Capping Medicaid: Bad News for All

As readers of SayAhhh! know, the House bill to “repeal and replace” the Affordable Care Act does far more than effectively end the expansion of Medicaid for low-income adults.  It also radically disrupts the 50-year old Medicaid partnership between the federal government and the states by capping federal payments to the states for covering all Medicaid populations–children, parents, individuals with disabilities, and seniors—not just low-income adults.  The cap will damage the nation’s largest health insurer for children, the children it covers, their parents, and the providers that serve them.

One indication of the extent of the damage is an analysis issued yesterday by Avalere Health, a consulting firm.  The analysis, which was commissioned by the Children’s Hospital Association, focused on the impact of the Medicaid cap on children without disabilities (the data on federal spending for children with disabilities are not adequate).  The analysis finds that federal funding for Medicaid services for non-disabled children would be reduced by a total of $43 billion over the next 10 years, with the cuts growing deeper every year.  It also notes that federal spending cuts “will be even more dramatic” when children with disabilities are taken into account.

The Avalere study brings much-needed attention to the implications of the House bill’s cap on federal Medicaid spending for children. As my colleague Elisabeth Burak pointed out recently, some Members of Congress appear to misunderstand that the Children’s Health Insurance Program (CHIP) covers children, while Medicaid covers the elderly and disabled. And as the Washington Post Fact Checker found, the House bill will in fact cut Medicaid spending, contrary to the assertions of the Secretary of Health and Human Services that the bill would increase Medicaid spending.   In short, the House bill cuts Medicaid, and those cuts will affect children and every other group covered by Medicaid.

The Avalere study underscores one other critical point. The analysis assumes that the annual growth factor that determines how tight the cap on federal spending will be does not change. That’s a reasonable assumption for estimating purposes, but it is not a realistic assumption for states and children’s advocates. The whole point of the cap on federal Medicaid payments is to reduce federal spending – not to reduce the price of health care, or to improve benefits, or to support adequate provider payments.  Over the next 10 years, there will be relentless pressure to reduce federal spending, whether to pay for tax cuts, as the House bill does, or to reduce the deficit. The Medicaid cap is designed to enable federal policymakers to get those spending reductions by simply dialing down the growth rate, as Edwin Park at the Center on Budget has shown that Senators Toomey and Lee are already seeking to do.

How will states respond to the ever-tightening caps on federal Medicaid payments?  The Avalere analysis confirms what the Congressional Budget Office and every other independent analysis that we’ve seen has concluded:  states may reduce their Medicaid spending by “narrowing eligibility, reducing services, or lowering provider rates.”  For example, states electing the block grant option for children and parents would no longer be required to cover Early and Periodic Screening, Diagnostic, and Treatment (EPSDT) services for children, including vision, hearing, and dental screenings and services.  As my colleagues Karina Wagnerman and Joan Alker wrote earlier this year, a large body of research shows that access to Medicaid in childhood leads to longer, healthier lives and protects families from financial hardship.  By capping federal Medicaid payments to states, the House bill threatens to undo all of this progress.

That being said, the Avalere findings are not an argument for exempting children from the House bill cap. They are yet another compelling argument for dropping the cap altogether and maintaining the open-ended federal funding that has made Medicaid a successful program, not just for children and parents, but for the elderly and disabled adults as well.  As a tactical matter, trying to exempt children will fail; even if children are exempted initially, the fiscal pressures for further federal spending cuts, and the politics of limiting the cuts on the remaining populations, will inexorably fold children back in.

But more fundamentally, we are all in this together. Nowhere is this more so than in Medicaid, which for more than 50 years has been a social compact between the federal government and the states to provide health and long-term care services for children and families as well as the elderly and disabled. The cap on federal funding is designed to – and will — unwind this compact, leaving states with little choice but to ration eligibility, services, and provider payments among the different populations. As Judy Solomon and Jessica Schubel at the Center on Budget Policy Priorities explain, home and community-based (HCBS) services—which benefit children with disabilities, adults with disabilities, and seniors alike—are at grave risk under the House bill cap.  Trying to exempt children—or the elderly or the disabled—will only play into the hands of cap proponents, allowing them to divide and conquer.

Andy Schneider is a Research Professor at the Georgetown University McCourt School of Public Policy.