Policy Researchers: Now Would Be the Worst Possible Time to Shift the Foundation of Medicaid Funding

A team of healthcare policy analysts has examined a variety of policy issues surrounding the current moment in the Medicaid program, and come to the conclusion that now is absolutely the moment for policy leaders to firmly support the Medicaid program nationwide, as that program steps up to address the needs of millions of new enrollees, because of the COVID-19 pandemic-fueled economic recession in the United States.

Jonathan Gruber, Ph.D. and Benjamin D. Sommers, M.D., Ph.D., in their Perspective article in The New England Journal of Medicine, “Paying for Medicaid—State Budgets and the Case for Expansion in the Time of Coronavirus,” address some of the thorniest of the broad policy questions facing policymakers right now. “Medicaid — and how to pay for it — has become a recurring theme in several current critical policy debates,” they write. “Fourteen U.S. states have not yet expanded the program under the Affordable Care Act (ACA), mostly because of concerns about the potential impacts on state budgets, and these decisions have left more than 2 million low-income adults without any health care coverage. Meanwhile, earlier this year, the Trump administration invited states to submit proposals to shift Medicaid to a block-grant or per-capita-allotment system with a capped federal contribution. Most recently, as the coronavirus epidemic has hit like a thunderbolt, both federal and state policymakers are looking to Medicaid as a central tool in their response to this national emergency.”

Among other issues, the authors of the article emphasize that one of the key iunderlying policy issues remains the “match rate”—formally known as the “federal medical assistance percentae,” or FMAP—which varies by states’ per-capita income, with higher-income states having a match rate as high as 50 percent higher than the lowest match rates.

“In recent research, we analyzed budget data from all 50 states from 2010 through 2018 to assess the impact of the ACA Medicaid expansion,” the researchers write, referencing the expansion of the Medicaid program in a number of states, under the terms of the Affordable Care Act. “As expected, we found that expansion states experienced a substantial increase in Medicaid spending since implementation of the expansion, with 24% higher growth than nonexpansion states between 2013 and 2018. Critically, when analyzing the source of funds, we found that this increase in Medicaid spending was subsidized entirely by increased federal funding to expansion states, with no significant changes in spending from state revenues associated with Medicaid expansion (see graphs).3 We also found no evidence that Medicaid expansion forced states to cut back on spending on other priorities, such as education, transportation, or public assistance, despite frequent assertions by opponents of expansion that the policy would inevitably have such harmful effects.”

Indeed, the authors ask, “How could states have expanded Medicaid without increasing state spending, when they were on the hook for 5% of the expansion costs in 2017 and 6% in 2018? Our findings in this regard are consistent with case studies from several states showing that they have used federal dollars from the Medicaid expansion to offset other areas of state spending, such as direct subsidies to public hospitals and mental health centers, health care costs for people involved with the justice system, and a more generous match rate for optional groups previously covered by many state Medicaid programs.4 Thus, Medicaid expansion appears to be a win–win from the states’ perspective — giving health insurance to millions of low-income adults and offering financial support to safety-net hospitals, without any adverse effects on state budgets.”

And a huge note of complexity here is that the current COVID-19-prompted crisis is impacting all of this. The authors note that three different factors are uniting to pose challenges to state governments right now. “First, the Covid-19 pandemic threatens to overwhelm health care providers and hospitals, especially resource-poor safety-net providers that are heavily reliant on Medicaid in the first place. These providers often care for some of the sickest patients and those who are at highest risk for coronavirus infection, particularly those with disabilities and people living in nursing homes. Second, with sweeping public health measures, state-mandated business closures, and a stock-market crash, a recession is highly likely over the coming months. Third, if and when effective treatments and a vaccine are available for Covid-19, Medicaid will be called on to pay for these new services for tens of millions of beneficiaries. In the current context, it is hard to imagine a worse policy approach in Medicaid than to cap federal contributions to the program and shift to predetermined block-grant allotments for states.”

In short, the authors state, it would be an enormous mistake to try to convert the Medicaid program into 51 block grant programs, whatever terminology might be used to describe such a shift. They conclude their analysis with the statement, “Congress has stepped up with additional support for the program to expand its reach, and now states should do the same. In light of the program’s role in managing the coronavirus epidemic, maximizing long-term health, and helping to stabilize the health care system in a time of crisis, the case for Medicaid expansion in the remaining 14 states has never been stronger.”