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It's Time for Reverse Federalism on Medicaid

June 16, 2011

If ever there was bad idea whose time never came, it is Paul Ryan's plan to slash Medicaid spending and convert what remains into a system of block grants administered by the states. The $300 billion federal-state program providing health care for millions of poor, elderly and disabled Americans faces a triple whammy from the recession, as rising rolls, declining state tax revenues and the end of stimulus funding from Washington imperil benefits and beneficiaries. If states like Mississippi, Arizona and Texas are the GOP "laboratories of democracy," then we already know the Republican Medicaid experiment in federalism gone wild will be a complete disaster.
Currently, the $300 billion Medicaid program serves roughly 60 million Americans. On average, the federal government picks up 57% of the tab, with poorer states like Mississippi and Alabama getting 75% of the funding from Washington. Averaging 21.8% of states' spending, Medicaid is now the largest budget item for most. Medicaid not only pays for a third of nursing home care in the United States; it covers a third of all childbirths. (In Texas, the figure is one-half.) As with Medicare, Medicaid provides insurance for substantially less than private insurers (27% less for children, 20% for adults.)
But as the New York Times reports, the end of the Obama stimulus assistance is putting the Medicaid programs in already cash-strapped states on the brink of crisis:

From New Jersey to California, state officials are bracing for the end to more than $90 billion in federal largess specifically designated for Medicaid. To hold down costs, states are cutting Medicaid payments to doctors and hospitals, limiting benefits for Medicaid recipients, reducing the scope of covered services, requiring beneficiaries to pay larger co-payments and expanding the use of managed care...
The Congressional Budget Office estimates that federal Medicaid spending will decline in 2012 for only the second time in the 46-year history of the program. But states say they will have to have to spend more on Medicaid as they struggle to make up for the loss of federal money.

Just how bad it could get is revealed by a recent survey by the National Association of State Budget Officers, which revealed that 24 states are reducing Medicaid payments to providers, while 20 are limiting benefits in some way.
But back in Washington, Democrats and Republicans have drawn contradictory lessons and offered diametrically opposed plans in response.

By extending Medicaid coverage to families earning up to 133% of the poverty level, starting in 2014 the Affordable Care Act will brings insurance to millions more Americans. A March study by the Commonwealth Fund revealed that revealed that when fully implemented, the ACA will bring relief to "nearly all of the 52 million working-age adults who were without health insurance for a time in 2010."
Not if the Republicans get their way.
With the passage of the Ryan 2012 budget proposal, Republicans voted to slash Medicaid funding by $1 trillion over 10 years while sending the remaining dollars as block grants to the states. As it turns out, that gambit would not only gut the 2010 Affordable Care Act law, but guarantee than millions of low income Americans are deprived of health care. As Jonathan Cohn explained:

If the law changes and Medicaid becomes a block grant, then every year the federal government would simply give the states a lump sum, set by a fixed formula, and let the states make the most of it. Conservatives claim block grants would give states the flexibility they need to make their programs more efficient. But, as Harold Pollack has noted in these pages, states already have some flexibility. And because demand for Medicaid tends to peak during economic downturns, when state tax revenues fall, the likely impact of a block grant scheme would be to make Medicaid even less affordable at the time it is most necessary.
That's not to say plenty of governors wouldn't take advantage of block grant status to change their Medicaid programs in ways they cannot now. They surely would--by capping enrollment, thinning benefits, increasing co-payments, and so on.

Which is exactly what they are already doing now. Ezra Klein summed up the findings from a recent study by Kaiser Family Foundation and the Bipartisan Policy Center:

Twenty states implemented benefit restrictions in the past year. In fiscal year 2010, 39 states implemented Medicaid provider rate cuts or freezes (up from 33 in fiscal year 2009), and 37 states have provider rate restrictions planned for the next fiscal year.

