Joan Alker: Hi, everybody! We're gonna just give folks another 30 seconds, because we've still got people coming in, and then we'll get started.
Joan Alker: Okay, I think I'm going to go ahead and get started, because we have a lot of material to cover today. Welcome, everybody. I am Joan Alker. I am the Executive Director of the Center for Children and Families, and a research professor at the McCourt School for Public Policy.
Joan Alker: And I'm joined today by my colleague, also a research professor at the McCourt School on CCF, Edwin Park, and we will be hearing a lot from Edwin shortly. But first, I want to just mention a few housekeeping notes and a brief intro to CCF.
Joan Alker: For those of you who are not familiar with the Center for Children and Families, we are a policy research center based at the McCourt School of Public Policy at Georgetown University. We are a center that does not accept any government funding, and we don't accept any corporate funding.
Joan Alker: So we keep a list of funders on our website. They're all philanthropy. We like to be able to engage in the public policy process.
Joan Alker: With really one goal in mind, and that is to improve public policy for children, families, and others, as they, attempt to access, affordable, comprehensive
Joan Alker: coverage, for their healthcare needs. So that's really what we're about here at CCF.
Joan Alker: And, we spend a lot of time in the Medicaid and CHIP space, and that is a complicated space. It's also a hot topic.
Joan Alker: So that is why we're doing this webinar here today. And before we get to the substance, a few housekeeping notes. This is being recorded. It will be available along with the slides on our website. And we will, we're actually planning another webinar, probably for later this summer. We're expecting some more, regulatory guidance from
Joan Alker: the Centers for Medicare and Medicaid Service.
Joan Alker: centers, on the provider tax issue, which we're going to touch on during this webinar, and after that goes up, we'll plan another webinar to weave some of all of these issues together, so stay tuned.
Joan Alker: for that coming as well. Because we have a really big turnout today, we are only going to be taking questions through the question and answer function, so please use that to pose your questions. And, with that, I am going to get started. So, we can go to the first slide.
Joan Alker: Actually, we can go to the… The second slide, really.
Joan Alker: We're gonna be talking today about Medicaid financing.
Joan Alker: And, and the first section here is going to just cover some of the basics of Medicaid financing. So, I'm going to ask Edwin some questions, and then he is going to answer them. Now, as folks know.
Joan Alker: Medicaid financing is shared by the federal government.
Joan Alker: and state governments. So, we are going to start with, talking about, Edmund, please tell us, how does the federal government finance Medicaid?
Joan Alker: And a related question to that is, when a government shutdown happens, which unfortunately happens all too frequently, Medicaid keeps going. Why is that?
Edwin Park: Sure, so for a general, you know, overview of federal financing, a couple key characteristics of the
Edwin Park: how federal Medicaid funding works. One, it's not subject to the regular annual appropriations process, which budget wonks call discretionary spending. It's mandatory federal funding, so these are
Edwin Park: programs like Medicare, Social Security, Medicaid, they are mandatory, and they don't have to be appropriated every year. Now, Medicaid's a little different, because it's… it has… it's essentially what's called an appropriated entitlement, but basically.
Edwin Park: Congress has to write in the number, but states are entitled to federal funding, eligible individuals are entitled to benefits under the Medicaid program.
Edwin Park: And so, when there is a government shutdown, federal funding doesn't automatically stop. Usually, there is funding during a shutdown for Medicaid for at least one quarter, if not more, in terms of federal funding. So it's, you know, it's not subject to the normal process every year.
Edwin Park: The federal government, under the Medicaid statute, picks up a fixed percentage of state's Medicaid costs, whatever those costs are, costs go up, federal government share in those costs, costs go down, federal government shares in those savings.
Edwin Park: But it is a federal-state financial partnership, so the federal government picks up a portion of Medicaid costs, but states are responsible for the remainder.
Joan Alker: All right, we can go to the next slide. So, now there's a lot of alphabet soup when you get into the Medicaid world, and a critical acronym that is really important to understand for Medicaid financing is FMAP.
Joan Alker: So, Edwin, can you walk us through what does FMAP stand for? What does it mean? How should we think about FMAP?
Edwin Park: So, as I mentioned, the federal government picks up a fixed percentage of states' Medicaid costs, and that percentage is, commonly known as the FMAP, which stands for Federal Medical Assistance Percentage. And…
Edwin Park: It's calculated under complicated formulas explained here, but essentially, states get a higher FMAP if their per capita income is higher than the national average, and states get a lower, FMAP
Edwin Park: FMAP, or Medicaid matching rate if their per capita income is higher, than the national average. So, under the statute, there's a minimum of 50%. A number of states, about a third of states have, the minimum, FMAP of 50%.
Edwin Park: And it can go up to a maximum of 83%, though the highest a state currently has is Mississippi, which is a little over 77%. There are some exceptions. The District of Columbia in the Medicaid statute is not calculated under the regular formula.
Edwin Park: It's 70%. The territories, it's 83% for all the territories but Puerto Rico, and on a temporary basis, at least, it's 76%.
Edwin Park: for Puerto Rico, through the end of next fiscal year, fiscal year 2027, and then it reverts down to 55%. But that's the general matching rate that applies to, you know, most services, most populations covered by the Medicaid program, but
Edwin Park: as you can see here, you can see all the different FMAPs and what states have the minimum, and what states are higher than the minimum.
Edwin Park: But…
Edwin Park: the regular FMAP doesn't cover, or doesn't apply to everything. There are a number of different, matching rates that apply to certain populations, certain services, certain types of spending, in state Medicaid programs, and you can see here, the average regular FMAP is 57%,
Edwin Park: But there are other matching rates. For the Medicaid expansion under the Affordable Care Act, it's 90%. For administrative costs, it's generally 50%, though there are certain types of administrative costs that have higher matching rates. For example, 90% for putting together a new eligibility enrollment system, or paying for a new claim system in Medicaid, and 75% for the
Edwin Park: maintenance or operation of those new systems or, substantially improved systems. The, the chip,
Edwin Park: program. States can provide CHIP through separate state programs or Medicaid programs.
Edwin Park: If it's done through Medicaid, the matching rate, is on average 70%, but it varies by state.
Edwin Park: Now, if you look at, you know, federal funding as a share of total Medicaid expenditures, because there are these different matching rates, even though the average matching rate, regular FMAP is 57%,
Edwin Park: It's a little over 64% overall in terms of the percentage that's picked up by the federal government nationally, and this is data for fiscal year 2024.
Edwin Park: Now, under this FMAP formula, where again, the state receives federal funding equal to a fixed percentage, so if costs go up.
Edwin Park: the federal government increases its contribution to a state Medicaid program. So here in this illustration, if you have $100 of spending in a state with a 50%
Edwin Park: regular FMAP, and the federal government's picking up half the cost. If costs go up, to $120 for $100, the states
Edwin Park: contribute, the state contributes, $10, more, and the federal government will also provide an additional $10, and that's how the FMAP works, today.
Joan Alker: Okay, so, what… now that we, I think, understand better this FMAP system.
Joan Alker: Let's talk about what happens to federal Medicaid funding when life happens. And by that, I mean that Medicaid is really a first responder to a lot of challenges that our country faces. If we have an economic downturn.
Joan Alker: Medicaid is a key responder. If we have a hurricane or an emergency, if we have a pandemic or new disease, for example, Medicaid was a critical responder to the HIV-AIDS epidemic. So… so what happens to the funding when we have these emergencies?
Edwin Park: Yeah, I think it, you know, the… it speaks to the value, the flexibility of the current federal, state financial partnership, that when there are things that create greater demands on the Medicaid program, things that are outside of states' control.
Edwin Park: The federal government will provide additional federal support, to maintain Medicaid programs to allow, states, their Medicaid programs to respond to those unexpected events.
