The Trump Administration Is Coming For Medicaid Again

It just proposed a radical change in the program that could cut benefits for "healthy adults."

The Trump administration is back with a new initiative that could make it harder for some low-income Americans to get health care.

Officials on Thursday told states that they can request major changes in the operation and funding of their Medicaid programs. Under the new arrangement, the outlines of which were first reported by Politico over the weekend, states would have more leeway to modify benefits and eligibility standards for some parts of the population.

In return, states would have to accept a more limited commitment of funds from the federal government.

The initiative is by all accounts the brainchild of Seema Verma, chief administrator for Medicare and Medicaid. In a press call Thursday morning, she said the new flexibility will allow states to experiment with ways of providing better care at a lower cost, while freeing up more resources to provide care for the people who need it most.

“The Trump administration understands that the government has a solemn obligation to provide for the most vulnerable amongst us,” Verma said, “and part of that responsibility is ensuring that the program is sustainable, that it is capable of delivering quality care to current beneficiaries, as well as future ones.”

Verma and her colleagues are calling the new funding possibility the “Healthy Adult Opportunity” option, because in theory it affects only able-bodied, nonelderly adults and exempts pregnant women. But the initiative’s pleasant-sounding moniker doesn’t really capture what the administration is proposing or why it’s so potentially radical.

This new financing option is a variation on what’s known as a “block grant,” which would end the federal government’s open-ended promise to finance Medicaid coverage for whoever needs it, however much it costs. Republicans have historically promoted block grants as a way to limit or reduce Medicaid spending, and many experts believe such proposals would lead to cuts in enrollment or benefits that would harm beneficiaries.

That potential has stirred up opposition and helps explain why Medicaid block grants have never gotten the support they needed to get through Congress.

Seema Verma, the Trump administration's head of Medicare and Medicaid, has long sought to scale back Medicaid for the "able-bodied" population.
Seema Verma, the Trump administration's head of Medicare and Medicaid, has long sought to scale back Medicaid for the "able-bodied" population.
SOPA Images via Getty Images

With this new initiative, the Trump administration is trying to get around that political problem by using its executive authority to let states change Medicaid financing on their own. It’s the same approach that the administration has used to limit or scale back other politically sensitive programs, like food assistance, that serve low-income Americans.

It is not clear how many states will actually try the new Medicaid option or whether the courts would allow such attempts to go forward. The Medicaid statute specifies how states can modify their programs, and the modifications Verma sketched out Thursday may violate those rules.

But if some state officials try, as several conservative ones seem inclined to do, and if the courts allow it, as perhaps some conservative judges will decide they should, then some adults now on Medicaid could struggle more with medical bills and have a harder time getting the health care they need.

“While this initiative is being pitched as an option for states that will give then needed flexibility, don’t be deceived,” says Joan Alker, executive director of the Georgetown Center for Children and Families. “The Trump Administration has been perfectly clear about their desire to cap and make huge cuts to Medicaid. … The new flexibilities will be options to establish new barriers to getting or keeping coverage, or to limit benefits in new ways.”

How The Proposal Would Change Medicaid

Medicaid is a health insurance program for low-income people that now covers roughly 1 in 5 Americans. States are in charge of it, subject to a complex set of rules about who and what the program covers. Those rules come from the federal government, which provides the majority of the funding.

These federal matching funds go up and down every year, depending on how many people enroll and how much their health care actually costs. If an economic downturn causes more people to fall into poverty, or if the pharmaceutical industry develops an especially expensive and crucial drug, or if an epidemic leads to a surge in hospital use, Medicaid will cover the extra people or pay for their extra services.

This can be an expensive proposition. As far back as the 1980s, GOP leaders have been trying to shift Medicaid over to a system in which states could alter their programs in ways that would limit or reduce its reach ― by, for example, paying for fewer services than current Medicaid guidelines would permit.

In return, states would get a fixed sum (aka, a block grant) from the federal government, with the understanding that they could keep some of the savings if the program costs less than expected but would face shortfalls if it cost more.

In theory, these sorts of arrangements could encourage states to economize and improve care, given that Medicaid, like all public and private insurance programs, has some real shortcomings. Republican lawmakers and their allies have frequently made that argument.

In practice, past proposals to introduce Medicaid block grants have always threatened to reduce coverage and, in the process, access to health care. A version of these reforms were in some of the 2017 bills to repeal the Affordable Care Act, and the potential impact on beneficiaries was one reason that effort proved so unpopular.

