they decide that they couldn’t because they agreed to this capped amount of federal money.”
Nevertheless, the Republican governors of Oklahoma and Tennessee are still seeking federal approval to accept more limited federal funding for their Medicaid programs, respectively known as SoonerCare and TennCare.
The Anticipated Rise In Medicaid Enrollment
Times of rising unemployment and shrinking incomes tend to lead to large increases in Medicaid enrollment as people find themselves with less or no earnings and become eligible for the program. That leads to higher Medicaid spending. And a nationwide outbreak of a highly contagious virus that can lead to tens of thousands of dollars in medical costs will drive spending even higher this time. During the recession that began at the end of the last decade, millions of Americans enrolled in Medicaid.
In fact, Congress has already recognized these realities. The first coronavirus emergency bill that Trump signed includes additional Medicaid funding for states as a means of shoring up their budgets. That law also forbids states from cutting enrollment or benefits as a condition for receiving the temporary bonus funds. Extra Medicaid funding is a common form of helping state budgets and providing economic stimulus during recessions.
And even as the Trump administration continues to support its Healthy Adult Opportunity initiative, federal authorities are taking other steps to shore up the Medicaid program amid the outbreak. The Centers for Medicare and Medicaid Services is swiftly approving states’ requests to relax Medicaid enrollment rules to make it easier for qualified individuals to sign up.
But a catastrophic epidemic is unlikely to dissuade Republicans who have been clamoring to substantially curtail Medicaid. The GOP’s failed Obamacare replacement bill in 2017 included a similar block grants proposal and the party has been trying to impose one since the 1980s, when President Ronald Reagan backed a version of the policy.
The Trump administration’s new Medicaid funding plan is based on the same principles as those previous versions.
Today, Medicaid is an entitlement program, like Medicare and Social Security, meaning that spending automatically rises to cover the costs incurred for medical care. The federal government finances more than half of Medicaid expenses, with states picking up the remaining share, which eases the fiscal burden on states, especially when the economy is poor. But states that adopt the Healthy Adult Opportunity program would give up that open-ended guarantee of federal funding.
In exchange for accepting less federal money, these states would gain new authorities to alter their Medicaid programs without seeking further federal approval. Depending on a state’s specific plan, it could impose eligibility and benefit cuts, cost-sharing and other burdens on a subset of adult Medicaid enrollees.
That includes parents, pregnant women who earn just over the poverty level, and adults who live in states that expanded Medicaid under the Affordable Care Act. The lowest-income pregnant women are exempt, as are people over 65, patients in long-term care, and individuals who receive federal disability benefits.
Medicaid enrollees in states that adopt a block grant or per-capita cap could face new barriers to care, including monthly premiums and out-of-pocket costs, and they could be kicked off the program for failing to pay.
States could also limit access to certain medications, or eliminate Medicaid’s “retroactive eligibility” standard that covers recent medical expenses accumulated by new enrollees prior to signing up, or impose “asset tests” that block benefits for people who own homes or cars or other property, regardless how low their incomes are. That would be especially burdensome on newly jobless people, who still possess their assets but no longer have incomes.
Arthur Delaney contributed reporting.
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