Edwin Park: And you can see here, with recessions, we know that when there is a reduction in economic activity, an economic downturn, or even a recession.
Edwin Park: people lose their jobs in health insurance, their earnings fall, they may become newly eligible for Medicaid enrollment increases, but at the same time, states are facing revenue losses, because of, you know, less economic activity in their state.
Edwin Park: That puts them in a bind, but the federal government is putting more money in to help support that increased demand.
Edwin Park: And you see here this graphic showing enrollment and Medicaid spending from KFF, and you can see during recessions, whether it was the recession in 2001, the Great Recession in 2008, as enrollment
Edwin Park: Increases, spending increases as well, and the federal government is picking up a portion of that, spending.
Edwin Park: Similarly, for… Edward.
Joan Alker: Oh, it's not working? Yeah, I cannot see the next slide.
Edwin Park: Okay, okay, sorry about that. For recessions, you can see that as spending,
Edwin Park: sorry, it's demand increases and enrollment increases, spending increases as well in Medicaid, and the federal government is picking up its share of those, additional costs.
Edwin Park: Similarly, if there's a new drug or technology that increases costs significantly on a per-beneficiary basis.
Edwin Park: as we saw in 2014, when new curative therapies to treat hepatitis C came to the market, and, you know, there previously, you know, wasn't available,
Edwin Park: drugs that could truly cure that condition. When they came to the market, it created a significant spike, in prescription drug costs in the Medicaid program.
Edwin Park: It increased spending, but the federal government was sharing in that increased spending, as opposed to letting states be on the hook for the entire remainder of those, or all of those new costs.
Joan Alker: Okay.
Joan Alker: So, you know, periodically, and I'd say this is, I think, happened, like, 3 times since I've been working a lot on Medicaid.
Joan Alker: When you have a Congress that is looking to make cuts, to restrict spending.
Joan Alker: We often confront a proposal called a per capita cap in Medicaid funding, or a block grant. So, Edwin, can you explain to us, what does that mean, and how would it change Medicaid funding?
Edwin Park: So, block grants and per capita caps, are a radical restructuring of that federal-state financial partnership I just described.
Edwin Park: A block grant is, an aggregate cap on federal funding. So right now.
Edwin Park: federal funding is open-ended. There's no limit subject to, you know, the applicable Medicaid matching rate, where the federal government picks up a fixed percentage of states' Medicaid costs.
Edwin Park: Block grant is… there's a cap, a dollar limit, and states are responsible for all costs above that limit if they've reached that cap threshold.
Edwin Park: Now, some block grant, proposals, it's not just a single, cap or a single aggregate amount. There may be multiple block grants or certain eligibility groups or type of spending.
Edwin Park: But block grants, are intended to reduce federal financial responsibility for the Medicaid program.
Edwin Park: and produce savings, to reduce the deficit, finance other policy priorities. For example, you know, 2017, when there was proposals, to pursue a block grant.
Edwin Park: It was tied to, you know, tax cuts and other types of, of,
Edwin Park: you know, deficit-increasing proposals. But, you know, that is often, you know, the goal is to, reduce federal spending in Medicaid, and that's done by setting that cap amount
Edwin Park: at a level that doesn't, keep pace with expected growth and enrollment, healthcare costs per person, per beneficiary costs. As a result, it produces large and growing, federal, spending reductions.
Edwin Park: A Medicaid per capita cap is similar, but the cap is imposed on a per-beneficiary basis, not on the entire Medicaid program in aggregate. But if states
Edwin Park: reach that cap on a per-beneficiary basis, they're similarly responsible for all costs above that limit. Again, there may be multiple caps under a per capita cap proposal for certain eligibility groups.
Edwin Park: But, a per capita cap, like a block grant.
Edwin Park: is designed to reduce federal funding by failing to keep pace with rising healthcare costs on a per-person basis, a per-beneficiary basis. The difference between a block grant and a per capita cap, is that per capita caps do adjust for changes in enrollment.
Edwin Park: the change in the number of beneficiaries because, they're, imposed on a per-beneficiary basis, not on the program overall.
Edwin Park: To illustrate how a block grant or per capita cap, works, you can see here, again, this illustrative example of $100 in claim costs.
Edwin Park: If a state is at its cap threshold, or whether it's in the aggregate under a plot grant on a per beneficiary basis, under a per capita cap.
Edwin Park: States are on the hook of all costs above that limit, so if costs go up to $120 from $100, the state is responsible for that full amount, that full $20, the federal government doesn't kick in any more money.
Edwin Park: Now, why caps produce federal funding cuts? As I mentioned, they're designed to be,
Edwin Park: adjusted in ways that they don't keep pace with annual cost growth, whether it's growth in enrollment and healthcare costs under a block grant, in healthcare costs under, per capita cap.
Edwin Park: And so, each year, by failing to keep pace with expected growth, it produces savings. You can see here an illustration of what that cap looks like.
Edwin Park: In terms of federal funding, what it looks like in terms of projected spending in the absence of that cap, and that pink shaded area is,
Edwin Park: federal spending reductions, spending cuts that result. There are some block grants and per capita caps that actually lower the base and don't set the base initial amount, under a block grant and per capita cap.
Edwin Park: At, at, you know, the prior levels, but actually lower that base, and so the savings could accelerate even faster than, as illustrated under this, graphic.
Edwin Park: Now, block grants and per capita caps also leave states responsible for unanticipated costs. So let's say, federal policymakers
Edwin Park: want to, you know, save X amount under the block grant, compared to what the Congressional Budget Office projects.
Edwin Park: But that doesn't include, an expectation, an assumption that, you know, there will be a recession, a new, you know, blockbuster drug that's released in the market, a new disease, or public health emergency. None of that's built into those projections.
Edwin Park: And so.
Edwin Park: states would not only be on the hook under projected, cuts, expected cuts under a block grant or per capita cap, but they'd also be on the hook for all of those unexpected costs. So you can see here,
Edwin Park: If the effective federal-state share
Edwin Park: falls from 50-50 to, let's say, 40-60, becomes 40-80, in terms of a higher cost that result under a block grant or per capita cap. So it's quite a difference in terms of how I describe the basics of current Medicaid financing under how a block grant or per capita cap works.
Edwin Park: Now, in terms of how states are affected,
Edwin Park: individual states would fare differently based on various characteristics of their current Medicaid program, you know, where they are now, their current expected growth in enrollment for beneficiary costs, differences in population, including how fast their population is aging compared to the rest of the country.
Edwin Park: And also, even if a state has lower than, you know, than average spending now, or lower than average spending growth that's projected, they're actually locked into those spending levels under these caps moving forward, and so they're actually, barred, from additional federal funding to support improvements, expansions, other changes to their Medicaid program.
Edwin Park: That move them closer to, the national average.
Edwin Park: The last point I'll just make on, you know, block grants and for cap…
Edwin Park: per capita caps is the likelihood of additional funding cuts over time. We know from the example of TANF that
Edwin Park: You know, once a program is converted to a block grant, Congress pays less attention. It's also easy to impose additional cuts, because you just have to change the formula. So you can change the growth rate by changing a decimal point, a number, and as a result, it can produce even bigger savings, down the road to offset other policy priorities.
Edwin Park: Now, one last thing I'll mention is that there is a part of the Medicaid program that already operates under block grants, and that's the territories. So there's inequitable financial treatment for the territories, like Puerto Rico, compared to the states and the District of Columbia.
Edwin Park: They do not receive open-ended federal financing under the current system. It's provided through a block grant, not tied to their actual spending needs.
Edwin Park: With territories responsible for all costs above that block grant amount.
Edwin Park: Congress has, however, provided additional supplemental funding in recent years, to enhance that inadequate block grant amount, and while… but while the other territories outside of Puerto Rico are receiving permanent, increases in supplemental funding.
