The GOP’s annoyance regarding benefit and coverage rich states could drive some budget reconciliation cuts
President Donald Trump and GOP leaders in Congress have seemingly ruled out or at least backed away from major changes to Medicaid that would impact coverage. And sentiment seems to be turning away from deep Medicaid cuts. The House’s large GOP budget reconciliation healthcare spending reduction bogey is being challenged by the Senate, which has drafted a reconciliation framework with reductions that would be much smaller.
But many GOP leaders and conservative think tanks still want to rein in the program. Conservatives don’t love Medicaid. Their philosophy is that it is a handout. In their minds, healthcare is a commodity — something you budget for and earn over time as your income climbs. If they were to cover someone’s illness, it is done behind the scenes (through Medicaid slush funds to powerful hospitals in big states like Florida and Texas) and usually not through upfront coverage. I clearly think they are wrong. It is far more expensive to cover care in emergency rooms and through inpatient admissions rather than cheaper upfront care.
Bu where conservatives could go beyond instituting work requirements is to focus in on so-called Medicaid “outlier” states and “over-expansion.” They will characterize this as waste in the system. And this could be one area where there is a meeting of the minds between moderates and rightists in each GOP-controlled chamber.
What are outliers and over-expansion?
What exactly do I mean by “outlier states” and “over-expansion?” Conservative Republicans hate the idea that progressive states have added significantly to Medicaid costs in two ways:
- These states have added demonstrably to the Medicaid rolls by expanding eligibility beyond mandatory populations or even optional populations most states adopt. Many look to California, New York, and some others. California stands out as the most adventurous on Medicaid as the Golden State has added undocumented residents to Medicaid. California is being accused of getting around bars on adding undocumented immigrants to the Medicaid rolls and effectively doing so with federal match dollars. More on this below.
- These states, too, have added a whole range of discretionary benefits, again well beyond what most states adopt. Conservatives complain about the dozen or so states that successfully applied for and were approved for major expansions where Medicaid dollars pay for social benefits. The Trump administration recently pulled back fast-track 1115 waiver guidance on social determinant benefits adopted by the Biden administration.
I am not opposed to adding some optional populations or discretionary benefits. Indeed, pharmacy coverage is actually optional under Medicaid rules. I even think coverage of services to reduce social barriers to health is not a bad practice. After all, studies show that social determinant barriers are a greater predictor of overall costs and outcomes than underlying disease states.
Reasonableness vs. excess
But as the budget debate rolls out, the GOP may make the case that it is all about reasonable expansions vs. excessive ones. Adding to all of this are accusations by conservative lawmakers and think tanks that states find all sorts of questionable ways to fund their state matches, leverage increased federal dollars, and then expand Medicaid to more and people and additional services.
Conservative groups like the Paragon Health Institute have pointed out that the percentage of Medicaid that is funded by the federal government vs. states continues to increase dramatically. And this trend goes beyond the Obamacare enhanced reimbursement for expansion populations. I would note that Paragon holds great sway in the administration and Congress. Many of its staff and fellows have served or are serving Trump 45 and 47.
States have several creative ways outside of usual general budgeting to leverage more federal funds for Medicaid. These include the following:
- Provider taxes (See my recent blog on this topic here: https://www.healthcarelabyrinth.com/the-coming-debate-over-provider-taxes-in-medicaid/ )
- Intergovernmental revenue transfers (usually from local government taxes)
- Certification of certain public expenditures at the state and local level
While there are some safeguards built into federal law and rules, the big complaint is that the revenues or certifications mentioned above are shuttled back to the same providers from which the revenue is derived. Effectively, within the federal rules, providers are “promised” the revenue back along with additional federal matched dollars. In my mind, it creates great bloat and lessens the drive for efficiency in our healthcare system. This is especially the case for hospitals.
While the machinations noted above are practiced by almost all states, conservatives complain that they are prolific in states with major coverage and benefit expansions. This has created two different safety net insurance profiles in states – those with unreasonable and extremely rich coverage and benefits and those that have programs much closer to federal Medicaid minimums or within reasonable parameters above that. Simply put, conservatives view the progressive states as excessive in terms of their Medicaid reach.
Again, I am pro-coverage. But to some degree, I see their point on the progressive states. Medicaid was meant to be a safety net for the poor. I am also concerned about the long-term sustainability of the program. I am supportive of some expansions beyond the original construct because consistent and reasonably comprehensive coverage is important. Medicaid can be a cost-effective way to do that. Indeed, many states do not do enough on Medicaid or coverage.
But should there be a new standard that creates reasonably comprehensive coverage and does not reimburse for things beyond that? Anything beyond this comprehensive standard in terms of eligibility and benefits could then be 100% state funded. Could Medicaid reimbursement be reformed to recognize this new reality (e.g., a well thought out and reasonably generous per capita cap program but not a block grant)?
Likely focuses
All this is to say that conservatives in Congress, with the support of research from conservative think tanks, likely will focus here for Medicaid cuts during the budget reconciliation process along with work requirements.
To be clear, I have rather negative views on work requirements. Studies would seem to indicate that 90% or so of enrollees either are working or would meet some sort of exclusion. What’s more, the studies point out how expensive implementing the work requirements are. They also tend to strip eligibility away from current or potential recipients due to administrative requirements, not so much because they do not actually meet work requirements or exceptions.
Back to waste in the system, while the Senate is aiming for very narrow spending reductions, cuts will occur because rightists in the House and to some degree in the Senate want to limit deficits and debt to extend the 2017 tax cuts. Cost-cutters are likely to focus broadly on FWA and liberally interpret it. In addition to traditional approaches to attacking fraud and abuse, budgeteers are likely to curb provider taxes and other practices states use to generate federal match as part of the so-called abuse bucket.
Backing up the drive are two recent studies:
The Paragon Health Institute and the Economic Policy Innovation Center recently focused in on California and the various ways the Golden State effectively exploits matching rules and launders money to fund its state share at the expense of the federal Medicaid budget. Despite this, California is facing billions in shortfall in Medicaid, perhaps backing up the idea that expansions have gone too far.
Separately, the Paragon Health Institute issued a very detailed and far-reaching assessment of Medicaid provider taxes, state-directed payments, supplemental payments, and certified public expenditures. While providers, especially hospitals, argue the money-raising tools are long-standing and legitimate, Paragon makes a good case for at least some reform. Paragon calls for Congress to reduce what it sees as money laundering and abuse by doing the following:
- Adopt a 3.5% safe harbor threshold for the tax “at a minimum” as opposed to 6%. Ultimately it would like bans on the use of provider taxes as a means to fund states’ Medicaid costs.
- Eliminating or capping of state directed payments and lump sum supplemental payments so that effective Medicaid payment rates do not exceed Medicare rates.
Also see my recent blog on this topic for more reduction scenarios: https://www.healthcarelabyrinth.com/the-coming-debate-over-provider-taxes-in-medicaid/
The skinny
Some conservative lawmakers would love to tackle growth by more extreme block grant or per capita cap measures that would limit federal growth year to year and over time. Despite my thoughts on a reasonable per capita cap program over time, these measures will be seen as too extreme by many moderate GOP members in each chamber right now. But look to conservatives to appeal to moderates to back provider tax reform and related reforms. There is an outside chance that moderates could get on board for other proposals that would limit reimbursement to “Medicaid rich states” as well as some state reimbursement reform (e.g., the reimbursement rate for administrative costs). But I deem those long shots in the coming budget battle.
Stay tuned!
Resources:
#medicaid #healthcare #coverage #budgetreconciliation #trump #congress
— Marc S. Ryan
