Trump administration announces Medicaid funding overhaul

The overhaul would likely be attractive to red states that want to limit spending, maintain greater flexibility, limit the size of the overall program and share in cost savings.
Image: President Donald Trump Delivers Remarks On Advancing American Kidney Health
President Donald Trump speaks as Health and Human Services Secretary Alex Azar and the administrator of the Centers for Medicare and Medicaid Services, Seema Verma, listen during an event on kidney health at the Ronald Reagan Building and International Trade Center in Washington on July 10, 2019.Alex Wong / Getty Images file
By Phil McCausland

The Trump administration announced Thursday morning that it would take the largest step to overhaul Medicaid yet, providing an alternative to red states that want to limit spending on the public insurance option and take greater control of the health program.

Seema Verma, administrator of the Centers for Medicare and Medicaid Services, of CMS, said the new guidance, named "Healthy Adult Opportunity," would give states the option to receive their federal Medicaid funding as a block grant, or a lump sum, to cover nondisabled adults, while providing states more autonomy to manage their programs.

Under the new option, states can choose to cap the cash they receive from the federal government at a lump sum based on enrollment or a number negotiated with the CMS. That would likely be attractive to red states that want to limit spending, maintain greater flexibility, limit the size of the overall program and share in the ultimate cost savings with the federal government.

Critics maintain that it could lead to limits on benefits and decreased enrollment numbers for a program that provides health care coverage to 70 million Americans, despite Verma's claims that expansion states would have to continue to provide the same coverage and fulfill a minimum requirement for benefits. Detractors further said the guidance allows states to shrink provider payments without permission, limit access to prescription drugs, impose premiums on beneficiaries and impose a number of roadblocks to eligibility.

That would have the largest impact on adults who receive care through Medicaid expansion, a program under the Affordable Care Act that provides care up to 138 percent of the poverty level.

"This opportunity is designed to promote the program's objectives while furthering its sustainability for current and future beneficiaries and achieving better health outcomes by increasing the accountability for delivering results," Verma said in a call with journalists Thursday. "We've built in strong protections for our most vulnerable beneficiaries and included opportunities for states to earn savings that have to be reinvested in strengthening the program so that it can remain a lifeline for our most vulnerable."

Many Republican lawmakers in states that have considered expansion have said they are opposed to growing the program because of the high cost of providing coverage — states must foot 10 percent of the total bill for Medicaid expansion under the terms of the ACA — leading to partisan fights in states such as North Carolina, Mississippi and recently Kansas, where the Democratic governor announced this month that Republicans and Democrats had finally come to an agreement on expanding Medicaid.

In a letter Wednesday, three dozen House Democrats warned that block grants would be detrimental to the viability of Medicaid and patient outcomes because of the negative fallout it would have for Americans who get health care coverage through the "safety-net health program."

"Medicaid block grants necessitate cost-cutting measures like restricting enrollment, decreasing provider reimbursement, and limiting eligibility and benefits through managed care," the representatives wrote in the letter, which was organized by Rep. Joe Kennedy, D-Mass. "These actions endanger the lives of the most vulnerable patients, the population Medicaid was created to protect."

Conservatives will most likely see this as a victory, although it still falls short of their longtime goal to provide block grants for all of Medicaid — which would require Congress to restructure the program's financing — and shrink the nation's largest public insurance program.

Republicans have tried to provide states block grants in lieu of traditional Medicaid funding in the past, most recently through failed legislation in 2017, when the GOP tried to repeal and replace Obamacare. They also failed to pass a bill during President George W. Bush's administration that would have changed the funding formula.

Each time, experts and health advocates have warned that that form of static funding could cause states to cut health benefits or limit eligibility during periods of economic turmoil. Furthermore, they say, it could lock in inequities in federal payment between states and shift a greater amount of risk to state governments unable to take it on.

"I'm disappointed to see the administration is effectively removing the access to affordable and needed care that people have under Medicaid through this," said Jessica Schubel, a senior policy analyst focused on Medicaid at the Center on Budget and Policy Priorities. "Lifesaving prescription drugs could be at jeopardy, states could make decisions that could cause thousands of people to lose coverage, and states would bear more financial risk since federal funding would not adjust to meet the need for unexpected costs from recessions and public health emergencies, like the coronavirus."

Schubel said this is the latest example of the Trump administration using executive authority to limit Medicaid coverage, noting its decision to provide state waivers to add work requirements that would limit access to care.

Still, block grants could be attractive to the growing number of states — most recently Idaho, Utah and Nebraska during the 2018 election — where frustrated voters have pursued ballot initiatives to expand Medicaid, as their Republican legislatures had chosen not to pursue it themselves.

In all three states, the initiatives passed by some conservative lawmakers have worked to limit enrollment via work requirements and tightening eligibility requirements.

Critics said that the Trump administration had given these state legislators another arrow in their quivers to try to take away health care coverage, and this comes as Oklahoma and Missouri voters are now considering similar ballot initiatives for the 2020 election.

Kevin Stitt, the Republican governor of Oklahoma, appeared at Thursday's press event in Washington alongside Verma to show his support for the rule change and repeated his opposition to what would be proposed on Oklahoma voters' ballots in November.

Sen. Bill Cassidy, R-Louisiana, also appeared at the event. His state expanded Medicaid in 2016. Since then, Louisiana topped 500,000 enrollees last year and reported savings of $199 million in 2017 and $350 million in 2018 because the federal government picked up a much larger share of the state's health care tab for the poor.

This change could challenge those outcomes.

But, while this new option might be attractive to Republican lawmakers, medical groups and health advocates maintain that this will only have negative health outcomes for poor patients and cash-strapped hospitals.

The Trump administration is expected to see legal action, as most critics argue that this kind of overhaul to Medicaid funding would have to be taken to Congress for approval.

"The document issued today by CMS appears to rewrite bedrock provisions of Medicaid, an activity which is beyond the scope of CMS's power," said Jane Perkins, legal director for the National Health Law Program, an advocacy group representing low-income individuals and families. "Only Congress is tasked with making these changes. Our legal team is carefully investigating the enforcement and litigation options at this time."

Nevertheless, Verma maintained that the Trump administration had legal authority to make the change.

"We're not changing the financing structure," she said in response to a reporter's question Thursday. "We feel we're on very strong legal standing."