Edwin Park: Puerto Rico's latest funding extension to supplement their block grant expires at the end of federal fiscal year 2027.
Edwin Park: So we'll now get to the second section of, of, state financing of Medicaid.
Joan Alker: Thanks, Edwin. Before we get to that, I want to ask you one more question about block grants, and we don't have a slide for this, but the Children's Health Insurance Program, or CHIP, is a block grant. It's been around since 1997, and it seems to have worked pretty well, so…
Joan Alker: Talk to us a little bit about CHIP and, why would that be or not be a model for Medicaid financing?
Edwin Park: So, CHIP is a block grant, but unlike proposals in the past to impose a block grant or a per capita cap in Medicaid.
Edwin Park: Chips.
Edwin Park: block grant is currently operating in ways to ensure that states have the funding they need to both sustain their existing programs and to support, additional, expansions or improvements in their CHIP program.
Edwin Park: So the original, chip formula,
Edwin Park: It had more than enough money for states, but it did run into problems because the specific block grant amounts that states receive
Edwin Park: was based on the number of uninsured kids. And so the more kids you cover, potentially the less money you might receive. But in 2009,
Edwin Park: when CHIP had a major reauthorization on legislation known as CHIPRA,
Edwin Park: The formula was, redesigned, significantly, to base
Edwin Park: states' allotments on their actual past spending, trended forward, and the idea was to make sure there was enough money in aggregate for all the states each year, but also that each state would get sufficient funding for their programs.
Edwin Park: And that allotment would be rebased every two years, so if there was a mismatch in that 2-year period between what states were getting and what states were actually spending, they would get rebased, or their allotment would be increased. So, even though CHIP is a block grant.
Edwin Park: It's not intended to, you know.
Edwin Park: it's not intended to limit states' ability to have the funding that they want, they need, to keep their programs going, as well as to make additional improvements to those programs. So it's a unique block grant in that it's meant to,
Edwin Park: Align as well as a block grant can, with states' actual spending needs.
Joan Alker: Yeah, it's a unique block grant. It's also been a very well-funded block grant, but despite that, we have seen problems when Congress fails to reauthorize the program in a timely manner. And in the early years, we saw some states have waiting lists, and some of the other troubling features, that can arise from a block grant.
Joan Alker: Okay, so now we're going to move on to state financing, as we talked about up top. Medicaid is a federal-state share, so we've been really talking about how the federal side of financing works.
Joan Alker: But now we're going to focus on states. So, Edwin, can you, tell us, how do states come up with their share of Medicaid spending?
Edwin Park: Sure, so, as I mentioned, nationally,
Edwin Park: On average, states are responsible for a little more than a third of, of, of…
Edwin Park: Their Medicaid costs, obviously it varies by state, but states are responsible under this federal-state financial partnership for the remainder, that portion of their Medicaid costs not picked up by the federal government.
Edwin Park: So, states have significant flexibility in how they come up with their funding to support their Medicaid programs, to pay their share under the FMAP formula, under
Edwin Park: whatever applicable FMAP is under the current federal financing system. And of course, the biggest one is general revenues. These are things like income taxes, sales taxes, and the like.
Edwin Park: There are also provider taxes, which we'll go into more detail, which are taxes and assessments on healthcare providers, like hospitals, nursing homes, managed care plans, other providers, to raise revenues to support Medicaid. There may be other dedicated state revenues, things in the past, like,
Edwin Park: tobacco,
Edwin Park: settlements, tobacco taxes. There are other government contributions, from, localities, whether it be counties, cities, other, geographic, political entities, like hospital taxing districts, which we'll discuss a little bit later.
Edwin Park: So long as the state is, picking up at least 40% that state match. This can be explicit funding transfers from, local governments as required, so there are some states, an example is New York, where counties in the city of New York
Edwin Park: are responsible for paying a portion of New York State's Medicaid costs. There are also things like intergovernmental transfers and certified public expenditures, which are
Edwin Park: expenditures specifically, provided to Medicaid, including, in-kind contributions, such as when public hospitals operated by local government are furnishing services at their cost.
Edwin Park: to Medicaid patients, those, costs can count, to, count as a state match, in some cases, and that's called a certified public expenditure. So, there are, there are a whole host of revenue sources.
Edwin Park: But as you can see here, from a GAO analysis back in 2018, which was based on a survey of states, about 68% in 2018 were coming from general fund sources, like income tax, sales taxes, and the like.
Edwin Park: The remainder was coming from other sources. Rough, you know.
Edwin Park: most of which was either provider taxes or local, government funds, whether, explicit match or intergovernmental transfers and certified public expenditures. But you can see here, the various, percentages. Kff recently,
Edwin Park: surveyed states as part of their annual Medicaid budget survey, and found similar results. About 70% were general fund sources for state match, with the remainder coming from other sources, including provider taxes and local government contributions.
Edwin Park: Now, Medicaid is a much smaller share of state general fund budgets than education, so you sometimes hear criticisms of Medicaid that's eating up the state budget. Usually, those claims are based on looking at both
Edwin Park: state contributions, but also the federal share, and if the federal government is contributing a majority or a significant majority of those costs, it can skew the results. But if you look at just a state's general fund budgets,
Edwin Park: and where, they're being used. It's primarily going, as one would expect, through to education. K-12 education, higher education, that's where states are spending, their general fund budgets, and Medicaid is a distant second, at around 20%.
Edwin Park: as of State Fiscal year 2025, according to the National Association of State Budget Officers, NASBO.
Edwin Park: Now, Medicaid is the largest source of federal funding for state budgets.
Edwin Park: you know, it… Medicaid, is often… is… is, you know, being picked up on a majority basis by the federal government. As you can see here.
Edwin Park: 57%, a little more than 57%, of all federal funding that's flowing to state budgets.
Edwin Park: So that, you know, for various purposes, including, education, is coming from Medicaid. So it's the overwhelming share of, federal funding. It speaks to the importance of that federal Medicaid funding, to state budgets.
Joan Alker: Okay, well, that's a good lead-in to what's… happens to state budgets. What is at risk when federal funding is cut? Which, as we know, it now has been.
Edwin Park: So, when there are cost shifts to states from the federal government, which were included in H.R. 1, we'll discuss a little bit more of that later on in the presentation, but if there's a cost shift to states, you know, for example, in SNAP, in Medicaid,
Edwin Park: other aspects of H.R. 1, that passed, last year, in terms of the tax code, that puts pressure on state budgets. There may be other reasons states, of course, have to balance their budgets, unexpected reductions in revenue, maybe the result of reductions in economic activity, like during a recession, other things that may be going on, within a state.
Edwin Park: You know, spending is higher than expected. But…
Edwin Park: States, in general, have to balance their budget.
Edwin Park: And then when they balance their budget, you know, they're only looking at their general fund savings. So if they need to save $1 of their budget, their general fund budget.
Edwin Park: and they're doing so by cutting Medicaid, well, you're losing the federal Medicaid dollars that are raised, that are coming in as match for that $1 in general fund spending by the state.
Edwin Park: So this is known as the multiplier effect.
Edwin Park: And so the actual cut to Medicaid within a state is significantly larger than that single dollar in general fund savings. And of course, it will depend on the applicable matching rate, but you can see here, in a 50% state, if it's a service
Edwin Park: or population, where that regular FMAP applies.
Edwin Park: you're losing another dollar, in federal funding for a total of $2, but if it's a service cut in a state with a very high regular FMAP, or it's related to the Medicaid expansion, where the federal government picks up 90% of the cost, then
Edwin Park: that dollar in savings, for example, with regard to the Medicaid expansion, loses $9 in federal funding, so the total spending cut in the state is $10. So, you know, it's 10 times greater than
Edwin Park: One would think when looking just at the general fund savings when a state's trying to close, its deficit.
