Blockheads

This week, House and Senate Republicans unveiled their respective budget resolutions for fiscal year 2016. As a quick glance at the documents shows, what is old is new again for the GOP. Each claims to balance the budget within 10 years. Despite the national debt’s share of GDP forecast to remain stable over the next decade, the House Budget Committee plan delivered by Rep. Tom Price (R-GA) claims to slash $5.5 trillion in federal spending during the same time frame, while Wyoming Sen. Mike Enzi’s proposal cuts $5.1 trillion. Each GOP-controlled chamber promises to repeal Obamacare and yet still offers no alternative to replace it.

But in these Republican budget outlines chocked full of magic asterisks, mystery savings, savage cuts to the social safety net, and a laundry list of policies to be determined later, one favorite conservative gimmick—block grants—may be the cruelest of them all. Gutting Medicaid spending and divvying up what remains among the states won’t mean new flexibility to tailor their own programs to “to most efficiently and effectively serve low-income families in their communities.” Instead, the states will eliminate health coverage for tens of millions of their residents, including many who had government insurance before the Affordable Care Act was signed into law.

More below the fold.

Of course, you’d never know that from the happy talk in the Senate and House budget resolutions. Each would repeal the ACA, and with it the federal subsidies and consumer protections that enabled over 16 million Americans to obtain coverage over the last two years. Chairmen Enzi and Price would also roll back Obamacare expansion of Medicaid, which has covered roughly 10 million more. While the Senate plan would save $400 billion over 10 years by allocating Medicaid dollars to the poor on the same basis as the Children’s Health Insurance Program (CHIP), House Republicans would convert Medicaid funding into block grants for the states to spend as they see fit on low-income earners, the disabled, and the elderly. In his so-called “Balanced Budget for a Stronger America,” Rep. Price explained why:

We give states the flexibility to tailor their Medicaid programs to most efficiently and effectively serve low-income families in their communities. The Obama Administration added millions of additional beneficiaries to a Medicaid program that is already ill-designed to support those who need it. State governors and legislatures know far better how to serve the needs of their neighbors. It is arrogant of Washington to continue to treat states as pass-through entities for a federal agenda.

That philosophy was echoed by Douglas Holtz-Eakin, the one-time director of the Congressional Budget Office and chief economist in John McCain’s 2008 presidential campaign. “You can make a pretty good case,” Holtz-Eakin declared, “that state and local politicians just know more about what is going to work in their districts than Washington does.” But as Jonathan Cohn helped explained in the New Republic four years ago, what block grants do best is to help the states take an ax to their insurance rolls:

That's not to say plenty of governors wouldn't take advantage of block grant status to change their Medicaid programs in ways they cannot now. They surely would--by capping enrollment, thinning benefits, increasing co-payments, and so on.

The result is that the House Budget Committee’s “State Flexibility Funds” could actually mean at least 30 million Americans losing their insurance.

As the Center on Budget and Policy Priorities (CBPP) explained, the Price budget slashes Medicaid funding by $1.8 trillion—a staggering 34 percent—between 2016 and 2025. The GOP’s repeal of Obamacare’s Medicaid expansion, currently forecast to cover some 17 million people by 2025, cuts $913 billion. The rest, another $900 billion, comes from slowing the growth of Medicaid’s core budget. As with the 2012 Paul Ryan House GOP budget (which cut 35 percent) and Mitt Romney’s block grant proposal from the 2012 presidential campaign (which sliced 41 perccent), the new House plan would dramatically increase the U.S. uninsured rate:

The Urban Institute estimated that former Chairman Ryan’s similar block grant proposal in 2012 would lead states to drop between 14.3 million and 20.5 million people from Medicaid by the tenth year (outside of the effects of repealing health reform’s Medicaid expansion). That would cause a drop in enrollment of between 25 percent and 35 percent. The Urban Institute also estimated that the block grant likely would have caused cuts in reimbursements to health care providers of more than 30 percent by the tenth year. Chairman Price’s Medicaid block grant proposal likely would mean similarly draconian cuts.

To better understand why, it helps to look at how Medicaid is currently funded, both in the 29 states (including Washington, DC) that accepted Obamacare’s 2014 expansion of Medicaid and the 22 that rejected it.

Right now, as Vox explained this week, “The way Medicaid works is it ties federal funding to the actual costs of Medicaid in a given state.” If costs rise quickly for the poor, elderly, or disabled beneficiaries of the program, whether due to healthcare inflation or the impact of an economic recession swelling the rolls, then “the federal government's contributions to Medicaid rise automatically.” But, as I documented back in September 2012, when it comes to their partnership with Washington, some states are more equal than others:

Currently, the $350 billion Medicaid program serves roughly 63 million Americans. On average, the federal government picks up 57% of the tab, with poorer states like Mississippi and Alabama getting 75% of the funding from Washington. Medicaid not only pays for a third of nursing home care in the United States; it covers a third of all childbirths. (In Texas, the figure is one-half.) As with Medicare, Medicaid provides insurance for substantially less than private insurers (27% less for children, 20% for adults), while new studies from Oregon and Massachusetts show it dramatically improves the health of its recipients. (So much for the claims of Republicans like Tennessee Senator Lamar Alexander, who charged that Medicaid is "a medical ghetto" that "none of us, or any of our families, would ever want to be a part of for our health care.")

