Federal Investment in Children: Why Capping Medicaid Would Make a Bad Situation Worse

Not that you needed another reason that capping federal Medicaid payments to states would be an unmitigated disaster for children and families.  But since the proposal is alive and well in some quarters—notably the President’ FY 2019 Budget—it’s worth marshaling as many as possible.  Here’s another one, from the Committee for a Responsible Federal Budget.

The Committee issued a report this week on the Federal government’s financial commitment—or, more accurately, lack thereof—for children and families. This report broadly confirms the analyses done by our colleagues at First Focus and the Urban Institute :  the share of the federal budget, both spending and tax provisions, going to children and parents is less than 10 percent and is declining. The Committee estimates that federal spending on children will decline from 9.4 percent of the budget in 2106 to 7.0 percent in 2028.  Not good.

From the Medicaid standpoint, there are two points of note.  First, federal Medicaid spending on children is the single largest component of federal spending on children. Under the Committee’s estimates, in 2016, total federal support for children was $486 billion – a little over $300 billion in spending, and the remainder in tax provisions.  Medicaid spending on children that year was $89 billion, or about 30% of the roughly $300 billion in federal spending on children; CHIP spending was $14 billion, or about 5%.

(As a percentage of the $486 billion total federal support for children—both spending and tax programs—federal Medicaid spending on children accounted for about 18%, CHIP 3%).

Second, if the federal government caps its payments to states for Medicaid, the share of federal budgetary resources supporting children and parents will decline even more precipitously than the Committee predicts.   Let’s take the Trump FY 2019 budget, which proposes to cap federal Medicaid payments to states and cut them by $1.4 trillion, or about 26%, over a 10-year period.  The cuts deepen over time, so that by 2028, federal spending would be reduced by 35%.

Under a cap, whether in the form of a block grant or a per capita limit, the states will have the “flexibility” to decide whether to replace the lost federal dollars with their own funds or to cut Medicaid spending by reducing eligibility, and/or payments to providers.

Let’s assume conservatively that states will respond to the Trump budget cuts by cutting their Medicaid spending by “only” 25%, and that they will on average make those cuts evenly across all of the populations they cover—children, parents, adults with disabilities, the elderly, etc.  (Of course, states could cut Medicaid spending even more deeply, and they could target the cuts on certain populations).  Under these assumptions, Medicaid spending on children and parents would be cut by one fourth.

Using the Committee’s 2016 numbers, that would result in a $22 billion reduction in the $89 billion in federal Medicaid spending that year, which would in turn reduce total federal support for children and parents that year from $486 billion to $464 billion—from 9.4% of total federal budgetary support to about 9.0%.  (A 35% cut would lower total federal budgetary support for children and parents to $455 billion, or 8.8%).  In either case, that is the wrong direction.

The Committee argues that  “[r]ecent tax cuts and spending increases have burdened younger and future generations with massive new debt, on top of an already unsustainable fiscal situation.“  It will issue future papers describing “what possible solutions exist to ensure the United States is investing in, rather than borrowing from, our future.”

Here’s hoping that capping and cutting federal Medicaid spending will not be among their policy prescriptions.  A cap in whatever form—block grant or per capita—will only aggravate, not improve, the decline in federal investment in children and families.  Medicaid is an investment in our nation’s future, not just for families and children, but for other low-income populations, including the elderly, adults with disabilities, and pregnant women.   A cap will not only put all of these populations in clear and present danger of rationing; it also represents a fundamental disinvestment in low-income Americans.

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