Edwin Park: Now, one last thing I'll just mention is that
Edwin Park: In the case of recession, you know, there's no automatic increase in
Edwin Park: the percentage is picked up by the federal government. So more federal dollars come in as state Medicaid costs rise during a recession, and states struggle to, you know, pay for their share of Medicaid. But
Edwin Park: the percentage doesn't automatically increase. Now, Medicaid, like SNAP, is a counter-cyclical program. When there's a reduction in economic activity in a state.
Edwin Park: It brings in more federal dollars as more people, become eligible, and that
Edwin Park: helps mitigate, some of the, impact of the recession. But if states, in turn, have to cut their budgets because
Edwin Park: There's more demand for the program, there's less revenues coming in,
Edwin Park: Because of the economic downturn, states have to cut their budget.
Edwin Park: And that is what produces a so-called procyclical effect. It can actually worsen the economic downturn, prolong it, because there's less government spending going into the economy. In the case of Medicaid, less money going to healthcare providers, and others, and as a result.
Edwin Park: there may be job losses and other things that, feed into that economic downturn. Now, Congress has, on a temporary basis, ad hoc basis in the past, increased federal funding, the, the, the, essentially an increase in the FMAP, during.
Edwin Park: and after the Great Recession, all the way back to, 2003, after the 2001 recession. But there's no automatic,
Edwin Park: FMAP increase. Countercycle FMAP is something, that has been talked about by GAO and others, but it is not in the current financing system to deal with this problem, this multiplier effect, where states have to cut.
Edwin Park: Closed deficits. And in turn, that can make, their own, economy worse off.
Edwin Park: As federal funding is also reduced dramatically.
Joan Alker: So just to, if you could just go back to that last slide for a sec, Edwin, just to…
Joan Alker: highlight here, essentially what you're saying is when we have an economic downturn and unemployment goes up, we know that Medicaid enrollment is going to go up as well, as a consequence of people losing their jobs. And, you know, the importance of Medicaid, as we discussed earlier, of being entitlement spending, is that funding for states is going to automatically increase.
Joan Alker: Congress doesn't have to do anything, but often Congress does. They actually enhance the FMAP.
Joan Alker: Because they know that this is very important to get additional funds to states at a time of economic downturn to avoid, as you say, making things worse, and states have to balance their budgets. Is that a fair summary?
Edwin Park: Yeah, it's the idea that states, because of a downturn or recession, are unable to,
Edwin Park: have the funds to maintain their Medicaid programs, and those Medicaid programs, you know, are helping prop up the economy, in that, tough time, tough economic time.
Edwin Park: But if states are cutting, you know, that's gonna make things worse in terms of the economy, in terms of coming out of the recession, or the depths of the recession, without the federal government kicking in additional funds beyond what's coming in
Edwin Park: the normal federal-state financial partnership, and on a bipartisan basis, you know, that's been done in the past.
Joan Alker: Okay.
Joan Alker: All right, well, we're getting to, one of our final topics, which is a weighty topic, the topic of provider taxes.
Joan Alker: These were restricted in H.R. 1. As I mentioned, we have not yet seen regulatory language from the federal government on this, so we will certainly be taking a close look at that once that is out. But, Edmund, why don't you walk us through what do we know? We've already talked about, you know, provider taxes as a source of funding for states' share.
Edwin Park: Sure, so, all states but Alaska rely on these provider taxes, as the earlier slide showed. You know, a little under one-fifth of states' contributions to Medicaid come from these provider taxes.
Edwin Park: variety of different providers that could be subject to these taxes, but there are 3 provisions in the Budget Reconciliation law, H.R. 1,
Edwin Park: that restrict existing state use of provider taxes. And it's a significant share of the total federal Medicaid spending cut in H.R. 1, which is, on a gross basis, was…
Edwin Park: you know, nearly a trillion dollars. $225 billion come from these spending cuts, and of the $7.5 million more uninsured coming
Edwin Park: due to the Medicaid cuts in H.R. 1, 1.2 million, are due to these, provider tax restrictions.
Edwin Park: as, estimated by the Congressional Budget Office.
Edwin Park: Now, which states have provider taxes? You know, you can see here, the large majority of states, have at least 3 such taxes, according to KFF. The exception, again, is Alaska. But, states do rely on these provider taxes.
Edwin Park: for their current Medicaid programs, and to the extent H.R. 1 restricts that, that creates a significant impact on the ability of states to finance their programs.
Edwin Park: Now, provider taxes have been around since the beginning of the Medicaid program.
Edwin Park: The current regulatory framework governing these provider taxes, indicating what taxes on providers are permissible, according to federal law, have been in place since 1991, both in terms of the statutory requirements as well as regulations implementing those statutory requirements. So they've been around for a long time.
Edwin Park: And states have been, operating under that, framework and relying on that framework.
Edwin Park: The general requirements are that
Edwin Park: Any taxes on providers used to finance the state share of Medicaid have to be uniform and broad-based across the providers that are taxed, that are paying these assessments, and
Edwin Park: These taxes may not hold providers harmless, that is, the state cannot, ensure that, or guarantee.
Edwin Park: that providers paying the tax receive additional Medicaid funding equal to the tax that they are paying to support Medicaid. Now, there are some nuances here. You can get waivers from the Uniform and broad-based requirements if you satisfy certain mathematical tests.
Edwin Park: And you can satisfy the whole harmless requirement, the prohibition against any whole harmless agreement, by showing that your tax does not exceed a certain threshold, and that threshold is, no greater than 6% of net patient revenues. So, as long as your tax isn't larger than that, then you are, assumed under federal law
Edwin Park: To be in compliance with, this whole harmless requirement.
Edwin Park: Now, what does…
Edwin Park: H.R. 1 do for this, you know, complicated, financing mechanism, subject to all these, very wonky federal rules. First, there's a prohibition under H.R. 1 for any new or increased provider taxes. The look back is towards, enactment.
Edwin Park: Whether there's an increase in existing tax will depend on whether it's larger than what it was before enactment of H.R. 1 on July 4th of last year.
Edwin Park: His existing taxes are grandfathered, not affected by this prohibition if they were both enacted and imposed, according to recent CMS guidance.
Edwin Park: And this means that states.
Edwin Park: are currently using provider taxes can no longer look to provider taxes as one of their tools in their toolbox, to come up with state share. Again, you know, there are a number of different financing sources they can use, general fund, income taxes, sales taxes.
Edwin Park: local government funding, special taxes or assessments, and also provider taxes. But states, to the extent they need additional funding, whether it's to close a deficit or to finance an improvement to the Medicaid program.
Edwin Park: Whether it's expanding access to home and community-based services for people with disabilities, or increasing payments to hospitals and other healthcare providers to ensure access to needed care.
Edwin Park: States can no longer finance their portion of that, the cost of that improvement using new provider taxes, or taking their existing provider taxes and increasing that, that tax rate, for that various, you know, for whatever provider class is paying that tax.
Edwin Park: So that's the first provision.
Edwin Park: The second one is, you know, a very technical provision, but as I mentioned.
Edwin Park: Provider taxes have to be uniform, but you can get a waiver. Most states have gotten some uniformity waiver taxes approved by CMS over the decades, over the years, as long as you satisfy a mathematical test.
Edwin Park: H.R. 1 now says that certain taxes
Edwin Park: that had, already received a uniformity waiver approval would no longer be, permissible, would no longer be allowed.
Edwin Park: And essentially it would be those taxes where there was a significant differential in tax rate, between those that are considered more Medicaid providers, more of the revenues come from Medicaid, more of the patients come from Medicaid, compared to non-Medicaid providers.
Edwin Park: This, prohibition affects at least 7, states, with the Medicaid expansion, with 9 such taxes, mostly applying to taxes on managed care organizations.
