Why “State Flexibility” Won’t Do the Trick to Implement Medicaid Cuts

There has always been a lot of overheated rhetoric about state flexibility in the Medicaid program, but at no point has it been more important to unpack that concept than now. With the House and Senate poised to act on a bill which caps the Medicaid program for the first time in its history, proponents of this approach have argued vociferously that states will be able to make the Medicaid cuts work with new flexibility they will be granted.

Now, as a technical matter, the pending legislation doesn’t actually offer states much in the way of new flexibility because budget reconciliation rules don’t allow for it. So at this point, this is a theoretical offer and that uncertainty may be of concern to Governors and state legislatures.

But leaving that issue aside for the moment, here is why we all should be concerned about these claims about state flexibility in very simple terms. Medicaid spending really boils down to these three things – the number of people who are enrolled, what services those people get, and how much health care providers are paid to provide those services.

Today states already have a great deal of flexibility to control how they pay health care providers for services rendered. States can choose to put Medicaid beneficiaries in managed care and pay through a capitated rate or they can pay directly through a fee-for-service arrangement. While the federal government has some general standards (such as actuarial soundness) but states really call the shots here already – which is why there is a fair amount of variation in provider rates from state to state.

So that leaves the other two areas that roll up into Medicaid spending – how many people are covered and what benefits those people get. Again, states already have some flexibility here (i.e. some populations and services are mandatory and some are optional to cover and for adults) but it is in these two areas that proponents of capping and cutting Medicaid are clearly headed to give them more.

So in practical terms what does that mean? States could get new flexibility to limit enrollment. They could gain the ability to limit enrollment directly by imposing enrollment caps or rolling back eligibility; or indirectly by putting up barriers such as imposing work requirements or lockout periods, which reduce enrollment. States could also gain more flexibility in determining what benefits people receive (in the case of children this might mean limits on the child-centered EPSDT benefit) or on how much families have to pay for those services (including premiums, cost-sharing or spend down rules before seniors qualify for long term services and supports). In fact, one piece of this so-called “flexibility” that is included in the repeal bill would allow states to require seniors to spend down even more of their assets before qualifying for long-term care services and supports by placing restrictions on how much equity seniors can have in their homes.

This is why no one should be fooled by the argument of state flexibility holding everyone harmless and simply allowing states to find efficiencies. These are the new tools states would have in their tool chest.  Governors can’t waive a magic wand and implement Medicaid cuts without direct cutbacks in the health care that the 70 million Americans on Medicaid rely upon.

Joan Alker is the Executive Director of the Center for Children and Families and a Research Professor at the Georgetown McCourt School of Public Policy.