As Costs Mount, States Warily Eye Changes to Medicaid in GOP Health Plan
Policy + Politics

As Costs Mount, States Warily Eye Changes to Medicaid in GOP Health Plan

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Medicaid, the program providing health care to 72 million low-income and disabled people, consumed 29 percent of all state general fund dollars in 2016. That constituted the second largest share of the pie behind elementary, secondary and higher education.

A new survey by the National Association of State Budget Officers issued Thursday found that while Medicaid spending grew moderately in fiscal 2016, it began to accelerate this year at a 5.3 percent clip and is expected to continue to climb in the coming years.

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States last year contributed $204.5 billion of the total $553.4 billion cost of the federal-state entitlement program. And for the first time this year, the 31 states and the District of Columbia that opted to expand Medicaid under the Affordable Care Act to cover able-bodied, low-income, childless adults have begun contributing a small share of the cost of the program – beginning with $6.2 billion this year and an estimated $8.5 billion in fiscal 2018.

The Medicaid program has become a mounting headache for states, as Congress debates a slew of far-reaching reforms, including the repeal and replacement of Obamacare, more than $800 billion of long-term cuts to Medicaid and revolutionary changes in the way states and the federal government share the overall cost of the program.

For now, governors and state legislators must cope with the reality that state spending on Medicaid continues to outstrip incoming general revenues, suggesting a growing mismatch between state health care costs for low-income Americans and revenue from state sales tax, personal and business income taxes, and other fees. The latest NASBO study of fiscal trends says three-fifths of the states are struggling with revenue shortfalls. As they press for action on new budgets for the fiscal year that begins July 1, governors are proposing across the board increases of only one percent.

But depending on what the GOP-controlled Congress and President Trump enact this year – if anything – red and blue states throughout the country could be saddled with enormous additional costs and responsibilities. The Senate is considering a bill that would gradually phase out expanded Medicaid at a slower pace than what is called for under the House-passed American Health Care Act.

Related: Senate Republicans Are Getting Closer to Rolling Back Medicaid Expansion

Republicans in both chambers are also promoting a plan to convert Medicaid from an open-ended entitlement to a block grant with a per capita limit on spending, and granting states considerable flexibility to reduce their costs. That proposal, if implemented, would shift considerable long-term costs from the federal government to the states.

According to a Center on Budget and Policy Priorities analysis last November, a block grant proposal contained in a House GOP budget plan for fiscal 2017 would cut federal Medicaid funding by $1 trillion — or nearly 25 percent — over ten years, relative to current law. By then, federal funding for Medicaid and the Children’s Health Insurance Program (CHIP) would be roughly $169 billion, or about a third less than what it would be under existing law.

State officials would be left with the dilemma of either trying to absorb the loss by cutting their budgets or raising taxes, or by tightening regulations to force millions of poor people off of the Medicaid rolls.

“States are closely watching renewed federal legislative efforts to repeal and replace the Affordable Care Act, which would have a significant impact on both Medicaid expansion and the overall Medicaid program in years to come,” the report stated.

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Average Medicaid enrollment increased an estimated 3.1 percent to 72.2 million people in 2016, the Centers for Medicare & Medicaid Services (CMS) reported. Most of that growth was among newly eligible adults who signed up for the expanded Medicaid services.

In fiscal 2016, spending on Medicaid expansion totaled $78.7 billion. That was mostly financed by the federal government but including a token $4.5 billion from a handful of states that began offering the coverage before the Medicaid expansion program was formally launched. This year, the overall cost of the expanded Medicaid program will total $87.1 billion, with about $8.5 billion coming from the 31 states taking part in the program.