Edwin Park: But the prohibition is broader that additional states and taxes could potentially be implicated, but, you know, CMS has not provided an exhaustive list. Final regulations have come out at the beginning of this year.
Edwin Park: Which, largely implemented this provision, but included transition periods, based on the type of, provider being taxed, and how recent, an approval was granted for
Edwin Park: you know, a new tax or an existing tax, you know, looking back from July 4th.
Edwin Park: So this is the second provision. It's more limited in its scope in terms of which taxes are affected in which states, but certainly for those states, it could be a potentially large revenue hit.
Edwin Park: Once transition periods expire, and in some cases, the transition period expires at the end of this calendar year.
Edwin Park: The last provision is a restriction of provider taxes that applies to only those states that have taken up the Medicaid expansion. So, you know, a large majority of states have taken up that Medicaid expansion, but this is a provider tax restriction that only applies to those states.
Edwin Park: It reduces the permissible size of most existing provider taxes, by lowering
Edwin Park: that 6% safe harbor threshold I mentioned earlier.
Edwin Park: It affects all taxes, except for those imposed on nursing homes and intermediate care facilities for people with developmental disabilities. It will first take effect, in federal fiscal year 2028, so that's October 1st of 2027,
Edwin Park: And it'll go down by half a percentage point a year. So the current permissible size of a provider tax is 6%. It'll be reduced to 5.5% in 2028, until you get to 3.5% in fiscal year 2032, and that's where it'll stay. But, as KFF has pointed out.
Edwin Park: Many expansion states will be affected by this, phase down, in permissible size of provider taxes. So, as many as 31 states, will have to lower their existing taxes, even though they're grandfathered.
Edwin Park: Under that first HR1 provision. 12 expansion states, right away when this phase down starts, and 28 expansion states have hospital taxes above 3.5%. There are other taxes that are affected. Some states have explicitly used
Edwin Park: provider tax increases to finance their share of the cost of Medicaid expansion. It's even part of their statute. And they have, you know, there are some states that, have, you know, would be affected by
Edwin Park: right away, with the provider tax increase having to go down, because of these, this HR1 provision, that lowers the permissible size of provider tax. You can see here the map.
Edwin Park: Of which, expansion states, will likely be affected.
Edwin Park: Now, there are forthcoming regulations to implement
Edwin Park: these provider tax provisions outside the uniformity waiver. So that one, the rule has already been finalized, but the first provision, barring any new or increases in existing taxes, as well as this phase down in the size of taxes that are allowed, but just in expansion states.
Edwin Park: There is a, rule, a proposed, provider tax, rule from CMS that's expected to come out, very soon, possibility as early as this, upcoming month.
Edwin Park: And, you know, looking at the trend of
Edwin Park: what CMS has done in implementing various aspects of HR1, it seems CMS is going much farther, and
Edwin Park: Joan will touch on this, later on.
Edwin Park: But… The concern is that, as with these other aspects of HR1, these other cuts.
Edwin Park: where they've been implementing regulations proposed or finalized by CMS. CMS may similarly go beyond that, and it may involve more restrictive
Edwin Park: rules on provider tax, as well as changes to, the ability of states to use funding from local governments through intergovernmental transfers or certified public expenditures, which aren't even addressed in H.R. 1. There's nothing in H.R. 1
Edwin Park: that limits or otherwise changes the rules on IGTs and CPEs, but there's a concern that this may, this upcoming rule may further restrict those state financing tools. At the same time.
Edwin Park: that HR1's already restrictive changes on provider taxes could be, further expanded, which in turn would increase the negative impact on states' ability to finance their Medicaid programs.
Edwin Park: Now, you know, we'll go to our next slide.
Edwin Park: On adverse impact on state budgets, And…
Edwin Park: you know, as I mentioned, states have to balance their budgets, unlike the federal government. The federal government can run a deficit. In general, states cannot run a deficit. If you have less provider tax revenues available.
Edwin Park: and it could also be reductions in local government funding as well. Well, that's less revenues
Edwin Park: that are currently being raised by states to finance Medicaid moving forward, as well as additional revenue options, you know, down the road for any unforeseen circumstances, changes in Medicaid policy, including improvements to the program. Now, these restrictions in H.R. 1 on provider taxes
Edwin Park: produce federal savings because the Congressional Budget Office correctly assumes that
Edwin Park: States will be unable to replace those lost revenues with other financing sources, and so they're going to have to, you know, cut their Medicaid programs and cut federal spending, and states only have 3, tools to cut Medicaid eligibility, benefits, and provider payments.
Edwin Park: And provider rates, optional benefits, like homemade kid-based services, adult dental care, adult vision care, are often the first to face budget cuts, and as a result.
Edwin Park: You know, they would likely be on the first on the chopping block, now with these changes, to provider taxes in H.R. 1.
Joan Alker: Okay, so we've talked about, the state share, and now we have a new limitation coming in on how states can raise their state share with these limits on provider taxes. What are some of the other challenges that are happening to state budgets at a time when they're going to face cuts in their federal funding?
Edwin Park: You know, there are other cost shifts from the federal government to states in H.R.1 outside of Medicaid, outside of the healthcare space, most notably cuts to SNAP.
Edwin Park: So, the rule used to be that
Edwin Park: States and the federal government shared, equally in the cost of administering SNAP.
Edwin Park: Now SNAP, administrative costs will be borne 3 quarters by states, 75% by states, and 1 quarter by the federal government. In addition,
Edwin Park: States will now, for the first time, have to share in the cost of
Edwin Park: SNAP benefits. So right now, SNAP benefits are 100% federally funded, but based on states' error rates in SNAP,
Edwin Park: states will have to pick up between 5% and 15% of SNAP costs. You know, there's a definite concern that this cost shift will mean that states will be scaling back their SNAP eligibility, potentially even some states being at risk of dropping SNAP entirely.
Edwin Park: In addition, There is so-called tax conformity, where the tax cuts in H.R.1
Edwin Park: Can automatically result in changes in the tax code at the state level.
Edwin Park: And these linkages, unless the state decides to, pass legislation to decouple from the federal tax code, can mean that there's less revenues, as a result of those tax cuts. In addition, you know, there are other factors playing into a
Edwin Park: Volatile state budget situation. A number of states have enacted significant tax cuts. They're just starting to phase in. other states are considering, further tax cuts, whether on the income tax side or elsewhere, as well as,
Edwin Park: A lot of federal funding that was provided to states, in response to the pandemic have now expired.
Edwin Park: And so, you add all this together, you're creating, significant cautions to states under H.R.1 within the context of reduced revenues, overall for states, and as a result, a greater risk that they're facing a deficit, moving forward.
Edwin Park: Now, what does that sort of…
Edwin Park: leave, you is, a resulting need for additional state revenues. If Congress decides, you know, to repeal the Medicaid cuts, obviously, that's the best case scenario, to avoid these budget pressures on states and Medicaid and in SNAP and elsewhere.
Edwin Park: But if states want to mitigate, Medicaid cuts without, Congress, taking that positive step.
Edwin Park: They're either gonna have to raise additional revenues at the state level, through income taxes, corporate taxes, other taxes, or, they're gonna have to make, sharp cuts to their Medicaid program.
Edwin Park: That additional revenue is critical to backfill, you know, in the budget.
Edwin Park: as a way to avoid affecting children across the board, not just in slashing SNAP, dropping SNAP, as well as cutting other parts of the budget that, help children and families, including, of course, K-12 education, which is where states are spending, you know, the greatest portion of their budget on today, is education, and
Edwin Park: If you're placing states in a
Edwin Park: significant budget, whole significant budget deficit, then without additional revenues, without Congress enacting, legislation to reverse, these draconian cuts, then it's significant cuts that could really harm, vulnerable low- and moderate-income children and families.
