House Republicans are right that Medicaid needs to be more flexible. But more flexibility with far fewer dollars won’t improve care for seniors, younger people with disabilities, or other beneficiaries of the program. It is possible to cut red tape without slashing spending. Congress should give it a try.
Medicaid is a critical safety net for people who need personal assistance and other supports because they are frail or disabled. Besides families themselves, the program is the biggest payer of long-term supports and services, spending about $140 billion annually on this care for frail elders and younger people with disabilities. And it helps the most vulnerable seniors. While the rules vary by state, in general people are only eligible if they make less than about $735-a-month, have less than $2,000 in financial assets, and have a high level of functional or cognitive impairment.
The House GOP bill would fundamentally change the way the five-decade old Medicaid program is financed. Instead of paying a percentage of costs as the feds do today, the American Health Care Act (AHCA) would allow the federal government to pay a fixed dollar amount that it could adjust every year, no matter how fast costs rise. That means if costs of care rise faster than expected, states would be on the hook for any additional expenses. They could raise taxes to make up the difference. Or they could cut benefits or limit eligibility.
This is especially crucial because, as they age, seniors inevitably require additional—and more costly care. And that capped federal payment will not keep up.
But AHCA offers states a swap: In exchange for limiting federal payments, it would also give them more flexibility to run their Medicaid programs. President Obama proposed such a step in 2015. Congress ignored it.
That’s important. And it could benefit older adults and younger people with disabilities. Today, states must apply for cumbersome and time-consuming federal waivers before they can try creative solutions to tough problems. For example, some states would like to use Medicaid to combine subsidized housing with supports and services.
The new law would make such initiative much easier. And that could improve the quality of life for the frail elderly. But only if states have the resources to follow through. Under AHCA, they won’t.
The Congressional Budget office estimates the initial House GOP plan (not including the changes made earlier this week) would cut the federal contribution to Medicaid by $880 billion over the next 10 years. But that underestimates the true reduction because some changes are phased in over time. A better gauge of how much the feds are backing off: In 2026 alone, the federal contribution would be slashed by $155 billion or nearly 20 percent.
Faced with cuts of that magnitude, no amount of flexibility will improve the quality of services.
What will states do? They may focus scarce dollars on mandatory benefits, such as nursing home care, and reduce the amount of care for people living at home, which is optional.
This would reverse a decades-long trend of shifting care away from nursing homes to home-based care. Two decades ago, more than 80 percent of Medicaid dollars were spent on nursing home care. Today, it is less than half.
But as federal funding shrinks, some states may also reduce payments to providers, such as those nursing homes. Operators already spend more for care of a frail elder than Medicaid pays—an average of about $150-a-day. Their finances work because the same facilities are paid $500-$600 by Medicare for post-acute services such as rehabilitation. With fewer federal Medicaid dollars, states could trim their payments to nursing homes. And that means the better facilities will just accelerate the shift from long-stay services to post-acute care.
What facilities would be left for Medicaid residents? You don’t want to know.
And what of home and community based care? Fewer dollars mean the Medicaid benefit, already insufficient to care for many who want to stay at home, will become even more paltry. Either the quality of services will decline or waiting lists, already long in many states, will grow.
States would have one other option: They could turn Medicaid long-term supports and services over to managed care organizations, something they have been doing on an experimental basis for the past few years. In effect, they’d pay insurance companies and non-profits a fixed amount of money per month to provide care to Medicaid enrollees. The problem, though, would be the same. With limited dollars, the managed care companies would face more financial risk and may either limit services or choose to not participate.
That problem will be even worse if the Trump Administration follows through on what are likely to be deep cuts in non-Medicaid services, such as information services, transportation, caregiver supports, and adult day care. We won’t know the depth of those cuts until at least May, when Trump promises to release a full budget. But when Trump proposed cutting the Department of Health and Human Services budget by 17.9 percent last week, the direction of that funding became clear.
While those programs are not funded by Medicaid, they provide crucial additional supports and services that help supplement care. Without them, staying at home will be even more difficult.
So, yes, by all means make Medicaid more flexible. But don’t confuse the need for flexibility with budget cutting. They are not the same thing.