This is one of two arguments for and against Medicaid cuts. Read why Medicaid should be cut here.
Congressional Republicans are moving forward with a budget package that includes severe Medicaid cuts. The House Energy and Commerce Committee, which has jurisdiction over Medicaid, has been assigned a target of at least $880 billion in spending cuts over 10 years, most or all of which will likely come out of Medicaid. Although numerous Medicaid proposals are under consideration, several share a common theme: reducing federal spending by cutting federal Medicaid funding and shifting significant costs to states.
This approach has perceived political benefits because federal policymakers believe they can evade blame by not enacting all the explicit cuts to Medicaid eligibility, benefits and provider payments. Instead, state policymakers will be left with no choice but to make draconian cuts to their Medicaid programs in order to balance their budgets.
Federal Medicaid funding is critical to state budgets. According to the National Association of State Budget Officers, federal Medicaid funding accounted for 56.1 percent of all federal funding included in state budgets last year. In three states — Arizona, West Virginia and North Carolina — Medicaid funding constituted more than 70 percent of federal funding, with Arizona the highest at 74.4 percent.
Proposals to cap and cut federal funding on a per-beneficiary basis (known as a per capita cap), reduce the level of federal support for the Medicaid expansion under the Affordable Care Act, and lowering the minimum matching rate involves sharply cutting federal funding for states, compared to current law. Moreover, another proposal would make it difficult for states to raise their own revenues to finance their share of Medicaid costs by restricting the use of taxes on hospitals, nursing homes and other providers.
These proposals would all lead to severe budget shortfalls at the state level. Credit rating agencies have certainly taken notice. S&P Global recently reported that “the largest flow of funds from the federal level to the states occurs in the Medicaid program. Thus, any benefit, formula or reimbursement rate changes to Medicaid … could have state-level credit quality effects as well.”
Aside from these fiscal effects, Medicaid is indispensable to the U.S. health-care system. The program covers 72 million low-income children, parents, pregnant women, people with disabilities, seniors and other adults. Among many critical roles, it is the primary funder of long-term care, including covering 63 percent of nursing home residents.
Medicaid’s value came into focus when the payment portal used by states to withdraw their federal Medicaid funding was temporarily shut down in January by the Trump administration. Chaos ensued as states wondered if they could pay providers or managed care plans on time. A strong, immediate reaction by states, along with providers and other stakeholders, resulted in the portal’s quick restoration.
Similar intense and widespread pushback by states, among others, could lead federal policymakers to reconsider Medicaid changes. Otherwise, Congress is primed to shift large costs to states, forcing them to make deeply damaging cuts and take away coverage and access to care for millions of low-income residents.
Edwin Park is a research professor at the McCourt School of Public Policy Center for Children and Families at Georgetown University.
Governing’s opinion columns reflect the views of their authors and not necessarily those of Governing’s editors or management.