Now in its latest state-by-state analysis, Kaiser has detailed the devastating impact of the budget backed by 235 House Republicans and 40 GOP Senators:

Projected federal spending on Medicaid for the 10-year period 2012 to 2021 would fall by $1.4 trillion, a 34 percent decline. By 2021, states would receive $243 billion less annually in federal Medicaid money than they would under current law, a 44 percent reduction.
The effect on enrollment in state Medicaid programs could vary widely. By 2021, between 31 million and 44 million fewer people nationally would have Medicaid coverage under the House Budget Plan relative to expected enrollment under current law, the analysis finds, examining three possible scenarios using different assumptions about how states might respond to lower federal funding. Most of those people, given their low incomes and few options for other coverage, would end up uninsured.
The House Budget Plan also could affect health centers, hospitals and safety-net facilities that serve low-income and uninsured people and rely heavily on Medicaid revenues. By 2021, hospitals could see reductions in Medicaid funding of between 31 percent and 38 percent annually, or as much as $84.3 billion, under the plan compared with projected funding under current law. The reductions would come at a time when millions more people would lack coverage, increasing the potential demand for uncompensated hospital care.

Which suits the likes of Mississippi Governor Haley Barbour just fine. After all, the Republicans' dream future is Mississippi's nightmare present.
At the National Governors Association meeting earlier this year, Barbour called for the Medicaid program to be converted into block grants for the states to control. To make his case, Governor Barbour updated Ronald Reagan's old myth of the "welfare queen":

"We have people pull up at the pharmacy window in a BMW and say they can't afford their co-payment."

That whopper didn't merely earn a "Four Pinocchio" rating from the Washington Post. It also obscured the fact that Haley Barbour's Mississippi is already home to perhaps the least generous Medicaid program in the nation:

Mississippi provides some of the lowest Medicaid benefits to working adults in the nation. A parent who isn't working can qualify only if annual family income is less than 24 percent of the poverty line. Working parents qualify only if they make no more than 44 percent of the federal poverty level. Seniors and people with disabilities are eligible with income at 80 percent of the poverty line...
Translated from the federal poverty guidelines, that means a working Mississippi couple with one child could earn no more than $8,150 a year and still qualify for Medicaid, seniors and people with disabilities could earn no more than $8,700, and a pregnant woman could earn no more than $20,000 a year.

But those numbers don't begin to capture the failure of the Mississippi health care system. In its 2009 state scorecard, the Commonwealth Fund ranked Mississippi dead last in its assessment of health care access, prevention, equity, affordability and lifestyles. In December, the "America's Health Rankings" project also put Mississippi at 50th among the states. And in 2009, another UnitedHealth Group funded study concluded that Haley Barbour's home state had the unhealthiest residents in America.

Mississippi isn't the only poster child for the Republican health care horror story. There's Texas, ranked a dismal 46th by the Commonwealth Fund. With his cash-strapped state already leading the nation in the percentage of residents (30%) uninsured, last fall Governor Rick Perry floated the idea of opting out of Medicaid altogether. The idea of foregoing $15 billion in federal funds (60% of his state's Medicaid costs) went by the wayside when a study by the state Health and Human Services Commission found that "up to 2.6 million Texans could lose health coverage if the state opts out of Medicaid." Facing a massive $27 billion, two-year deficit due in part to reckless tax cuts and a refusal to raise revenue now, Lone Star State Republicans are nevertheless looking at savaging its Medicaid program now serving 3.1 million people:

The total effect of the cuts -- estimated at $7.6 billion a year, or roughly a third of Texas' Medicaid spending -- will kill jobs, strain the state's economy and put people's lives at risk, experts across the state have said in recent weeks.

