Taking a Scalpel to Medicaid

Taking a Scalpel to Medicaid

Republican claims of their bill's great flexibility for the states are a sham cover for disabling cuts.

March 20, 2017

This article appears in the upcoming Spring 2017 issue of The American Prospect magazine. Subscribe here.

As Republicans struggle over how Congress can pass some version of their health-insurance cuts, lost in the debate is the fact that the Affordable Care Act’s greatest achievement was the expansion of Medicaid. The most dire cuts in the proposed GOP legislation would be both to basic Medicaid and to the people who qualified for the ACA expansion.

The bill not only phases out the expansion of Medicaid under the Affordable Care Act; it guts basic Medicaid itself. A core provision converts Medicaid from an entitlement, for which people automatically qualify based on income or other criteria of need, into a fixed per capita block grant to the states, with much-reduced federal aid. The only possible consequence can be to throw millions of people off Medicaid.

When the Congressional Budget Office calculated the impact of the Republican legislation in mid-March, it found that 24 million people will lose coverage by 2026 and 14 million of them will be Medicaid recipients. Of the roughly 20 million people who gained coverage thanks to the ACA, more than half gained coverage thanks to the Medicaid expansion in the law. More than three million were young people who were able to stay on their parents’ plans, and the rest bought insurance on the private market through the ACA-sponsored exchanges. This aspect of the ACA will also be gutted through reduced subsidies.

Medicaid is the largest health insurance program in the United States, covering some 20 percent of Americans—more than are covered by Medicare. Established during President Lyndon Johnson’s Great Society initiatives of the mid-1960s, Medicaid originally was intended to cover people on Aid to Families with Dependent Children (AFDC), the working and elderly poor, people with disabilities, and indigent people needing nursing home care. According to 2015 data, most nonelderly Medicaid recipients are white (42 percent); the rest are Hispanic (31 percent), black (19 percent), or of another race (8 percent).

Subsequent budget cuts excluded most of the working poor, and people on AFDC no longer get automatic coverage since that program, now called Temporary Assistance for Needy Families (TANF), was turned into a block grant in 1996. The original Medicaid program was created as a federal-state match. Today, the basic formula pays 50 percent of the costs in states like Colorado and Massachusetts, up to a 75 percent of the cost in states like Mississippi, and 72 percent in West Virginia. Currently, the federal government adjusts Medicaid payments based on fluctuations in a state’s actual health-care costs.

The 2010 Affordable Care Act included the most dramatic expansion of Medicaid in the program’s history. The law encouraged states to liberalize Medicaid coverage by having Washington pick up nearly all of the costs. The formula expanded eligibility to people who earned up to 138 percent of the poverty level—$16,643 for an individual and $33,948 for a four-person household in 2017. Many of the people who were able to access health insurance under the Medicaid expansion were part-time workers or full-time service or construction workers whose employers did not provide health insurance. The ACA also standardized enrollment and eligibility requirements across states.

(Photo: AP/J. Scott Applewhite)

Health and Human Services Secretary Tom Price speaks during a news conference on Capitol Hill on March 17, 2017, about the GOP's replacement bill for the ACA.

In December 2016, nearly 74 million Americans received Medicaid coverage, with roughly 16.2 million new adults and children having enrolled in Medicaid and CHIP (health coverage for children in poverty) since late 2013 when the program became effective. “That was a pretty significant change in 2010,” says Colleen Grogan, a University of Chicago health-care policy professor. “It was a health-care program for the poor, but it never actually covered all poor people who really needed care.”

The federal expansion, with its generous matching rates of 100 percent in 2016, 95 percent in 2017, and 90 percent in 2020 and subsequent years (originally mandatory but made optional by a Supreme Court decision) was so attractive that most states agreed to the expansion. It had bipartisan appeal: Of the 31 expansion states, 16 have Republican governors.

It is this expansion that would be undone by the Republican bill. The CBO estimates that federal Medicaid spending would decrease by $880 billion over the next decade—states will have to dispense with the expansion and cut other aspects of the Medicaid program since their costs would soon become exorbitant. For people who do remain on Medicaid, the Republican bill has added work requirements, as a capitulation to conservatives who thought it wasn’t tough enough. The GOP bill would also repeal key ACA funding streams, such as the Medicare payroll tax on high-income earners, as well as levies on high-cost employer-sponsored group health plans, pharmaceutical companies, medical device manufacturers, and tanning beds.


