By Jocelyn Guyer

Last week just as Representative Cantor was making his dramatic exit from deficit reduction talks with Vice President Biden, rumors started to emerge that the idea of adopting a “blended matching rate” for Medicaid and CHIP was gaining currency.  The Obama Administration first put forth the idea in a deficit reduction proposal it released in April of 2011, relegating it to a single bullet point in the section on how to secure $340 billion in savings from Medicaid and Medicare.  Originally dismissed as a placeholder for the Administration, it now seems that we need to take a look at what it might mean for kids and families.  It would be far easier to do this if we knew the details of the proposals under discussion, but based on the broad outlines of the proposal we can at least flag some of the key issues to consider.

First, what the heck is a “blended matching rate”?   Currently, the federal government matches state Medicaid costs at an average rate of 57% and CHIP at 70% (with major state-by-state variation).  Under the ACA, states must expand Medicaid to adults up to 133% of the FPL.  For these “newly eligible” people, the federal government will offer an even higher Medicaid matching rate.  And when we say “higher,” we really mean it — to ease the sting of the controversial new expansion, the federal government will pick up 100% of the cost of the expansion for the first few years, tapering down to a still very generous 90% by 2020.  So, yes, we basically will have three different matching rates for Medicaid and CHIP.  (True confessions:  Starting in 2014, there will actually be one other matching rate available to a few states that expanded coverage to adults prior to enactment of the ACA, but we are skipping the explanation of that one.  It won’t affect things much and is unbelievably complicated.  If you must know about it, check out this issue brief that my colleague Martha Heberlein and I did on the financing of the Medicaid expansion for KCMU).

Under the “blended matching rate” concept, states would receive a single, unified matching rate for everyone they serve in Medicaid and CHIP.  If – and this is a massive, huge “if” – the blended matching rate proposal were only used to simplify the matching rate structure and NOT to cut Medicaid spending, it would probably land at roughly 61% on average for the country.  In other words, the matching rate on average for new eligibles would drop from 100% in 2014 down to 61% and for CHIP from 70% down to 61%.  On the other hand, the Medicaid matching rate would increase from 57% to roughly 61% for the much larger group of people who already are eligible for Medicaid.  Of course, the dealmakers are looking to save lots of money from Medicaid, not just to simplify the matching-rate structure.  So, it can be expected that that the new blended matching rate would almost surely fall below 61%.  But, to complicate things further, the Administration has suggested it might also build in a “countercyclical” element to the new blended matching rate.  No details yet, but earlier versions of this idea have had Medicaid matching rates increasing during economic downturns so states have more help when they need it the most, and falling during good economic times.

Speaking of massive, huge “ifs,” our friends at CBPP recently released a paper that explains why it will be virtually impossible to create a fair blended matching rate, at least until health reform is up and running for a few years.  Take a look if you can – it clearly and succinctly outlines the challenges of trying to come up with a fair formula for “blending” in the cost of a new eligibility expansion that has not yet occurred. 

Leaving aside for now the practical question of whether it is doable, what might a blended matching rate mean for children and families?  Most importantly, since the new blended match will probably be designed to achieve federal savings, there is a significant risk it will result in a cost-shift from the federal government to states, localities, and ultimately Medicaid beneficiaries.  We don’t know exactly how big it will be (yet), but states could respond by cutting provider reimbursement rates, reducing benefits, etc..  Also, remember that Governors are likely to demand more “flexibility” to make these and other cuts if the deficit reduction deal cuts federal Medicaid spending.

Second, a blended matching rate is likely to result in even deeper antagonism toward the Affordable Care Act and its expansion of Medicaid.  With many states already complaining about the expansion – despite the federal government picking up the entire cost of newly eligible for the first few years – it is hard to imagine it going over well if the nation’s Governors must finance some 40% of the costs of the Medicaid expansion.  Of course states would get more help with the cost of their already-eligible population, but in the intensely controversial environment surrounding health reform implementation, it easy to imagine that this important counterpoint will get lost. 

Finally, for children, there is the issue of what will happen to CHIP.  CHIP always has enjoyed relatively generous support from the federal government.  Due to its high matching rate, every state opted into the program and half of all states (including DC) now cover children to 250% of the FPL or above.  While the stability protections (aka maintenance-of-effort requirement) preclude states from rolling back on CHIP and Medicaid coverage for children for the moment, it is hard to imagine that Congress will be able to hold this line if it significantly drops the CHIP matching rate.  From a kids’ perspective, some have argued that a blended matching rate is good because it would even out federal support for Medicaid and CHIP-eligible children.  Many children’s advocates have long supported this idea (including me), but, frankly, we were looking to raise the bar in Medicaid, not see CHIP dragged down. 

The Obama Administration has argued that a blended matching rate is a promising idea because it would simplify administration of Medicaid and CHIP.  This is an excellent point, and if Medicaid weren’t caught up in the intensely political debates over deficit reduction and health reform implementation, it might be worth pursuing some policy options for streamlining matching claims in Medicaid.  But, in the current environment where there already is enormous controversy surrounding the ACA’s Medicaid expansion and tremendous pressure to cut Medicaid, it is a risky proposition.