Allison Neswood serves as CCLP's Deputy Director of Strategic Priorities. She is an expert in public health insurance plans (Medicaid and CHP+), Aid to the Needy Disabled, immigrant access to services and health equity. Staff page ›

Dec 18, 2016

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Proposed changes to Medicaid would hurt Coloradans

by | Dec 18, 2016

Incoming White House and congressional leaders are reportedly planning to make deep cuts in federal funding for the Medicaid program which provides health care coverage for individuals and families with limited resources.

The first round of cuts would likely involve the repeal of federal funding for the Affordable Care Act’s (ACA) Medicaid expansion, which expanded Medicaid to cover low-income adults. The second round will likely limit the federal funding that supports traditional Medicaid – the portion of the Medicaid program that has served low-income children and people with disabilities since 1965.

Congressional leaders aim to have an ACA-repeal bill ready for the new President to sign immediately after he is inaugurated in January. Proposals to cut traditional Medicaid are expected to follow in the subsequent months. Those proposals, which include converting the federal Medicaid funding structure into a block grant or per capita cap, are expected to move quickly. That means it’s important for constituents to make their concerns known to their representatives right away. (Read the last paragraph of this posting to learn how to make your voice is heard by elected officials).

Background on Medicaid funding
Medicaid is a public health coverage program that is jointly funded by the states and the federal government. Medicaid spending is determined based on a fixed percentage of the overall costs of providing care to the eligible population. In Colorado, federal funding covers about half of the costs of providing care.

For the Medicaid-expansion population, federal funding covers 100 percent of the coverage costs until 2017. That federal share is set to decline by 5 percent by 2018 and by another 5 percent by 2020. However, the federal government will continue to cover 90 percent of the cost of the expansion after 2020.

Proposals to cut Medicaid
As mentioned earlier, the first congressional proposal would eliminate federal support for the Medicaid expansion under the ACA. In Colorado, the Medicaid expansion has provided coverage to more than 350,000 Coloradans. These are people who would not be able to afford health insurance in the private market. This coverage supports the health and financial security of workers and the stability of hospitals across the state. In addition, the expansion brought nearly $1.6 billion in federal funding into the state in its first two years. In economic terms, a Colorado Futures Center report found that the “Medicaid expansion … is already having and will continue to have a significant positive impact on the state’s economy” and has buoyed the state economy by expanding state GDP, growing employment and increasing annual household earnings.

The proposals to cut federal spending for traditional Medicaid are a bit more complex. Such proposals would end the flexible federal funding structure that allows federal Medicaid spending to respond to the changing costs of providing care — whether due to population growth, increases in health costs or emergencies or disasters. That structure would be replaced with a rigid block grant formula that would set base-year funding at current levels and grow funding annually based on the Consumer Price Index (or CPI). Meanwhile, the so-called “alternative” to block grants, the per capita cap proposals, would limit the amount of spending on each individual enrollee regardless of health status and allow the cap to grow based on CPI. Neither proposal takes into account that the rate of medical inflation is higher than what the CPI reflects. Both are equally bad in terms of undercutting the ability of the Medicaid program to provide health care to the population in need.

Block granting Medicaid will result in cuts because the formulas don’t reflect population growth. The proposal also ignores the increasing cost of providing medical care and doesn’t allow the federal Medicaid budget to expand when downturns in the economy or natural disasters create a surge in the number of people who are eligible for the program.

Per capita caps will allow federal funding to adjust with changes in the size of the eligible population. However, these caps will still result in significant cuts because they do not take into account the increasing costs of medical care or individual needs for services.

The 2016 block grant proposal from Rep. Tom Price, president-elect Trump’s nominee for Health and Human Services Secretary, would reduce the federal contribution to Medicaid by $1.5 trillion over ten years and shift that cost to the states or to low-income people. That is a $1.5 trillion cut for a program that already spends 18 percent less per Medicaid enrollee than is spent per enrollee in the private market, when you consider people with similar health status.

It’s not about flexibility
Block granting is not about flexibility. The Medicaid statute already has waiver provisions that give states a large amount of flexibility to innovate — provisions many states, including Colorado, have used.

More accurately, block granting is about reducing the federal contribution to Medicaid and shifting that financial responsibility to the states and/or to low-income people. Block grants — especially when coupled with the repeal of Medicaid expansion funding — will create enormous funding gaps that will put states in the position of substantially cutting benefits or substantially increasing state spending to maintain services.

In Colorado, block granting traditional Medicaid is expected to result in a significant reduction in federal Medicaid funding over 10 years. Medicaid provides prenatal care so that Colorado children are born healthy and ensures that people with disabilities and low-income seniors can access long-term care services. Over the past year, the Medicaid expansion provided care to more than 12,400 people with cancer, 30,200 people with diabetes and 103,000 people with mental health treatment needs. Cutting funding to the program affects our state, our rural communities, our hospitals, and our insurance rates as hospitals shift uncompensated care to the insured.

As I mentioned, the federal Medicaid laws allow states significant flexibility to constrain growth and design a program that suits the needs of their population. Colorado has taken advantage of that flexibility to serve more Coloradans and to spur health care innovation and improve the value of care. There is still work to do, but our current approach seeks to optimize savings by reducing actual health care costs rather than by reducing services or cutting eligibility.

Block grant proposals will put states in the uncomfortable position of either raising more money to fill in huge reductions in federal funding, or forcing them to make choices about reducing access to care. From a policy perspective, forcing states into this position lets the federal government off the hook under the guise of newfound “flexibility.”

Since we in Colorado already have that flexibility, let’s not be fooled by the terms of the proposed bargain from Congressional leaders and the White House. In short, it’s a terrible deal that would have long-term consequences for the health of too many people.

If you are concerned about how these proposed changes to Medicaid and the ACA would hurt Coloradans, please make sure your voice is heard by Gov. John Hickenlooper and Colorado’s Congressional delegation. Read this “call to action” for more details.

By Allison Neswood

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