Administration’s Budget Proposal Includes At Least $1 Trillion in Medicaid Cuts

Earlier this week, the Administration proposed a budget for FY2021 that it says would cut federal Medicaid spending by $920 billion, or 16 percent over the next ten years. (Current law baseline of $5.861 trillion, Table S-3, minus proposed spending of $4.941 trillion,Table S-4).  A more realistic number would be at least $1 trillion over ten years, with the emphasis on “at least.”  That’s because the budget hides the total cuts to Medicaid, partly by not explaining the policies underlying some of its legislative proposals, and partly by not including cuts that the Administration thinks it can do without asking Congress.  And the clues that it offers are dispersed over various budget documents, turning the search for a real number into a version of “Where’s Waldo?”

Let’s start with the cuts that Congress would have to enact, which the budget formally scores as a net reduction of $920 billion over ten years.  The largest is the “President’s Health Reform Vision Allowance,” which according to the HHS Budget in Brief would reduce federal Medicaid spending by $744 billion over the same period (p. 120).

Here’s how the main Budget document explains how these cuts will be made:  “Medicaid reform will restore balance, flexibility, integrity, and accountability to the State-Federal partnership.  Medicaid spending will grow at a more sustainable rate by ending the financial bias that currently favors able-bodied working-age adults over the truly vulnerable.” (Budget at p. 51).  The HHS Budget in Brief adds that states will be allowed to “select between a per capita cap or a block grant.” (p. 112).  That’s it.  The budget documents offer no further details about the policies underlying the single largest Medicaid cut.  The only thing that’s clear is that the $744 billion is net of any spending in the “President’s Health Reform Vision,” suggesting that the actual cuts to Medicaid may be much larger.

The other large cut that the Administration wants Congress to enact is a requirement—not an option—that states impose work requirements on “able-bodied, working-age individuals.”  The budget estimates that this mandate would reduce federal Medicaid spending by $152.4 billion over ten years (HHS Budget in Brief, p 119). The budget does not provide an estimate of the coverage losses, but since all of the savings to the federal government would result from the disenrollment of individuals who would qualify for Medicaid under current law, the disenrollments will be in the millions.

These two legislative proposals—neither of which is going anywhere in this Congress—bring the total federal spending cuts to nearly $900 billion.   There are a number of smaller cuts, including Disproportionate Share Hospital (DSH) and graduate medical education (GME) payments to hospitals, that, when offset by some modest program improvements, such as a 12-month postpartum coverage option for pregnant women with substance use disorder, and unspecified “Medicaid interactions,” raise the total for legislative proposals to $920 billion (HHS Budget in Brief, pp. 119-120).

The remaining proposed Medicaid cuts would be achieved administratively.  The budget projects a total of $28.1 billion in cuts over ten years from administrative actions, largely from what it refers to as “Addressing Medicaid Program Integrity and Wasteful Spending” but does not explain. ($21.3 billion). (HHS Budget in Brief at p. 120). Perhaps that number includes the $17.1 billion cut resulting from the proposal to change Medicaid eligibility rules to allow states to conduct redeterminations more frequently than once every 12 months; perhaps not.  (You’ll find the $17.1 billion estimate in the OMB Analytical Perspectives document at p. 64.) Whatever is baked into the $28.1 billion projection, it greatly understates the effect of the proposed administrative actions because it omits a critical estimate.

In November, CMS proposed what it characterized as a “Medicaid Fiscal Accountability Regulation” (MFAR) to limit states’ ability to raise revenues to pay for their share of Medicaid and make supplemental payments to providers.  As my colleague Edwin Park has explained, this proposal could severely disrupt state financing of Medicaid and threaten the viability of safety net hospitals.  His analysis is confirmed in comments from the National Governors Association, the National Association of Medicaid Directors, hospital associations, children’s advocacy groups, and over 4000 others.  The HHS Budget in Brief lists this administrative proposal but indicates it will have no fiscal impact.

This is simply implausible.  The only issue is whether the impact will be in the tens or hundreds of billions over ten years.  An analysis prepared for the American Hospital Association by Manatt Health estimates that the regulation as proposed would reduce federal Medicaid spending by between $23.9 and $31.4 billion per year.  Take the lower bound, discount it by half, and you are still over $100 billion over ten years.  In short, the combination of  $920 billion in legislative cuts and drastically understated administrative cuts is at least $1 trillion over the next ten years.  At least.

While the budget obscures its legislative proposals and low-balls its administrative cuts, it does provide a fairly useful roadmap to CMS Administrator Seema Verma’s multi-pronged assault on the Medicaid program.  The Administrator has made no secret of her interest in capping federal Medicaid payments to states and imposing work requirements on Medicaid beneficiaries. It’s clear that this Congress is not going to enact a cap or to impose work requirements. So in the short run, the real risk to Medicaid beneficiaries and their providers lies in the budget’s administrative proposals, which align with the Administrator’s views.

The Administrator has embraced “fiscal sustainability” as an all-purpose rationale for her Medicaid policies.  The budget adopts this framing.  Hence the proposal to allow states to conduct more frequent eligibility determinations ($17.1 billion), which will increase disenrollment through sheer red tape; the proposal to reduce federal matching payments for the costs of state eligibility workers ($6.3 billion), which will likely lead to reductions in the number of workers and increases in processing times for eligibility determinations; and the proposal to limit state revenue sources and supplemental payments to providers ($0 billion!  Really???).

Perhaps what is most telling about this budget is what it ignores.  Over 1 million children lost Medicaid or CHIP coverage in 2018.  At the same time, the number of children without health insurance in this country increased.  These two trends are not unrelated, and they are not self-correcting.  There are steps that the federal government and states can be taking to reverse them. The budget does not acknowledge either trend, much less propose policy changes to address them.  Instead, it proposes to make matters worse by, among other things, increasing the frequency of eligibility renewals while cutting federal matching payments for the costs of state eligibility workers needed to process the more frequent renewals.

This is no way to run a health insurance program that covers more than one out of 3 children in this country—especially when you consider the broader budgetary context in which these cuts are taken.  As Aviva Aron-Dine explains, one purpose of the Medicaid cuts is to finance regressive tax cuts. Children, their parents, and the country all deserve better.

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