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Balanced budget requirements threaten Medicaid program

May 19, 2020

Topics: Quote of the Day

By Jessie Hellmann
The Hill, May 17, 2020

Governors facing huge budget shortfalls are eyeing cuts to Medicaid, even as millions of unemployed Americans flock to the health insurance program after losing their employer-based coverage.

States that are buckling under declining revenues and increased Medicaid enrollment due to COVID-19 say they may have no choice but to cut the program for the poor unless they get more financial support from the federal government.

Federal law requires states to balance their budgets, and during economic downturns, governors and state legislatures tend to cut costly programs like Medicaid.

Medicaid consumes about 20 percent of state budgets, with spending on the program spiking during recessions as more Americans sign up after losing their jobs.

And because this economic downturn was caused by a pandemic, Medicaid spending is expected to increase even more as beneficiaries seek care for COVID-19 testing and treatment.

Cuts would result in a devastating blow to the social safety net when it is needed most, experts say.

Federal law prohibits states receiving increased Medicaid funding from cutting benefits, increasing premiums or restricting eligibility — restrictions Congress put in place to protect beneficiaries from losing coverage during the pandemic.

That means in order to find savings, states turn to cutting provider rates, which some experts say could be disastrous.

“The Medicaid provider network is highly stressed and particularly fragile,” said Edwin Park, a research professor and Medicaid expert at the Georgetown University McCourt School of Public Policy.

“If you cut Medicaid rates, the impact on access would likely be much more harmful than even after a typical recession where states look to cut Medicaid and they look to cut provider payments.”



By Don McCanne, M.D.

The COVID-19 pandemic combined with a major economic downturn, massive loss of employment, often with the loss of health insurance, has resulted in much greater demand for enrollment in the Medicaid program – a joint federal-state health insurance program for low-income individuals and families. Just at a time that state budgets are severely stressed, the increased demand for Medicaid will be very difficult to meet because of state requirements for balanced budgets. The Medicaid program is already severely underfunded, and the states do not have much in the way of other options than to further reduce payments to the providers. This could result in insolvency of the providers and a shutdown of their crucial safety net.

The mere fact that Medicaid is a welfare program makes the political support tenuous. In contrast, if they were enrolled in the popular Medicare program, the political support is already there. However, the out-of-pocket costs in Medicare are too great for those who would qualify for Medicaid. Some could qualify for the dual Medicare/Medicaid program, but that won’t work for those not otherwise qualified for Medicare.

Suppose we improved Medicare by expanding benefits and eliminating the cost sharing. That would work for both Medicare and Medicaid eligible individuals, but what about everyone else, such as those currently under financial stress who have lost their employer-sponsored plan, who do not have enough funds for COBRA extension of coverage, who do not qualify for or have the funds for the plans offered in the ACA exchanges, and who are not eligible for either Medicare or Medicaid. That amounts to tens of millions who would be left uncovered or inadequately covered. Wouldn’t it be far better to simply improve Medicare and then expand it to include everyone?

The governors are certainly familiar with the concept of the single payer model of an improved Medicare for All that is federally funded through equitable taxes. That would take care of this terrible problem they are facing in trying to get health care for everyone. Why aren’t the governors clamoring for Medicare for All? If it helps, we could arrange to space them at six feet intervals as they march on Washington.

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About the Commentator, Don McCanne

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Don McCanne is a retired family practitioner who dedicated the 2nd phase of his career to speaking and writing extensively on single payer and related issues. He served as Physicians for a National Health Program president in 2002 and 2003, then as Senior Health Policy Fellow. For two decades, Don wrote "Quote of the Day", a daily health policy update which inspired HJM.

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