As the chart at the top shows, before Obamacare became law, states could set their own eligibility requirements, as well as reimbursement rates for physicians and hospitals. In 2012, low-income Ohioans became eligible for Medicaid insurance at around 90 percent of the federal poverty level (FPL). In Arkansas, the cut-off was a shocking 17 percent of the poverty level.

With the Medicaid expansion funded by the Affordable Care Act, states were required to provide insurance to families up to 133 percent of the FPL, or up to about $29,000 a year for a family of four. Uncle Sam would pick up 100 percent of the additional cost through 2017; after that, Washington’s contribution would be reduced to 90 percent. (Between 133 and 400 percent of the poverty line, Obamacare provides subsidies for the purchase of private insurance.) But the Supreme Court ruled in June 2012 that the federal government could not require or coerce states into accepting the Medicaid expansion. Subsequently, over 20 GOP-controlled states turned down the free money. The result was millions of needlessly uninsured residents in the reddest of states who needed coverage the most, thousands of whom will needlessly die each year.

But those Republican-led states didn’t create a “coverage gap” consisting of millions of people who earned too much to qualify for Medicaid but not enough to qualify for subsidies to purchase private insurance in the healthcare exchanges. By opting out of the Medicaid expansion, they also maintained the right to raise—or lower—their state’s Medicaid benefits as they saw fit. As Phil Galewitz of Kaiser Health News fretted at the time, it wasn’t difficult to imagine how that nightmare scenario could unfold:

This wasn't supposed to happen under President Barack Obama's health law, which was designed to expand coverage for 30 million Americans, in part by adding 17 million people to Medicaid. But the impact of the Supreme Court's ruling last week making the expansion voluntary is likely to be compounded by another provision in the law that the justices left intact: In 2014, states no longer are barred from making it harder for adults to qualify for Medicaid.

Experts worry that those two developments taken together could spur some states to reduce the number of people covered.

Recent history has shown that the Medicaid opt-out states won’t hesitate to curb their own spending and slash benefits, especially during cash-strapped periods of recession. As Ezra Klein detailed in 2011, "Twenty states implemented benefit restrictions in the past year. In fiscal year 2010, 39 states implemented Medicaid provider rate cuts or freezes (up from 33 in fiscal year 2009), and 37 states have provider rate restrictions planned for the next fiscal year." In the wake of the Roberts Court decision, New York's former Medicaid director, Deborah Bachrach, feared some states could throw some low-income adults "into a black hole with nowhere to turn for coverage." Galewitz provided a potential case in point:

As a hypothetical example, if Mississippi opted out of the 2014 expansion of Medicaid, poor childless adults wouldn't gain coverage in that state. At the same time, the state could roll back eligibility for parents with children who are currently enrolled, reducing the number of participants in the program.

And as Glenn Kessler explained in the Washington Post in 2011, it is hard to believe that a state like Mississippi could make it current program any worse:

Mississippi provides some of the lowest Medicaid benefits to working adults in the nation. A parent who isn't working can qualify only if annual family income is less than 24 percent of the poverty line. Working parents qualify only if they make no more than 44 percent of the federal poverty level. Seniors and people with disabilities are eligible with income at 80 percent of the poverty line...

Translated from the federal poverty guidelines, that means a working Mississippi couple with one child could earn no more than $8,150 a year and still qualify for Medicaid, seniors and people with disabilities could earn no more than $8,700, and a pregnant woman could earn no more than $20,000 a year.

Mississippi, the state with the very worst healthcare system in the nation, nevertheless turned down Obamacare’s Medicaid expansion. It’s no wonder the Magnolia State was the only one to see its uninsured rate increase after the implementation of the ACA in 2014. In sharp contrast, Arkansas and Kentucky, two red states whose Democratic governors accepted Obamacare’s Medicaid expansion, saw the steepest reductions in the ranks of the uninsured since the ACA went fully into effect.

Now, House Republicans want to create a United States of Mississippi. With their budget, Uncle Sam’s Medicaid contribution to each state would not be a fixed percentage of its costs, but a lump sum that would not grow as quickly as Medicaid costs are expected to rise. Ezra Klein put out the warning this week in a piece aptly titled, “How Republican Budgets Hide Huge Spending Cuts in ‘Block Grants’”:

CBPP estimates that the new formula would mean the annual increase on federal spending on Medicaid "would average about 3.5 percentage points less per year than what CBO expects to be the Medicaid program’s average growth rate over the coming decade."

Another way of putting this is that the House GOP's 2015 budget doesn't cut Medicaid spending by moving to block grants. It cuts Medicaid spending by cutting Medicaid spending.

Klein is right, but he leaves out part of the dynamic that will make a crisis in Republican Medicaid coverage even worse. States, after all, could theoretically increase their own Medicaid spending in response to insufficient funding from Washington. But it’s a fair bet they never will, because they never do. (Klein’s own 2007 coverage of Tennessee’s TennCare program provides a cautionary case in point.) Dr. Tom Price’s mythology notwithstanding, recent history shows that state governors and legislatures know far better how to deny health care to their residents, not “how to serve the needs of their neighbors.”  If Price and his Republican allies get their Medicaid block grants, millions of Americans will be blocked from keeping their health insurance.