Asked about the future of federal funds for Connecticut under President-elect Donald J. Trump and a Republican Congress, state budget director Benjamin Barnes prefaced his reply with a big “who knows?” shrug. There’s lots of room for surprises, he said.
But – he was quick to add – he has deep concerns about what could happen to health care funding – particularly for Medicaid. Both Trump and House Speaker Paul Ryan have called for significantly restructuring the way the program is funded. That includes a potential change from the current open-ended system in which the federal government reimburses states for a portion of whatever they spend to one in which states get a specific amount of money from which to pay for coverage.
Whatever your politics, there’s a lot at stake: Medicaid is Connecticut’s largest source of federal funding, forecast to bring in $3.5 billion this fiscal year. It’s also the largest single line item in the state budget, costing Connecticut another $2.4 billion.
It’s the source of health care coverage for more than one in five state residents – nearly 750,000 poor children and adults and people with disabilities. Close to 200,000 of them are covered because of new Medicaid eligibility rules under Obamacare – which Trump has pledged to repeal and replace – and their coverage is currently fully funded by the federal government.
Both Trump and Ryan have sought major changes to Medicaid. The president-elect called during the campaign for converting Medicaid to block grants – in which states get a set amount of money – while Ryan’s plan, issued by House Republicans in June, would give states a choice between receiving Medicaid funds as block grants or as a capped amount for each enrollee. In exchange, states would gain more flexibility in how they administer the program; they could, for example, charge premiums or require certain clients to work or participate in education or job training. (The House Republican plan was authored in part by U.S. Rep. Tom Price, Trump’s pick to head the U.S. Department of Health and Human Services.)
For Connecticut, that kind of change could mean having less money to spend on Medicaid overall. The state could also face a steep drop in federal reimbursement for those covered by Medicaid under Obamacare – if their coverage isn’t eliminated entirely.
“Medicaid is such a huge part of the budget. Anything that implicates Medicaid will have big impacts, both on the budget and on residents,” said Sen. Beth Bye, co-chair of the Appropriations Committee.
The details matter: The way a block grant or cap system is designed could make the difference between being able to sustain much of the state’s Medicaid program in the short-term and facing major disruption, according to an analysis by the Urban Institute released in September.
Connecticut is among the top states when it comes to federal Medicaid spending per low-income resident, according to the analysis.
If block grants were calculated based on historical spending – how they have typically been designed – Connecticut and other high-spending states would end up with more money than others, and could potentially sustain most of their coverage and benefits, at least in the short-term, authors John Holahan and Matthew Buettgens wrote.
By contrast, Connecticut could face a steep loss of federal funding if the block grants or caps were set with a uniform funding level for the whole country.
“The approach would create huge problems for high-spending states, requiring substantial increases in state taxes to sustain their current programs or creating enormous disruptions for individuals’ coverage and for the health systems,” Holahan and Buettgens wrote.
The latter scenario is one that scares Barnes.
A major drop in federal funding for health programs – such as a 20 or 30 percent reduction – would require “dismantling a lot of what we currently do,” Barnes said.
“I really hope that that doesn’t come to pass in its worst possible form because it would mean us turning away from providing health care to groups of people who we really, I believe, should be providing health care for. I think it harms our ability to meet the needs of the developmentally disabled and behavioral health, as well as even just the general support of medical coverage for the poor,” he said.
“Hospitals think that we’ve been underfunding them for the last few years anyways. I think that would become more acute,” Barnes added. “I think we would end up having to make really difficult decisions about further reducing rates or reducing eligibility and reducing covered services, but not just around the margins.”
The potential changes come at a time when Connecticut is already struggling with deep fiscal problems. Nonpartisan analysts have projected a $1.5 billion deficit in the next fiscal year’s budget, meaning the state probably will have almost no ability to make up for any significant loss of federal funds.
For now, Barnes is focused on the next state budget. After that, he said, he’ll turn his attention to the federal funding situation if necessary, including advocating against efforts to limit Medicaid funding.
“I wish I could say I had contingency plans all worked out,” Barnes said. “I don’t.”
What Trump and Ryan have called for
In its current form, Medicaid is an entitlement. Anyone who qualifies can receive coverage, and the federal government reimburses states for a portion of what they spend. (Connecticut gets the lowest rate, since it’s a high-income state, but still receives federal reimbursement for 50 percent or more of its Medicaid spending. The percentage varies based on the enrollee.)
Critics say this gives states problematic incentives – encouraging them to spend more on Medicaid to capture more federal funds, while giving them little incentive to save money, since they have to cut at least $2 to achieve one dollar in state-level savings. It can also lead to disparities between states, with more federal money going to wealthier states that can afford to spend more on Medicaid.
Both Trump and Ryan have called for changes designed to limit federal Medicaid spending. Block grants, supporters say, would encourage states to be more efficient – since they would have to manage within a set budget – and root out fraud and waste.
Those who oppose the concept say block grants probably would lead to significant cutbacks in Medicaid, requiring states to either increase spending or slash enrollment, benefits or payments to health care providers in a program that many poor children and adults rely on. It could be especially problematic during economic downturns, they say, since states would have a harder time covering more people when need rises.
Per-capita caps, the other approach in Ryan’s plan, could make it easier for states to accommodate higher demand, since it would base their funding levels on how many people are covered, and states would see an uptick in federal funds if enrollment grew. Under Ryan’s plan there would be separate cap levels for different groups – seniors, blind and disabled people, children and adults.