HOUSE REPUBLICANS HAVE tried to finesse the spending cuts by claiming that the new legislation would be a gain for state “flexibility.” States, presumably, would give up resources but in return would get new flexibility to devise their own state programs.

Under closer scrutiny, this contention disintegrates on several fronts. First, the proposed additional funding for new state experimental programs is a pittance compared with the federal funds that are being cut. Second, states are already spending significant sums on their share of Medicaid, and have no discretionary resources to make up the lost federal aid. And third, the existing Medicaid program already provides substantial flexibility though its waiver provisions.

Medicaid makes up nearly 30 percent of total state spending, and already crowds out state priorities like education and infrastructure. To maintain current Medicaid benefit levels for residents, governors and state lawmakers would be forced to cut some recipients loose or find the money elsewhere in already constrained state budgets. Those unappealing choices underscore the no-win scenarios for state leaders who are at the mercy of a Republican Congress determined to finance tax cuts for the wealthy by plundering health care for the poor.

There is no state in the union that can absorb a shock of that scale of reduced federal funding coupled with fast-rising medical costs. The outrage that has greeted the Republican proposal to topple the one of the pillars of the American health-care system reflects the growing realization that the plan jeopardizes the health of millions of people and compromises the economic stability of the states where they live.

(Photo: Harry S. Truman Library)

President Lyndon B. Johnson signs the Medicare bill into law in 1965.

One of the major ways the ACA made the health-care system more efficient was by reducing the number of uninsured people. That development, in turn, reduced the financial stresses on hospitals and clinics by reducing uncompensated care costs—that is, the cost of free medical care that people sometimes seek out in emergency rooms. Moving people onto a standard insurance package that included basic wellness care, immunizations, standards protocols for conditions like diabetes and childhood asthma, and treatment for acute and chronic illnesses means people are being treated more promptly, rather than being forced to seek out expensive alternatives. This increased efficiency of care will be lost, as the Republican bill drives those who lose their insurance back into emergency rooms—or to having no care at all.

President Trump, who pledged to not cut Medicaid on the campaign trail and now supports the House Republicans, emphasized flexibility in his February address to a joint session of Congress. “We should give our great state governors the resources and flexibility they need with Medicaid to make sure no one is left out,” he said. A per capita cap strategy, so the GOP argument goes, would provide states with the flexibility to manage, innovate, and experiment with their Medicaid programs.

Yet funneling fewer dollars to states erodes the built-in flexibility that already exists. Today, states can design health-care programs to fit their own circumstances and experiment with new medical treatment and administrative procedures by using several kinds of waivers that allow states to stretch federal Medicaid rules.

One such tool is the Section 1115 demonstration waiver, known as the “eleven-fifteen” waiver. The provision allows state officials to design and implement programs that expand health-care services; address health-care emergencies like the HIV/AIDS epidemic; craft new administrative, technology, and financial frameworks; and make other refinements that meet the requirements of a state, region, or specific groups of patients.

As of February, 33 states had been granted waivers in five areas, including behavioral health. Oregon officials obtained $2 billion through an 1115 waiver for a program aimed at keeping the growth in Medicaid costs at or below 3.4 percent annually by using regional “coordinated care organizations.” These organizations target low-income patients through networks of providers and programs designed to reduce emergency room visits, minimize hospital readmissions without compromising quality of care, and the like. According to Jesse O’Brien, policy director for the Oregon State Public Interest Research Group, changing the practices of large organizations like hospital and health insurers requires significant dollars that most states cannot deploy without federal funding.

“If the idea is to provide states with flexibility to implement new ways of providing health-care coverage to people through Medicaid, that takes more money up front,” says O’Brien. “You can’t just say, ‘Here’s a smaller amount of money, do with it what you will.’”

Massachusetts undertook the boldest use of the federal dollars provided through the 1115 waiver to establish its successful universal health-care program in 2006, which became the model for the Affordable Care Act. One of the primary drivers for health-care reform in the Bay State was the pressure on hospitals from the costs of the uncompensated-care pool, which provided free health care to low-income people who did not have insurance and relied on emergency room visits.

Establishing an insurance system that provided routine medical care for low-income people and nearly all other state residents dramatically reshaped the state’s health-care landscape. Today, 96 percent of Massachusetts residents are insured. The Bay State received $52.5 billion through the amended 1115 waiver last November, to allow Medicaid patients to use accountable care organizations. These networks bring together hospitals, doctors, and other medical professionals to coordinate care and treatment for Medicaid patients, including substance abuse programs, and provide funds to support care for the indigent.

