Dialing for Dollars

Every few months Congress is looking around for money – money to pay for future expenditures, money to reduce the deficit, money to offset reductions in revenue from tax cuts. When Congress goes on such an expedition, they look around at many different parts of the budget – discretionary, non-discretionary, defense, non-defense – and try to extract savings without causing a major upset for a key constituency.

When it comes to Medicaid offsets, this is very hard to do. That’s because Medicaid is a joint federal-state partnership, so Congress only controls basic elements – who can be covered and what services they can receive. States control the rest – setting eligibility levels above mandatory minimums, deciding whether to provide optional services, and setting provider payment rates. For Congress to make cuts to Medicaid today, they have to decide which people should lose coverage or which benefits should be eliminated. Those are pretty blunt instruments that make it difficult to find policies that save money without hurting beneficiaries directly.

But there is one other tool in the Congressional toolbox – how much Congress pays the states for Medicaid. Today, the federal share is set based on the federal matching assistance percentage (FMAP), with different FMAPs for different states, populations, and services. If a state has an allowable expenditure, the federal government matches it at the predetermined rate, without limitation. If a state has more expenditures than usual – an economic downturn leading to a spike in enrollment, rapidly growing drug prices, a new epidemic, etc. – the federal government will continue to make matching payments regardless.

The House-passed health care bill, the American Health Care Act (AHCA), changes everything. Under the AHCA, the federal government would limit its Medicaid payments to states through a per capita cap. This means that Congress is creating what’s known as a “dial” – a budget line item that can be adjusted upward and downward easily to achieve the policy purpose of the day. So, next time Congress is looking for money – maybe to offset increased expenditures for defense and border security or more likely, to offset revenue losses so the wealthiest Americans can get a big tax break – they don’t have to have difficult policy debates about which beneficiaries or benefits to cut. Instead, they just dial for dollars.

Congress needs money now to offset the cost of tax breaks for big drug and insurance companies. That’s why they’ve put in the dial and cranked it to the tune of over $800 billion in Medicaid cuts. Later this summer, Congress will need more money to offset more tax breaks, so they may just turn the dial some more by reducing the indexing factor in the per capita cap. And later this year, Congress will need more money to lift the debt ceiling, so they could turn the dial again.

We can already see this happening and the dial isn’t even in law. The first version of the House bill capped the Medicaid program and set the indexing factor at the medical component of the consumer price index (CPI-M). As the bill worked its way through the House, the indexing factor was increased to CPI-M plus one percentage point, but just for the elderly and disabled groups. And now that the bill is under review in the Senate, there is debate about lowering the indexing factor across the board.

If the dial becomes law, it will be very easy for Congress to dial for dollars from Medicaid. It doesn’t matter what you call it. You can call it a block grant or a per capita cap or a per beneficiary allotment. These are all just fancy names for cuts. You can set the indexing factor initially at CPI, CPI-M or CPI-M plus one. It doesn’t matter because once the structure of Medicaid is changed so fundamentally, the rest will change again and again with the changing political tides, leading to cuts now and cuts in the future. Cuts without a face attached.

Kelly Whitener is an Associate Professor of the Practice at the Georgetown University McCourt School of Public Policy’s Center for Children and Families.