Joan Alker: Okay, just a couple things, and we're going to go to your question soon. We're actually… this webinar runs till 4 o'clock, believe it or not, so we've got time for questions. We have a lot of resources available for folks here. There's another resource that I was reminded of we're going to put into the Q&A, which is a spreadsheet that goes by state and
Joan Alker: tells you which provision of H.R. 1 affects your state. So, you heard Edwin talk about fairly obscure things like the uniformity waiver and the provider tax restrictions. If your state is affected by those provisions, you'll have an X in the spreadsheet, so you can look across that spreadsheet and look at your state. So, hopefully you don't have to do that work, we've already done it for you.
Joan Alker: So, I want to ask you one more question, Edwin, before we get to, to the Q&A here. But just to sort of conclude, you know, one of the things we're going to talk about in our next webinar is we've talked about the federal share. Of course, we know millions of people will be losing coverage as a consequence of the work reporting requirement. Those people aren't going
Joan Alker: anywhere, so they're still going to have healthcare needs, even if they lose coverage. But there are lots of different things coming at states which are going to both restrict the federal funding and restrict their ability to raise their state share. And now, potentially, to restrict their funding that's coming in through Section 1115 waivers. So, all of these
Joan Alker: things, we need to connect the dots and think about this sort of overall attack on Medicaid funding, that it's coming from many different ways. So we'll talk about that in our next webinar, but before we get to the Q&A, I want to ask you a question, which is, we hear an awful lot of
Joan Alker: a conversation these days about Medicaid fraud. Some people are saying there's lots of fraud and implying that we can solve these budget problems.
Joan Alker: by just limiting fraud. So what do we know, Edwin, about, for example, the Congressional Budget Office? You know, of course, when you try to change Medicaid law, you're going to get a score from the Congressional Budget Office there. And similarly, it states, you know, there's… somebody's going to do an estimate of how much that's actually going to save. So what do we know from HR1,
Joan Alker: and previous experience about, how much fraud there really is, knowing that we don't have a perfect answer, but, this path has been trod before.
Edwin Park: Sure, so, you know, our colleague Andy Snyder, when H.R. 1 was enacted, looked at all the provisions of H.R. 1, and
Edwin Park: Look for those provisions that are really intended to combat fraud, and
Edwin Park: You know, there's, no, real anti-fraud provisions, you know, it's, you know, even if you take into account provisions that might, you know, address fraud or, fraud, waste, and abuse, it was a tiny, tiny percentage of the total
Edwin Park: federal funding cuts in Medicaid. The other thing that, you know, you know, wasn't included were investments in anti-fraud activities, whether it's increases in funding for
Edwin Park: Federal resources, state resources, like state Medicaid fraud control units, none of that was included in H.R. 1. You know, the…
Edwin Park: You know, the… we know that fraud is, present in all, types of health insurance, both private and public, but, you know, these big changes,
Edwin Park: in HR1, the cost shifts that we're talking about, even if you, were able to magically reduce fraud, you know, fraud is, you know, a small percentage of total spending. We don't have a good number on it, but, you know, that won't, address the
Edwin Park: Pressures that states will face in terms of both federal funding.
Edwin Park: as well as their ability to pay for their share of state Medicaid costs, moving forward, and that means big risks in terms of budget cuts that harm the ability of people to have health coverage through Medicaid, or to who have access to the services they need and the providers to furnish those services to them, over the long run.
Joan Alker: Thanks, good one. All right, our colleague Kelly Whitener is gonna moderate the questions. Thanks.
Kelly Whitener: Thank you both, and thank you to all of our participants today. I'm going to try to group some of the questions as we go along, starting with, no surprise, provider taxes. This is a tough area of Medicaid law to understand. So first, are provider taxes cyclical in the sense that the money raised from the tax is then paid back to providers for Medicaid expenses?
Edwin Park: Well, you can't, you know, as I mentioned in the rules.
Edwin Park: You can't have an explicit whole harmless requirement, but to the extent that it generates state share.
Edwin Park: you know, that will be able to draw down federal funding. That can be invested into the Medicaid program. That can finance things like increases in provider payment rates, it can also finance, expansions or improvements, including
Edwin Park: for, you know, services with people with developmental disabilities, like in one state, or in a number of states, to finance the adoption of the Medicaid expansion. And that includes some of the states that have recently adopted the expansion over the last
Edwin Park: 5 to 10 years through ballot, initiatives. But certainly, the ability of…
Edwin Park: providers to contribute, revenue to the state allows the state to finance its Medicaid program, and that may include, payments to providers, but states cannot explicitly,
Edwin Park: lineup payments so that it equals the payments that providers have to pass, and that's, that providers have to pay, which is why, a number of states do not have provider taxes on every provider. They haven't had,
Edwin Park: The maximum tax rate is because of the political difficulties, because all providers in the class are contributing, you know, tax dollars to the state, but they may benefit in ways that's less than
Edwin Park: other providers that, have a lot of Medicaid patients. So, you know, that is one reason why not all states have provider taxes, but also why, states haven't adopted the maximum provider tax, and haven't imposed a… imposed a tax on all permissible provider classes.
Kelly Whitener: Thank you. And then combining two next questions on provider taxes. First, can you give a very simple breakdown of what provider taxes are? And then second, go to any kind of rationale you can offer of why provider taxes were restricted in H.R. 1.
Edwin Park: So, you know, I… you know, the…
Edwin Park: Provider taxes are basically, you know, tax or assessment, on
Edwin Park: a type of provider class, whether it's hospitals, nursing homes, managed care plans, just like any other tax, except it's dedicated for the Medicaid program.
Edwin Park: And it's used to finance state's share of the Medicaid program. As we walk through, states are responsible for a portion of states' Medicaid costs.
Edwin Park: Provider taxes, because there has been a history of states abusing those provider taxes. That's why the rules were put in place in the 1990s, and states have been operating under those, restrictions ever since.
Edwin Park: Now, there is no, you know, significant, you know, evidence that
Edwin Park: There is greater noncompliance in provider tax, compliance with the provider tax rules, despite many allegations, to the contrary. But, the idea is.
Edwin Park: to come up with a way that doesn't look as much like an explicit cut, but to make it more difficult for states to finance their programs. So it's a cost shift to states.
Edwin Park: And it, you know, to make it harder to finance Medicaid, and so, federal policymakers have less…
Edwin Park: They appear to be less responsible for the inevitable budget cuts that governors and state legislatures will have to institute as a result of these restrictions. And that's why, cautious of all sorts, including in SNAP,
Edwin Park: you know, are attractive to some on Capitol Hill, you know, because it doesn't look like an explicit cut to eligibility, benefits, or provider rates, but that's the inevitable outcome when you have that kind of provision enacted as part of H.R. 1.
Joan Alker: I'm gonna add a couple things to that point. So, a lot of folks, have been involved over the last 10 years on, states, whether or not to expand their Medicaid program with the ACA expansion to adults.
Joan Alker: And many of the states that decided to do that expansion, as Edwin talked about, states have to raise 10 cents on the dollar now for that. So a small amount, but they do have to put in some of their own money. A lot of states have essentially paid for that 10% by imposing a provider tax, right? So maybe they imposed it on their insurance companies, their managed care companies, maybe they imposed
Joan Alker: posted on their hospitals. But I think you see a theme throughout HR1 of trying to limit and undermine the ACA's Medicaid expansion. That was clearly a target.
Joan Alker: of the proponents, of these cuts, and, so I think that explains some of it.
