Rural Health Policy Project

The Medicaid Cap: Still a Terrible Idea for Children and Families

The Senate Majority Leader has announced his intention to take up the Graham-Cassidy proposal next week.  The proposal has lots of moving parts.  None of them are kid- or family-friendly. And one of them—the cap on federal Medicaid payments to states—is not only very unfriendly, but it will last forever.

The cap first emerged in the “repeal and replace” bill that barely passed the House on a party-line vote in early May. It has only gotten worse since then for the 37 million children and millions of parents that Medicaid now covers, the providers that treat them, and the states in which they live. While it is not the only way the the Graham-Cassidy bill puts Medicaid at risk, it is the most damaging.

There will be efforts to defend the cap with myths – “it’s just like managed care “ – “states will have more flexibility to innovate” — told over and over. Repetition doesn’t make these claims true.  Here are the three basic facts about the cap:

First, the purpose of capping federal payments to states is not to reduce the number of uninsured children and families. It’s not to give more flexibility to states to administer their programs (they already have plenty of that). The purpose is to limit the federal government’s financial exposure for the costs of health and long-term care in an aging society not by doing something about the costs but by shifting them to states. When states are at risk, children and families are at risk.

Second, the cap is a budget platform that will allow the federal government to cut Medicaid payments to states every year going forward simply by turning a dial. Estimates of the impact of the Graham-Cassidy cap are that it would cut federal spending by $53 billion in the first 6 years, then ramp up from there.  Graham-Cassidy has not one, but two dials—one for across-the-board annual spending cuts that will affect all states, and one for cuts targeted at states that spend more on children and parents.

Finally, the shift of Medicaid costs from the federal government to states will have some very nasty consequences. Governors are not magicians. They will not be able to cover the same number of people, much less more people, with fewer federal dollars. Governor Brian Sandoval (R-NV) nailed it on the head when he recently said: “Flexibility with reduced funding is a false choice.”

Even assuming the federal government doesn’t dial down the cap further,  states will have to make increasingly brutal choices between cutting payments to providers, cutting eligibility, or cutting benefits (or all of the above). High-cost individuals, including children with disabilities, will be prime targets for cost-cutting.  And, as Fitch Ratings has warned investors and state policymakers, a Medicaid cap would have credit implications for states and for public entities that depend on state funding, including school districts. Fitch recently reaffirmed this analysis with Graham-Cassidy.

There are some interesting changes in the Graham-Cassidy version of the cap from the July 20 version of “repeal and replace” that failed to pass the Senate. Some of them are petty, others are blatant. Let’s start with the petty.

The July 20 bill would have required states to report data on children with complex medical conditions enrolled in Medicaid or CHIP. The purpose was to enable the federal government to gather data on the costs of delivering different services to this population to inform policy changes that could improve access to and quality of care. Graham-Cassidy has no such requirement. Is that a statement that the federal government should not have this information? Or is it retaliation against the “Little Lobbyists”?

Now for the blatant. In the July 20 bill, no state was exempt from the cap. Graham-Cassidy exempts states with population densities of less than 15 individuals per square mile that have an annual allotment under the bill’s “Market-Based Health Care Grant” program that the Secretary determines is “insufficient” to provide “comprehensive and adequate assistance to individuals in the State.” (The MBHCG program is a block grant to states that would replace the ACA’s Medicaid expansion for adults as well the premium tax credits and cost-sharing subsidies for low-income Americans in the marketplaces). The states that meet the population density test are Alaska, South Dakota, North Dakota, Montana, and Wyoming.

The exemption would be terrific for children and families in those states. Why isn’t it extended to all states with significant rural populations? The cap will harm them and their providers as much as it would harm the low-density rural states. Could this possibly have to do with trolling for votes? And what does it say about the cap as a platform for horse-trading, now and in the future?

The Medicaid cap was a terrible idea when it was first proposed and defeated in 1981. It was a terrible idea when it was proposed and defeated in 1995. And it is a terrible idea today. Hopefully, for the sake of children and families, history will repeat itself.


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