Meanwhile, Governor Jan Brewer's real-world death panels are already offering a glimpse into the national dystopian future that is Arizona nightmare present. Still strugglingto stop the growing body count from draconian cuts to the state's transplant surgery program, Governor Brewer last week proposed new Medicaid fees for "adults who lead unhealthy lives." (As McClatchy noted, "A 2008 study by Arizona State University found that that state's structural deficits could be traced to 15 years of tax cuts, mainly income-tax reductions that 'were not matched by spending cuts of a commensurate size.'")
American taxpayers should also be wary of handing their federal Medicaid dollars over to the likes of Florida Governor Rick Scott. As Mother Jones explained in March:

Scott and Florida Republicans are currently trying to enact a sweeping Medicaid reform bill that would give HMOs and other private health care companies unprecedented control over the government health care program for the poor. Among the companies that stand to benefit from the bill is Solantic, a chain of urgent-care clinics aimed at providing emergency services to walk-in customers. The Florida governor founded Solantic in 2001, only a few years after he resigned as the CEO of hospital giant Columbia/HCA amid a massive Medicare fraud scandal. In January, according to the Palm Beach Post, he transferred his $62 million stake in Solantic to his wife, Ann Scott, a homemaker involved in various charitable organizations.

And under Republican rock star Chris Christie, even solidly blue New Jersey wants to take an axe to Medicaid. As the Washington Post reported earlier this week:

New Jersey Gov. Chris Christie, who has tangled with Democrats and their core supporters by demanding deep concessions from public employees unions, is planning to formally ask the Obama administration to allow his state to dramatically tighten Medicaid eligibility for New Jersey adults...
Christie's proposal would deny new Medicaid coverage to adults in a family of three who earn more than $5,300 a year, down from the current cutoff of $24,645. The eligibility change is part of a broader plan to save $300 million in the state's Medicaid program...
"States desperately need relief from that unfunded federal mandate," he said.

Which is one good argument for getting the states out of the Medicaid business altogether.
Like unemployment insurance and food stamps, the need for Medicaid funding is countercyclical. That is, as the workers lose jobs, savings and health insurance during economic downtimes, the demand for health care coverage through Medicaid increases. (It's worth noting that the federal Medicaid spending, like the poverty rate, began to skyrocket before the December 2007 onset of the Bush recession.) And while the federal government can and should run budget deficits during recessions to address that need, states cannot. All but one of the states requires balanced budgets. (Ironically, the one that does not - Vermont - is launching a single payer health care system.) Due to high unemployment, collapsing home values and often calamitous tax cutting, state revenue and spending have yet to return to FY 2008 levels.
The current crisis in state Medicaid funding was entirely predictable. In 2007, Ezra Klein predicted just that.
Writing in the Washington Monthly ("Over Stated"), Klein explained "why the 'laboratories of democracy' can't achieve universal health care." Looking at the history of cutbacks in Tennessee and Hawaii, false starts in California and Washington State, Klein concluded that a wealthy state like Massachusetts would be the exception that proves the rule:

The idea of giving universal health care a little more time in the laboratories of democracy may sound tempting to certain cautious, bipartisanship-loving Beltway observers. But letting states continue to take the lead would be disastrous, for one very simple reason: providing health care for all citizens is one of those tasks, like national defense, that the states are simply unequipped to manage on their own. The history of state health reform initiatives (and there's quite a history) is a tale of false hopes and great disappointments. The deck is stacked from the start, and the house--in this case the insurers, the providers, and other agents of the status quo--always wins. The new raft of reforms may prove different, but they probably won't. Universal care advocates must be realistic about that, and think hard about how to convert the energy in the states into a national solution before the current crop of novel experiments fail--because fail they almost certainly will.

Which is just fine with the federalism-loving, block grant grabbers of the GOP. Their inflammatory rhetoric and draconian budget cutting show they want the national and state governments alike out of the health care business. Alas, as a time when Washington should nationalize and fully fund Medicaid, the federal government is under extreme pressure to do the exactly opposite. While public support for Medicare may help American seniors withstand the Republican assault, Medicaid recipients probably won't be so fortunate. As Ezra Klein reported in the Washington Post today, "Debt negotiators [are] focusing on Medicaid." All of which prompted West Virginia Democratic Senator and chairman of the Senate Finance Subcommittee on Health Care Jay Rockefeller to lament:

"Medicaid is very much on the chopping block. Seniors vote. But if you are poor and disabled, you might not vote, and if you are a child, you do not vote -- that's a lot of Medicaid's population. They don't have money to do lobbying."

Not in Washington DC or in the states. That's federalism for you.


Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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