The challenge of providing care for uninsured people would come roaring back in Massachusetts and elsewhere if Medicaid eligibility narrows, with less money in the system and more people losing coverage. “There’s a waiver process that the Trump administration totally controls that allows states to waive virtually anything in the Medicaid rule book,” says Brian Rosman, the government affairs and research director for Health Care for All, a Massachusetts health-care advocacy group that played a key role in the 2006 reforms. Flexibility “is a Republican talking point not based on reality; it is an alternative fact,” he says.

Some states want to interpret flexibility in a perverse way—as a license to ration health care. Arkansas Governor Asa Hutchinson, a Republican, has already announced that he intends to pursue an 1115 waiver to institute a work requirement for people who became eligible for coverage under the Medicaid expansion—a conservative tenet the Obama administration rejected. In an undated letter to governors, Secretary of Health and Human Services Tom Price and Seema Verma, the Centers for Medicare and Medicaid Services administrator, said the states can use the waivers to create innovative training and employment programs as ways to “improve the long-term health of low-income Americans.” In reality, many of the working poor who receive Medicaid already work multiple part-time jobs, and an overlaid work requirement would destroy their livelihoods by creating income requirements that would push them off the program. Crafting state eligibility requirements quickly becomes political, and in an environment of reduced funding, one recipient group, or one region, gets played off against another.

Medicaid is the largest source of payment to nursing homes. The program pays for 51 percent of all spending on long-term care and related needs, since few people have the financial resources to pay out of pocket for the high cost of nursing home care, and few have long-term care insurance. The elderly poor who require long-term nursing home care—or middle-class elderly who “spend down” their savings and disperse other resources in order to qualify for nursing home care—are one of the most expensive groups to cover. But state officials are unlikely to tinker with the eligibility of elders or the blind and disabled. Greatest Generation elders, backed by their baby-boomer (and soon-to-be elderly) children, remain one of the most powerful voting and lobbying blocs. Even in a politically polarized America, there is a remarkable bipartisan consensus about the use of Medicaid to cover the long-term needs of the elderly.

(Photo: AP/Tom Williams/CQ Roll Call)

Marc Petitpierre holds a sign at a town hall meeting with West Virginia Democratic Senator Joe Manchin in Martinsburg, West Virginia, on March 16, 2017. Much of the discussion at the event was regarding the Republican plan to repeal and replace the Affordable Care Act.


Smaller federal Medicaid allocations will disproportionally affect the poor states that lean Republican, according to former Democratic Governor Jim Hodges of South Carolina. “It will be interesting to see [what happens] when people begin to put pen to paper in these Southern states and realize that some of the proposals that are out there would disproportionally impact them in a negative way,” he says. In states like Tennessee that did not expand Medicaid, rural hospitals will close, says Gordon Bonnyman Jr., a Tennessee Justice Center staff attorney and health-care policy expert. The state’s failure to expand has affected dozens of rural hospitals that did not receive increased expansion funding for caring for low-income residents. “It is hard to overstate what this is going to mean in rural America,” says Bonnyman. “It will absolutely hammer the GOP base.”

Bonnyman notes that anywhere from 40 to 50 rural hospitals in Tennessee, which has second-highest rate of rural hospital closings in the country, are already teetering on the verge of shutdown. When a rural hospital closes, it is just the beginning of a downward economic spiral, he says. Rural hospitals are often the largest employer in the region. A small town without a hospital means the remaining employers have trouble recruiting new workers. Jobs dry up and young people leave, hollowing out once self-sufficient communities.


UNDER THE REPUBLICANS' American Health Care Act framework, beginning in 2019, Medicaid funding would be distributed using a per capita cap model, based on fiscal year 2016 spending on enrolled eligible groups (elderly, blind and disabled, children, adults enrolled in expansion states and those in non-expansion states) plus the Consumer Price Index’s medical care growth rate. States that exceed the cap would have their allocation reduced in the next fiscal year.

“You can do a per capita cap in a way that would be the greatest thing ever, if you, say, double the amount of money going into the program,” says John McDonough, a professor at Harvard’s T.H. Chan School of Public Health and a key player in the Bay State’s 2006 health-care reform effort. “But this is very clearly intended as a strategy to lessen the federal commitment to the 74 million Americans who are in the program.”