Joan Alker: And the other piece of this is, as Edwin said, you know, states can't impose any new provider taxes now, or raise their provider taxes, and those expansion states will have to lower them, so…
Joan Alker: This is over time, right? Because we have inflation, we have healthcare costs going up, and we have an aging population, and we haven't talked about that today, that Medicaid is the biggest payer of long-term care. So, states are in a real pickle here with an aging population, and that restriction is only going to get worse, right? As to the extent that they're capped, and then the cap's going down, and they can't impose any new
Joan Alker: taxes, so they cannot tax their insurance companies, which might be a popular thing to do, right? People do not love insurance companies for good reason, so… but they can't do that now. And so that is going to limit their ability to continue financing their Medicaid program. And so, you know, politicians like to vote for things, so does
Joan Alker: Edwin said, you can't put their fingerprints right on the cut that ends up affecting me, or my neighbor, or my grandmother, or my cousin, but they also like things that happen in the future, when they're not, so close to them, and perhaps not up for election.
Joan Alker: I think all of those, reasons are… are why we ended up in this place.
Kelly Whitener: Thank you. So, going next to a couple more detailed questions on provider taxes, you mentioned the grandfathering.
Kelly Whitener: This question is, is the grandfathering of provider taxes only for as long as their current authorization? Our state has provider taxes that are approved for, say, 5 years at a time. Once they expire, are they no longer permitted?
Edwin Park: So this is, an issue that… Has never been…
Edwin Park: really addressed, and may be addressed in this forthcoming rule, to make clear that, you know, provider tax
Edwin Park: of a certain level, if it was in place, even if states have to, you know, reauthorize them periodically in their legislature, are still valid, they're still grandfathered moving forward. Sort of an analogous situation is on the… that uniformity tax prohibition.
Edwin Park: CMS has never made clear that states could dramatically restructure their uniformity waiver tax to come into compliance with the new rules, and not, run afoul of that prohibition against a new or increased tax. So, in other words, if the…
Edwin Park: You know, a tax on managed care plan looks…
Edwin Park: Very different from what was in place before enactment.
Edwin Park: And…
Edwin Park: Because the state wanted to fix that tax to come into compliance with the new rules for such waivers.
Edwin Park: that's never been made clear that, yeah, yeah, of course you can fix it and not, violate that new prohibition against a new or increased tax. And so those kind of, you know.
Edwin Park: details, I think, still need to be spelled out, but the hope is that, you know, as long as
Edwin Park: A tax is not, significantly modified in a way that increases the effective tax rate, that that is still grandfathered, still allowable,
Edwin Park: even if it has to be renewed at the state level in the legislature moving forward. So, you know, there's a lot of details that still have not been explained by sub-regulatory guidance, but this proposed rule may address some of these technical questions.
Kelly Whitener: Thank you. This technical question may fall in that camp as well. If a state passed a quote-unquote just-in-time provider tax increase, and the upcoming CMS guidance determines that increase was prohibited, what might happen if the state has already been spending that revenue?
Kelly Whitener: Could a state be required to pay back any associated federal matching funds?
Edwin Park: So, there was, sub-regulatory guidance that said…
Edwin Park: added requirements that weren't in the statutory language of H.R. 1, that for a tax to be grandfathered had to have been both enacted and imposed.
Edwin Park: And CMS implied that imposed men actually collecting, but there were some taxes that, you know, hadn't been, implemented as of July 4th. So that's certainly a question.
Edwin Park: The way the…
Edwin Park: penalty works for, the HR1 prohibition on new and increased taxes, the penalty doesn't start till, October 1st of this year, even though the prohibition timeline goes back to July 4th of last year. So.
Edwin Park: state…
Edwin Park: that would be considered in violation of that prohibition may not be subject to penalties and reduced federal funding, because they used an impermissible source of funding to draw down federal dollars. They don't have to pay back federal dollars,
Edwin Park: through October 1st, but they would starting October 1st.
Edwin Park: At least that is how I understand HR1 and the sub-regulatory guidance, but again, the forthcoming proposed rule implementing these provisions may make that clear either in the regulatory language or in the preample.
Kelly Whitener: Okay, a couple more provider tax questions, and maybe we'll move on to another theme. But first, how do the exemptions for nursing homes
Kelly Whitener: factor in with restrictions on provider taxes. Sorry about that, my screen just bumped up while I was talking.
Edwin Park: So, the prohibition on new taxes or increase in existing taxes applies to all provider taxes, including those imposed on nursing homes, but for the provision,
Edwin Park: That requires a reduction in the size of existing taxes, but only in expansion states, which first takes effect,
Edwin Park: for fiscal year 2028, so October 1st of next year. That would only apply to all provider taxes except for those,
Edwin Park: assessed on nursing homes and intermediate care facilities for people with developmental disabilities. So, that phase-down wouldn't apply to nursing home taxes, but a state couldn't, impose a new tax or increase an existing tax on nursing homes because of that other provision.
Kelly Whitener: Okay, and next, California is raising taxes on private insurers to fill their Medicaid funding gap. Is that something other states could do?
Edwin Park: So, as I understand it, California, as part of its new budget.
Edwin Park: Approved by the governor and the legislature, is trying to fix an existing tax on managed care plans that,
Edwin Park: is not in compliance with that new HR1 prohibition on certain uniformity waiver provider taxes.
Edwin Park: So, to fix… That tax requires, assessing similar rates on,
Edwin Park: not just Medicaid managed care plans, but also other managed care plans in the state. I don't know
Edwin Park: all the details, but as I understand it, it's an attempt to…
Edwin Park: fix that existing tax, which brings in billions of dollars of revenues annually, as a way to preserve that funding stream for Medicaid, and…
Edwin Park: to the extent other states have MCO taxes that may, you know, run foul of that, uniformity waiver provision, you know, that is one, you know, possible way to do that, is restructure that existing tax so it is now in compliance with the new rules.
Edwin Park: But a state would be prohibited from imposing a new tax on managed care plans, including private, plans, you know, for,
Edwin Park: financing Medicaid, depending on how that tax is structured.
Edwin Park: there are premium taxes that are, you know, still permissible. For example, states, finance, you know,
Edwin Park: state-only subsidies for the marketplace, support their insurance, department, finance, some of the administrative costs of operating a state-based marketplace. If it's not going to support Medicaid, then those kind of taxes aren't, you know, don't have the same,
Edwin Park: situation as taxes supporting Medicaid?
Kelly Whitener: Thank you. I am not promising that that's the last provider tax question, but I am now going to pivot to some different themes I'm seeing in the Q&A. So, early on, we got a question, is anyone tracking the loss of Medicaid for children when their parents lose Medicaid? And I want to pair that with a question that came in a little later, saying, I'm coming at this from how these changes will impact home visiting
Kelly Whitener: programs, and states where they are mostly paid for through fee-for-service Medicaid.
Kelly Whitener: My understanding was that the HR1 eligibility changes won't impact mothers and children directly, but what I hear you saying is that we should be worried about further Medicaid cuts starting in October 2028. Is that correct?
Joan Alker: I'll start on the tracking children's coverage loss, and then I can hand it to Edwin, and tee up the second part of the question. So…
Joan Alker: We are tracking, Medicaid enrollment, for all Medicaid enrollees, adult Medicaid enrollees, child Medicaid and CHIP enrollees.
Joan Alker: And we're attempting to track it for what's called the ACA expansion group, and those are adults and parents that are over a certain income level. So…
Joan Alker: We can pop that tracker into the Q&A so that everybody has it. We're doing our very best to keep up with this. We use federal data, but we can, for most states, get more up-to-date data, and it's pretty up-to-date.
Joan Alker: for, for many, but not all states. So, like I keep saying, don't use this enrollment tracker if you're trying to write a peer-reviewed journal article, because there's a little bit of apples and oranges in this data. But do use this tracker if you want to keep, in real time.
Joan Alker: We promise to do our very best to keep this as updated as we can in real time.
Joan Alker: So that you can track what's going on with Medicaid enrollment in your state. Now, having said that.