Now the Trump administration says states can change their financing in more or less the same fashion even without new legislation, because Medicaid allows states to get waivers if they want to experiment with new coverage models.

Waivers are pretty common and come from all kinds of states. But, by law, the experiments states attempt must serve the program’s overall goal of providing better coverage or care for the poor.

It’s difficult to see how the changes the Trump administration has in mind would accomplish that.

How The Proposal Would Affect Beneficiaries

Under the new arrangement, states could require that adults on Medicaid pay premiums or out-of-pocket costs that are up to 5% of their incomes. Research has shown that even modest out-of-pocket costs can deter low-income Americans from getting care, because they have so little money at their disposal.

States could also end “retroactive eligibility,” under which people who enroll in Medicaid can get coverage for previous medical bills as old as three months. That’s a safeguard for people who have a medical emergency but can’t get onto Medicaid until days or weeks after they’ve started getting treatment.

“Retroactive eligibility ... is an important financial protection for both beneficiaries and providers alike,” says Jessica Schubel, a senior policy analyst at the Center on Budget and Policy Priorities. “It prevents medical bankruptcy for low-income people, and ensures the financial stability of hospitals and other safety net providers.”

The new arrangements would also give states a greater ability to exclude certain prescription drugs from coverage, through what is known as a “closed formulary.” With proper safeguards, formularies can be a useful tool for reducing drug costs. But Medicaid already gets what are, by U.S. standards, rock-bottom drug prices, and there’s a possibility states could use these formularies to cut costs in ways that sacrifice beneficiary health.

“The authority to impose a closed formulary raises serious risks that beneficiaries would lose access to needed prescription drugs because it could be used to deny coverage of a drug solely due to cost, even if the drug is high-value or a clinical breakthrough,” Edwin Park of the Georgetown Center for Children and Families, argues.

States wouldn’t have to make any of these changes, as Verma stated repeatedly Thursday. “It is not a mandatory change in Medicaid structure or financing,” Verma said. “No state is under any obligation to participate.”

And conservative state officials that have so far resisted expanding Medicaid to nondisabled adults, even with the extra funds available through the Affordable Care Act, might see the new initiative as a cheaper, more acceptable way to cover those adults. Oklahoma’s Republican governor, who appeared alongside Verma at an event unveiling the new initiative, could be the first to try.

But the potential for savings from the new financing option could also prove attractive to states that already cover adults, prodding them to scale back benefits or find some way to limit enrollment. And once states opt into the new financing system, experts warn, they could face new, unexpected budget pressures in years when Medicaid suddenly gets more expensive because of an economic downturn or, say, an epidemic.

Thursday’s proposal says that states may seek extra funds in such instances, but that doesn’t mean states would get the money. “There’s no guarantee that [the Centers for Medicare and Medicaid Services] would grant them and no clear criteria,” says Aviva Aron-Dine, vice president for health policy at the Center on Budget. “I’d also worry that the uncertainty around such renegotiations would lead states to make cuts.”

How The Courts Might React

The lack of evidence that the new financing option would advance Medicaid’s goals of providing health care to the poor could stop the experiment from going forward. Absent such proof, judges may decide it is not permissible under the Medicaid law.

Federal judges have already blocked Medicaid “work requirements,” another change in the program that the Trump administration has encouraged, on precisely those grounds.

But the new financing option may run into an even bigger legal problem. The Medicaid statute specifies which parts of the program states can change, and the federal funding arrangement is not on the list.

Legal experts have been warning about this possibility for months, following early reports that this new initiative was under consideration. In Thursday’s press call, Verma said these critics didn’t understand what the administration was trying to do and that the new initiative is fully consistent with Medicaid’s rules.

“I think a lot of those charges are from folks that haven’t actually reviewed what we put out there,” Verma said. “We are not changing how the financing is structured.”

But as she outlined the proposal, Verma noted that states taking up the new option would “agree to manage their program within a defined budget, introducing an important element of fiscal accountability.” And the very first sentence of the official letter describing the new option states that it would provide “federal taxpayers with greater budget certainty” ― which, as University of Michigan professor Nicholas Bagley notes, taxpayers don’t have now.

That may or may not be a desirable goal, Bagley told HuffPost, but it’s not the kind of change the law would seem to allow: “It looks to me like [the Department of Health and Human Services] is trying to make a fundamental change to the Medicaid financing structure even though it’s not allowed to make fundamental changes to the Medicaid funding structure.”

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