WASHINGTON — Big debt-reduction deal or little deal, Medicaid is the one entitlement program that’s almost certain to be on the chopping block as the White House and congressional leaders look for ways to trim federal spending.
The Republican’s decision on Saturday to step away from a $4 trillion budget-and-debt proposal, opting for a smaller package, means that cuts to Social Security are now off the table. And Democrats are also likely to resist any dramatic changes to Medicare, as the talks move into the next critical phase.
But even with the latest twist in the negotiations, Medicaid remains a prime target for cuts. And the impact could be far-reaching for states like Connecticut, which is already struggling to preserve its social safety net in a tough fiscal climate.
Governors and health care advocates for the poor and disabled–key populations served by Medicaid–are on knife’s edge about possible changes to the program’s funding streams.
“Everybody’s nervous,” said Ellen Andrews, executive director of the Connecticut Health Policy Project. Unlike Medicare and Social Security, which serve elderly Americans, Medicaid is seen as “a poor person’s program… I think that makes it more vulnerable.”
Over the weekend, Republican House Speaker John Boehner said because of an impasse over Democrats’ push for tax increases, a sweeping deal to achieve $4 trillion in savings over the next decade was out of reach. He and others suggested moving back to the smaller framework that Vice President Joe Biden and other congressional leaders had begun to hash out earlier this summer, before those talks faltered.
In the Biden talks, the Obama Administration had laid out a proposal to cut as much as $100 billion from Medicaid, as part of a broader package to achieve more than $2 trillion in savings. That framework is now back in play, as the president and top lawmakers try to come to an agreement to raise the nation’s debt ceiling before an Aug. 2. deadline.
In the Biden outline, as much as half of the Medicaid savings could be achieved by tweaking the federal contribution that states get to help pay for Medicaid and the Children’s Health Insurance Program (CHIP), two joint state-federal programs that cover low-income individuals, families, and children.
Although key details remain murky, “no state is going to benefit” under the various proposals being floated, said Judith Solomon, vice president for health policy at the Center on Budget and Policy Priorities, a liberal research group.
Right now, the federal government pays each state a set rate to help cover Medicaid services. And it pays a different, higher rate to cover kids in the CHIP program.
Starting in 2014, a third rate will be introduced. That’s when health reform requires a major expansion of Medicaid, and the federal government will pay 100 percent of the costs for covering new enrollees through 2016, after which the federal contribution will be phased down to about 90 percent.
One proposal on the table in the debt-and-budget negotiations would replace those three different federal contribution rates with one “blended” rate. It’s unclear right now how that single rate would be calculated, and how Connecticut might be affected.
But the idea has many governors worried. On Saturday, the National Governor’s Association came out against the proposal.
“These proposed federal spending reductions for Medicaid will result in a direct cost shift to states, which will result in reduced Medicaid expenditures, in increased state taxes or reductions in K-12 education, transportation, and public safety funding,” the NGA wrote in a letter to President Obama and House and Senate leaders. “Make no mistake: these reductions are significant and cannot be absorbed into state budgets or simply passed on to providers of health services for our Medicaid populations.”
Health and Human Services Secretary Kathleen Sebelius told reporters that a blended rate wouldn’t necessarily translate into lower federal contribution to the states.
“Is it easier for states to have one rate and know what their match is? Probably,” Sebelius said, according to a Kaiser Health News story. “Is that something that then is going to be accompanied with a decrease in funding? That’s the point at which I think a lot of states are nervous.”
But, she added, “It’s really what happens with the underlying assumptions of what the federal contribution is.” That’s an open question at this point.
As one of the wealthiest states in the nation, Connecticut is already at the bottom of the scale for both programs. The state gets a 50 percent match from Washington for Medicaid, and a 65 percent federal contribution for CHIP. While those are the lowest match rates Medicaid pays, that funding stream accounts for a major revenue source for the state.
“We get $2.8 billion from the feds for Medicaid and CHIP,” Andrews noted, citing 2010 figures. “That’s a lot of money. And when you start talking about messing with that… Connecticut has a lot to lose.”
Proponents of a “blended rate” say it will reduce overhead costs for the states, which administer both programs. Instead of having to calculate different eligibility rates and factor in different enrollment dates for the two programs, officials will just have one rate.
“If there’s a way to make it more efficient, then that’s certainly an interesting idea,” said Rep. Joe Courtney, a Democrat from Connecticut’s 2nd District, who closely follows health care issues. He said it could save money over the long term, without “abolishing the basic structure of the program.”
Courtney was referring to an alternative proposal, put forward by House Republicans, to turn Medicaid into a block grant. The House GOP plan would give states a capped amount of federal funds to run Medicaid, based on a set formula, rather than the amount it actually costs to serve enrollees. In return for less funding, the GOP plan would give states increased flexibility to determine eligibility and benefits. Republicans have also called for repealing the health reform law, which would mean nixing the Medicaid expansion provisions scheduled for 2014.
Courtney and others have said the block-grant proposal would shift huge costs to the states, which would likely be forced to slash their Medicaid rolls and leave the poor without access to insurance. Under an analysis by the nonpartisan Kaiser Family Foundation, Connecticut would see its federal Medicaid funding drop by nearly 33 percent under the GOP plan.
Solomon and other health care advocates say there’s no question the Republican Medicaid proposal would be devastating for the program, its enrollees, and for state budgets. But they don’t like the Obama Administration’s idea either.
In a recent analysis of the proposal, Solomon concluded the potential administrative savings would be “slight,” and the blended rate would likely be “significantly below” the combined various federal matching rates a state would otherwise get. That’s how the proposal would save the federal government money.
“To compensate for the federal funding reductions, states would either have to contribute more of their own funds or, as is more likely, shift costs to beneficiaries and health care providers by scaling back benefits and already-low payment rates,” Solomon concluded. She noted that Medicaid patients already have difficulty finding doctors because of the low-reimbursement rates, and this could exacerbate that problem.
Plus, states are already trying to trim their Medicaid costs, which account for a big slice of their annual budgets. In his budget plan, Democratic Gov. Dannel Malloy managed to limit the impact of cuts to Medicaid services, but he did so by trimming payments to hospitals and imposing a new tax on those providers. Other states imposed deeper cuts to doctors and hospitals in an effort to reduce the cost of the program.
Democrats in Congress have vowed to fight any cuts that would impact beneficiaries of Medicaid, Medicare or Social Security. And they’ve noted that the outlines of a possible deal are murky, at best, so it’s hard to determine the real impact of anything being negotiated.
“It’s very hard to detect what’s real and what’s posturing at this point,” Courtney said last week.
Andrews echoed that, noting there was no written proposal that she and other advocates could analyze. “It’s all very vague,” she said, which is adding to the anxiety.
Andrews said there’s a lot of room for “mischief” in any proposal to tweak federal matching rates. “And there’s no way this doesn’t hurt Connecticut,” she said. “A small tweak has a huge impact.”