Obama's Budget Could Shift Medicaid Costs to States

President Obama sought to address escalating Medicaid costs and states' upcoming implementation of the health reform law in his FY 2013 budget.
by | February 13, 2012

As Medicaid costs escalate and states prepare for further implementation of the Affordable Care Act (ACA), President Barack Obama sought to address both of those areas of concern in his fiscal year 2013 budget, released Monday.

According to the White House’s budget for the U.S. Department of Health and Human Services (HHS), Obama’s proposal would save nearly $360 billion in Medicare and Medicaid over the next 10 years: $56 billion would come through Medicaid reforms. Those reforms, though, could result in greater costs to states, policy analysts say. They would include:

  • Overhauling the federal match formula for Medicaid payments to a single blended rate for each state, which would increase automatically if an economic downturn forced enrollment to rise and state costs to increase (estimated savings of $17.9 billion over 10 years).
  • Limiting states’ ability to use taxes on health-care providers to pay a state’s share of Medicaid payments ($21.8 billion).
  • Revamping payments to hospitals for treating uninsured patients, the number of which would presumably decrease under the ACA ($8.3 billion).
  • Limiting Medicaid reimbursements for durable medical equipment, basing payments on Medicare rates for the same services in the same state ($3 billion).

Overall Medicaid spending would still increase by $27.6 billion, up to $282.7 billion for fiscal year 2013, as enrollment remains high after the economic downturn.

As for health care reform, under the ACA, states (if they choose to develop a health insurance exchange) must demonstrate that they are able to do so by Jan. 1, 2013. Last year, HHS allocated more than $900 million for states to plan and implement their exchanges, and the president has asked for an increase in those grants, up to $1.1 billion.

Obama has also requested a $1 billion funding increase for administrative costs at the Centers for Medicare and Medicaid (CMS), about $860 million of which would pay for federal efforts to create exchanges for states that decide not to develop their own and other costs related to the insurance exchanges, Bill Corr, deputy secretary at HHS, said at a briefing introducing the budget.

Federal funding for a number of state grant and demonstration programs would see cuts, totaling $130 million, under Obama’s proposals. Incentives for Prevention of Chronic Diseases in Medicaid would drop by $16 million; Medicaid Transformation grants would decrease by $15 million, while Children’s Health Insurance Program (CHIP) outreach and enrollment grants would be cut by $13 million.

The viability of the president’s budget, however, remains in doubt. In theory, Congress would pass its own budget resolution in April before finalizing a budget by Oct. 1, the beginning of the 2013 fiscal year. Last year, as has become the norm, a formal budget was never passed. According to the National Journal, Senate Majority Leader Harry Reid has said he will not introduce a budget resolution at all.

The president’s budget has “become a little bit like New Year’s Eve,” Dave Adkins, executive director for the Council of State Governments, said. “There’s always great build-up, but it never seems to deliver. That’s a reflection of the political context.”

Adkins did express concern that the Medicaid reforms proposed by the president would limit states’ ability to pursue reforms to the program on their end. “It is absolutely a non-starter for states and just exacerbates states’ ability to dig themselves out of the budget crisis,” Adkins said.

There were few surprises in Obama’s budget, Matt Salo, executive director for the National Association of Medicaid Directors (NAMD), said. Most of the proposals were “old news,” he said, having already been introduced during the joint congressional deficit reduction committee’s discussions. Salo expressed concern, though, that policies such as limiting states' ability to tax providers and overhauling the formula for federal contributions to Medicaid costs would result in a greater burden being placed on states.

"As we are struggling to emerge from the worst state economy in decades, we continue to be strongly opposed to any efforts to simply shift costs from the federal government to the states,” Salo said in an email.

Joy Wilson, health policy director at the National Conference of State Legislatures (NCSL), agreed that the president’s Medicaid proposals, if enacted, could shift more costs to the states, but also that these policies had been introduced before. “There are limited ways to make changes to the program,” Wilson said. “We’re trying to expand Medicaid and save money at the same time. That’s hard to do.”

Recognizing that Obama’s suggestions would not be adopted wholesale, Wilson said she was most interested in which proposals would actually be picked up by Congress as they also seek to reign in the entitlement programs.

From an outsider’s perspective, the budget represented “a clear signal to states that the federal government’s fiscal strain is going to accrue back to them,” Dan Mendelson, CEO of Avalere Health, an independent policy research group, said. He agreed that states could see an increased cost-burden under Obama’s budget, but that these ideas were familiar.

“It’s a Democratic blueprint” for what reforms to Medicaid and Medicare might look like, Mendelson said.


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