After 2019, expansion states would no longer receive the generous Obamacare match, effectively making enrollment of new applicants cost-prohibitive for most states. That provision alone forces seven states—Arkansas, Illinois, Indiana, Michigan, New Hampshire, New Mexico, and Washington—and 3.3 million people out of the Medicaid expansion immediately, because of state laws that end participation in the program if the expansion matches were no longer available. Republican governors also demanded equity with expansion states, so the19 states that did not accept expansion dollars will receive $10 billion over five years for safety net programs and services.

Republican members of Congress did not reckon on the popularity of many ACA provisions, including the Medicaid expansion. For most Americans, the Obamacare debate is about making the health-care and insurance system work better for patients and their families. But for the Republicans, the issue is pure politics. Republicans in Congress have tried four times in the past 40 years to block-grant Medicaid, believing that health-care coverage for the poor should rest largely with states while the federal government steers the newly freed-up funds to tax cuts and defense. “The GOP plan [creates] a dial that Congress can ratchet down every time they are looking for savings in the future,” says Katherine Howitt, an associate policy director for Community Catalyst, a Boston-based national health-care advocacy group.


GOVERNORS FOR THE MOST part have emerged as fulcrums of opposition to block grants. At the recent National Governors Association winter meeting, few of them could muster enthusiasm for billions of dollars less in federal funding. State leaders have proved to be a deciding factor on Medicaid reforms before. In his first term, President George W. Bush asked the NGA to craft a block-grant proposal that he could send to Congress. But a bipartisan task force could not reach agreement on covering costs for people eligible for both Medicaid and Medicare and declared defeat in 2003.

When the only option in front of them is the federal government abandoning the states, leaving them to struggle with health care for the country’s poorest people, Democratic and Republican governors can find at least one point of agreement: They do not want to deal with political fallout from supporting a bill that erases a popular entitlement.

In a March letter to House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell, four Republican governors—John Kasich of Ohio, Rick Snyder of Michigan, Brian Sandoval of Nevada, and Hutchinson of Arkansas—argued that the current bill “provides almost no new flexibility for states, does not ensure the resources necessary to make sure no one is left out, and shifts significant new costs to states.”

“The budget exercise is very easy for [Congress],” says Judith Solomon, vice president for health policy at the Center on Budget and Policy Priorities in Washington. “Once they come up with a formula, they don’t have to see the faces of the people who are losing coverage. Those decisions are passed down to the governors, who have to figure it out.”

Many governors prefer an ACA repair-replace framework to the fast-tracked repeal-replace strategy that the congressional Republicans are hell-bent on. And if governors know more about Medicaid than most members of Congress, then Massachusetts Governor Baker, who spent a decade as the CEO of Harvard Pilgrim Health Care and was a state budget chief, knows more about health-care policy than any current governor. In a January letter to House Majority Leader Kevin McCarthy, Baker specifically outlined Medicaid’s existing flexibility and his state’s history with the 1115 waiver, and noted that “a shift to block grants or per capita caps for Medicaid would remove flexibility from states as the result of reduced federal funding.” He continued, “States would most likely make decisions based mainly on fiscal reasons rather that the health care needs of vulnerable populations and the stability of the insurance market.”

“He understands the game is that the feds want to shrink the money going to states,” says McDonough, the Harvard professor, of Baker. The governor, who is up for up for re-election next year, also understands that he must tread carefully in a Democratic state where there is strong support for the existing state health system. While the House Republicans remain inflexible, the opposition of Baker and some other GOP governors, who made the rounds on Capitol Hill during the governors’ Washington confab, may have sown enough doubt among Senate Republicans to help scuttle the bill. (Baker declined a request for an interview through a spokesman.)

In 2016, the Republican Party platform labeled Medicaid “the next frontier of welfare reform,” one reason work requirements have emerged as a touchstone for Medicaid. Congressional Republicans continue to demonize Medicaid recipients, particularly the “able-bodied” who do not work and receive Medicaid coverage, as underserving people who are gaming the system. These new Medicaid code words telegraph stereotypes about urban areas, African Americans, and other minorities and are reminiscent of the GOP’s “welfare queens” pejoratives of decades past—even though far more people on Medicaid, like welfare, are white.

The health-care sector is woefully unprepared to cope with the Pandora’s box of ills that would be unleashed by entitlement cutbacks predicated on demonizing yet another group of Americans. “This is not your uncle’s welfare program,” says Bonnyman, the Tennessee attorney. “This is a cornerstone of the health-care financing system in the United States. If you want to hack away at that, good luck to you.”

You may also like