Joan Alker: even before most of the provisions of H.R. 1 kick in, which a lot of them are kicking in next year, some of them January 1st.
Joan Alker: We're already seeing steep declines, particularly in child Medicaid and SHIP enrollment, and we're very concerned about that, we've blogged about that, I'm not going into that. The reason we're concerned is because when Medicaid enrollment for children goes down.
Joan Alker: Generally what it's meant in the past, and likely means now, is the uninsured rate for children is going up.
Joan Alker: So we can't link that directly to if their parents are losing with the data that we have.
Joan Alker: But we are tracking those categories that I mentioned. So, total Medicaid and CHIP, child Medicaid and CHIP, adult Medicaid and CHIP,
Joan Alker: and the expansion group, but we can't just pull out parents. But there's no question that when parents lose coverage, children do too.
Joan Alker: We've seen that, and that's been confirmed by a lot of research. And, so I think the questioner is absolutely right, and please do use our enrollment tracker to keep track of what's going on in your state.
Joan Alker: I will now hand it to Edwin. I'm gonna say, in general, how were children, specifically, we've been all told many times that children were not impacted.
Joan Alker: by H.R. 1, and that's not quite true. There were specific cuts to lawfully residing immigrant coverage for many, many categories. Now, if your state has picked up the option to cover lawfully residing children, that will override those cuts. Not all states have done that, but a lot have.
Joan Alker: There was limit on retroactive eligibility for children, pregnant women, everybody except the expansion group. Right now, in Medicaid, there's a 90-day retroactive eligibility period, so you can get your back bills paid, when you enroll in Medicaid for 90 days. That's been limited to 60 days going forward for everybody, including children, and 30 days for those that
Joan Alker: that are in the Medicaid expansion group. So those are a couple of examples. You know, those are relatively small, not certainly for the people impacted and the children impacted, but the bigger issue is really what Edwin was talking about, which is when we have a program that's covering nearly half of all children, and you're putting the squeeze on it, like we're seeing right now, there's no way children are going to be exempt from this, and I think
Joan Alker: in particular, optional services for children, and optional services for adults, like home and community-based services, are where they're really at risk. So, Edwin, I'm gonna let you jump in here, too.
Edwin Park: Yeah, I mean, as I mentioned, states have to balance their budgets, so, unless they are identifying other revenues, or Congress is reversing these Medicaid cuts, states have to close the resulting deficit, and…
Edwin Park: That may mean Medicaid cuts directly affecting kids, you know, whether it's, provider rates being cut to such an extent that
Edwin Park: children don't have access to the providers they need, the specialists they need, because providers are withdrawing from the program. It may be other, changes, that may affect kids' access, but even outside of Medicaid, whether it's cuts to SNAP,
Edwin Park: Cuts to, education, cuts to other programs that serve, kids and families in the state. There are a number of ways where children will be ultimately affected on a negative… in a negative way due to service cuts because of the fiscal pressures being placed on states.
Edwin Park: under the cuts included in H.R. 1.
Kelly Whitener: Next question, this one about the territories. So, Edwin, you mentioned the different funding structure for states versus territories, and the questioner asks.
Kelly Whitener: why federal funds for the Medicaid program in the territories is capped, and the federal share is lower than in states, and goes on to say, when territories run out of their Medicaid funding, that usually happens every year, they need to restrict benefits and services and reduce eligibility and enrollment.
Edwin Park: Yeah, the… I've never seen, sort of, a clear explanation of
Edwin Park: why the territories are treated this way in terms of their federal funding, but it's always been the case. You know, there's been…
Edwin Park: You know, some arguments that it was done because of, what tax… what other, you know, taxes are imposed on residents of the territories, but they do operate under block grants. They had an artificially low,
Edwin Park: federal Medicaid matching rate, the FMAP in Puerto Rico, if you use the normal per capita income formula, would result in Puerto Rico receiving the maximum 83% match, but…
Edwin Park: Because, for a long time, those block grant amounts were so inadequate, they created pressure on, territorial, governments, to finance their healthcare programs, their, their health, support their healthcare systems.
Edwin Park: And, to a great degree, this federal funding shortfall was a contributor to, you know, the ongoing fiscal crisis in Puerto Rico, which is why they have
Edwin Park: a fiscal oversight board, and the economic problems, the island, continues to face, and, you know, the resulting harm that it's caused. But…
Edwin Park: Since the Affordable Care Act was enacted, Congress has been providing, supplemental funding.
Edwin Park: And that's been critical to allow Puerto Rico to, improve its program because, the territories, actually, don't meet a number of federal requirements that apply to states and the District of Columbia because of that inefficient federal, insufficient federal funding.
Edwin Park: So for example,
Edwin Park: you know, Puerto Rico, not till recently, not in the last few years, did not participate in the Medicaid drug rebate program, did not cover, all prescription drugs, and so they did not cover a, curative therapy,
Edwin Park: for, hepatitis C till 2020 or so, even though they came to the market 6 years earlier. So it gives you a sense of, of what the block grant has,
Edwin Park: resulted in, but because of that supplemental funding, which is more in line with what Puerto Rico needs.
Edwin Park: which is currently available through the end of fiscal year 2027. Puerto Rico's had made steps to improve prescription drug coverage, to increase eligibility, so they now have the same income eligibility levels.
Edwin Park: as in the States, in terms of the minimum, before that, Puerto Rico used its own federal poverty, its own poverty level, which was about half
Edwin Park: Or so of the federal poverty level, so their eligibility, their minimum eligibility levels were actually much lower, than in the rest of the United States. So, it gives you a sense of the impact of a block grant on, you know, Puerto Rico.
Edwin Park: Of which, 60% of kids rely on Medicaid, and nearly half of all Puerto Ricans rely on the program.
Joan Alker: And I just… quick thing I want to add, I know the question wasn't about the District of Columbia, but since I live here, I'm a proud, long-time resident, I want to mention, as Edwin said, the match rate is 70 cents on the dollar, and there were proposals, and I'm sure there will be more proposals to cut that match rate to 50 cents, which is what I think the formula would produce, but there are reasons
Joan Alker: why it's a 70% match for the District of Columbia that relate to the unique characteristics in DC. Like, a lot of land here is federal, owned by the federal government, and it can't be taxed. There's a lot of land that is owned by other non-profit institutions and universities and stuff that can't be taxed, so…
Joan Alker: There are very specific reasons why the District of Columbia has that 70% match.
Kelly Whitener: I know we're running short on time, but we did get a couple of questions about managed care that I wanted to throw to the two of you, and then I'll give you a chance to share your final thoughts. First, kind of more of a philosophical question. What is your opinion about states like Connecticut that have moved away from managed care models?
Kelly Whitener: And then another question that was asking, what, if anything, do we know about, health quality outcomes from states that use managed care versus ASO models?
Joan Alker: I'll quickly say a couple things. This is a favorite topic of mine,
Joan Alker: you know, managed care is the predominant form of delivery in Medicaid. I don't think it's really delivered the results it promised to save money, and there's not any good evidence that it has.
Joan Alker: I think it's probably here to stay in most places, but I think there's so much work to be done there to make sure that we're getting better value for taxpayer dollars. So, I would love to be able to focus on that. That's a whole other topic, so I think it's a great question.
Kelly Whitener: Thank you. Any final word from either of the two of you on Medicaid financing that you'd like to share with participants today? I know we didn't get to every question, but we tried to cover the major ones.
Joan Alker: Well, I mean, stay tuned, thanks for hanging in there. We know this is really complicated stuff, and we're just gonna keep at it, and let us know if there are other topics you'd like us to cover, or ways we could improve, breaking down this information for you, and stay tuned for the next installment.
Joan Alker: Okay, thanks everybody. Have a good rest of your day.