Yesterday, President Obama unveiled “Living Within Our Means and Investing in the Future”, a detailed plan that includes $3 trillion in net deficit reduction over ten years.   In general, the President’s plan is a balanced and fair approach to deficit reduction.  In releasing the package, he sent a stern warning to Congress that he would not support a “one-sided deal that hurts the folks that are the most vulnerable“.   He emphasized that at least $1 of tax revenue would have to be included for every $2 in spending cuts.

According to a summary of the Administration’s proposal, $320 billion of the savings will come from health care programs with about $72  billion of that amount coming from Medicaid.  It is a positive sign that the amount slated to be cut out of Medicaid is about $22 billion less than the President proposed as part of his budget in April. 

Detailed information is not yet available but we can surmise this much from what has been released so far:

• $14.9 billion in proposed savings would be achieved through a “blended match” rate for federal Medicaid and CHIP payments to states starting in 2017.  The federal government pays its share of Medicaid and CHIP costs. As readers of Say Ahhh! know, CHIP expenditures are matched at a higher rate than Medicaid. Currently, the federal government matches state Medicaid costs at an average rate of 57% and CHIP at 70% (with major state-by-state variation).  And under the ACA, states must expand Medicaid to adults up to 133% of the FPL with the federal government paying an even higher match rate that starts at 100% and tapers down to 90% over time under current law. Under a blended match rate, all of those rates would be combined into a single blended rate. This might be a great simplifying tool, but not if it is used to pull money out of the programs that have worked so well to insure children.  We have raised concerns in the past about the blended match rate concept and whether or not it would simply shift costs to states, communities, families and those least able to pay more. Starting the blended rate in 2017 as the President’s proposal does rather than 2014 as previously proposed is an improvement, as states will have an incentive to enroll new eligibles at the higher match rate in the early years of health reform. And the proposal appears to include a counter-cyclical increase in the match rate in bad economic times which is a long-needed reform to Medicaid financing.  But we are anxious to see more details on this specific proposal.

• $26.3 billion in proposed savings would come from limiting the state practice of imposing taxes on health care providers.  The Administration wrote in a summary that while provider taxes are often a source of real financing, some States have increased payments to those same providers in the amount of the revenue they received through the provider taxes in an effort to drawn down more Federal Medicaid matching payments.  Again details will be critical here to ascertain whether this proposal amounts to a cost-shift to the states.

• $14.6 billion in proposed savings would be achieved by changing the modified adjusted gross income (MAGI) formula used to calculate eligibility for Exchange premium tax credits and cost sharing reductions, Medicaid and CHIP.  The Administration proposes using a formula that is consistent with current Medicaid practice by including Social Security benefits in the definition of income. 

• $4.2 billion would be achieved by changing Medicaid’s reimbursement rate for certain durable medical equipment to make it consistent with Medicare’s rate. (States would save over $3 billion in ten years under this proposed change, according to the Administration summary.)

There are several other provisions that you can read about here.   Stay tuned for more details on the blended match concept as we learn more.

Overall, the Administration’s proposal is a good step forward in reframing the debate on deficit reduction to one that is more balanced and fair and protects children and other vulnerable populations. As Congress takes up the work of deficit reduction, it is imperative that Medicaid and CHIP are not weakened in the process.