Both models can also limit federal spending by allowing state allotments to grow at a lower rate than they otherwise would with a more open-ended funding structure.
The Obamacare expansion
Until recently, Connecticut’s Medicaid program, known as HUSKY, was largely limited to poor children and their parents, poor seniors and people with disabilities. That changed with Obamacare, which allowed states to cover poor adults without minor children – at almost no cost to the states. The federal government currently pays 100 percent of their coverage costs. It will fall to 95 percent on Jan. 1, then drop gradually until 2020, when it reaches 90 percent.
By contrast, the federal government reimburses Connecticut for 50 percent of its spending on other Medicaid clients.
Critics say the incentives are backward: The federal government makes it more enticing for states to cover “able-bodied adults” than to cover children or people with disabilities, for whom the program had traditionally been intended.
It’s not clear how the Medicaid expansion would fare under any plan to repeal and replace Obamacare, something Trump and Congressional leaders have made a priority. Under Ryan’s health care plan, the federal reimbursement level for those covered through the Obamacare Medicaid expansion would drop each year until it reaches the same level as others.
For Connecticut, that would mean receiving half a billion dollars less each year in federal funds. During the 2016 fiscal year, the federal government paid $1.23 billion toward coverage of people newly eligible for Medicaid because of Obamacare.
Barnes said he doesn’t know how the administration would respond if federal funds for that coverage dropped by nearly half.
“In normal times, if things were in good shape, I would be the first to say we should find a way to preserve as much of that service as possible at state expense or in a more traditional partnership with the feds,” he said. “But right now I don’t know that we would have the ability to do that.”
What Barnes would cut first
Barnes said the state has been going in a “really positive direction” in Medicaid. Payment rates for primary care providers rose under the federal health law, and the state picked up most of the cost of the increase once the federal funding expired. Barnes called that pay bump “a godsend” that has helped keep costs down by increasing clients’ use of primary and preventive care.
He noted that cost growth in HUSKY has been “pretty-well controlled,” and said he hopes to have a few years to continue to tweak the program before any major federal changes occur. “I’m not optimistic that we’ll be given that chance,” he said. “I think we may end up having to restructure our Medicaid program over the next few years in response to changes in federal rules.”
Barnes said he’d welcome more flexibility in Medicaid, such as the ability to use Medicaid funding for services that aren’t traditionally covered, such as medical outreach workers who can coordinate care and services connected to supportive housing.
But he said greater flexibility will be unlikely to be accompanied by even stable levels of funding. “That’s what I’m hoping for, but I’m worried that it’ll be some flexibility and a lot less money,” he said. “We’ll make the best of the flexibility as we downsize programs.”
How would the administration prioritize ways to cut? Barnes is clear about where he’d start.
“I’ve always wanted to go after providers,” he said. It’s based on the premise that at least some of them are “doing OK” financially.
“I would rather make them do a little less OK; I’d rather do that before I start eliminating eligibility or covered services,” he said.
But, he added, “The problem is that at a certain point, you can’t do that anymore. It’s very hard to know where that is.”
As an example, he said, he doesn’t buy anesthesiologists saying they can’t live with rate cuts. But he’s not sure group home providers or therapists could handle a big rate cut without jeopardizing access to services.
After rate cuts, Barnes said he would likely look to scale back eligibility, starting with new applicants rather than taking away benefits from people who have come to count on them.
“There’s sort of that psychology of loss, you’re taking benefits away from somebody who’s already got them and organized their life around them,” he said. “I’d rather avoid that.”
“Obviously I tend to be kind of fixated on need, so I’d rather take eligibility away from higher-income people rather than lower-income people or people with young children or special needs of one kind or another,” Barnes added. “I think you need to give them as much deference as possible when you’re making these decisions.”
Legislators: Changes will take time
If federal funds come to states as set allotments, rather than being tied to spending on health care services already delivered, states could have more discretion on how to spend the money – something that concerns hospital officials. Yale New Haven Health System President and CEO Marna Borgstrom said she and her colleagues worry that block grant funding could be used to cover other state expenses, further reducing Medicaid payments to hospitals.
Top legislators said they’ll be watching what happens with Medicaid, but said it’s too soon to tell exactly what the implications will be for Connecticut.
Senate Republican Leader Len Fasano said much will depend on the details of any changes. “We’re going to have to keep our eye on this plan as it develops in Washington,” Fasano, of North Haven, said.
As for the program now, he’s concerned about cuts in payment rates to providers – particularly radiologists – and worries that will hurt patients’ access to care.
Bye, a West Hartford Democrat who has led the budget-writing committee (she is stepping down from the committee post), said major changes to how Medicaid is funded are concerning.
“For states like ours that have been able to maximize our use of federal dollars, I think this could have implications that really hurt Connecticut residents, and hurt our hospitals and health care providers,” she said.
A block grant approach could jeopardize provider payment rates, higher reimbursement rates for dentists who treat children in Medicaid – which significantly increased the number of children who receive dental care – and coverage for low-income adults, she said.
“I’m sure it will be a huge topic over the next two years or so,” she said. “Things don’t change overnight, so I think whatever it is, there will be time to adjust and time to advocate for changes.”
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