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Medicaid Fact Sheet for State Legislators
The following fact sheet was developed for use with members of the National Conference of State Legislatures. It is designed to address concerns that state legislators might have with the Administration's proposal for Medicaid reform. Feel free to use this fact sheet in state-level education efforts regarding proposals for Medicaid.
Capped Federal Funding Is Not Good For States Or People With Mental Retardation, Cerebral Palsy, and Related Disabilities
Over the past few months, there has been a debate over the future of Medicaid. As part of its FY 2004 budget proposal, the Bush Administration put forth a radical plan to change Medicaid (called a “modernization” plan) that would significantly alter the federal-state partnership that underpins Medicaid and would severely weaken core guarantees that ensure states’ ability to provide individual beneficiaries with the services and supports they need. Governors and Members of Congress have also considered similar approaches to Medicaid restructuring.
The Arc of the United States and United Cerebral Palsy – national organizations that provide a voice for people with mental retardation, cerebral palsy, and related disabilities – are committed to ensuring that every individual’s access to Medicaid and the state open-ended entitlement to federal matching payments are preserved.
We realize that state policy makers are struggling with difficult choices brought about by the current economic downturn. State fiscal crises caused by that downturn are exacerbated by state taxation systems that are not structured for today’s service economy. As a result, there is a simultaneous increased demand for Medicaid services and declining resources available to fund the program. Weakening Medicaid in the name of “modernizing” Medicaid, however, is not the answer.
Capped funding inevitably results in inequities across states:
- Base year differences - If a state has already made deep cuts in its Medicaid program, it would have a lower base than a state that has not cut as deeply.
- Differences in growth rates - If people with disabilities and the elderly represent the major source of cost growth, then states with larger than average populations of people with disabilities and the elderly could be disadvantaged. It is unclear how growth rate will be determined.
- Locks in state programs as they currently exist - eliminates the uncapped federal match that gave states security and which has enabled them to incrementally expand Medicaid coverage.
- States are less able to respond to unforeseen events - such as responding to a new epidemic like HIV or responding to devastating events, such as the "Disaster Relief Medicaid" program implemented by New York after 9/11.
How would the Administration’s plan change Medicaid?
Congress would need to pass legislation to approve the Administration’s plan before it can take effect. The Administration’s plan represents a radical change that breaks promises upon which state systems of health and long-term care have been based over the past twenty years. The federal government would establish a limit on how much federal Medicaid money a state would receive over the next ten years. For states that opt-in to the Administration’s plan -- in place of the current open-ended system of federal financing — states would receive a capped amount of federal funds. The federal government would, in effect, loan states funds to help them shore up their Medicaid programs during the current fiscal crisis. In 8-10 years from now, states would have to re-pay the loan. Under this system, if health care costs increase more than expected due to a recession, a new health crisis, or the development of new drugs and treatments, the state would be solely responsible for increased costs. In exchange for the loss of matching funding, the Administration’s plan promises states more “flexibility” in administering Medicaid. An illustrative precedent is the Social Services (Title XX) program. Block-granted in 1981, the program has not kept pace with inflation; the funds used for community-based services for people with developmental disabilities, adjusted for inflation, dropped 41 percent from 1981-2002.
When people talk about Medicaid “flexibility,” what do they mean?
Flexibility is one of those terms that, like baseball and apple pie, always sounds positive. What has been proposed, however, is “flexibility” for states to ignore the core state and consumer protections that have enabled the program to serve Medicaid beneficiaries and state policymakers well. The Administration’s plan would allow states to treat optional beneficiaries (e.g., low-income people with disabilities who qualify for coverage other than through receiving Supplemental Security Income, SSI) differently than mandatory beneficiaries (generally, people who are SSI-eligible). With the possible exception of mandatory services (e.g., physician, hospital, or nursing home services) provided to mandatory populations, the Administration’s plan would eliminate numerous current Medicaid features. Now, once a state adds an optional service, beneficiaries can receive it if they need it and the state is entitled to reimbursement. The changes proposed by the Administration’s plan would allow optional services, such as prescription drugs, home- and community-based waivers, or ICF/MR services, to be provided in parts of the state, leaving other parts without services. States could also provide these services to some beneficiaries without providing them to all Medicaid beneficiaries who need them. This “flexibility” does not address the core challenges facing states. It does nothing to diminish the need for services statewide or assist in financing services in the long run. Rather, it shifts additional financial risk from the federal government to the states. State legislatures will be forced to make even tougher decisions, with more limited funds.
How would this impact care and services for people with mental retardation, cerebral palsy, and other developmental disabilities?
Since federal funds are capped by the Administration’s plan, care and services for people with mental retardation and developmental disabilities would need to compete for limited resources with other Medicaid beneficiaries. Since people with mental retardation and developmental disabilities are among the groups with the highest per person costs, they could be especially vulnerable to having their eligibility restricted or having their services reduced.
Would the Administration’s plan help the states?
The Administration’s plan represents a serious threat to states’ ability to finance health and long-term care coverage for their neediest residents. While it has been difficult to predict Medicaid costs, states can always count on the federal government funding its share of those costs. Under the Administration’s plan, this would no longer be the case. Further, unexpected events could cause health spending to rise greatly. By eliminating the open-ended matching system of federal financing, the federal government is shifting the entire burden of financing unexpected health costs onto the states. In the past, it has been impossible to project future Medicaid costs. In 1998, for example, the Congressional Budget Office (CBO) projected Medicaid spending for 2002 that was $17 billion below actual spending in 2002.
Would the Administration’s plan be good for providers?
If the Administration’s plan is enacted, capped funding will inevitably lead to serious pressure on provider payments. Because states generally want to preserve Medicaid coverage, when budgets are tight they frequently cut provider payments first, and cut eligibility and services only as a last resort. Cutting payments to providers could harm beneficiaries by leading to fewer providers willing to serve Medicaid beneficiaries.
Would the Administration’s plan increase access to home- and community-based services?
The biggest barrier to increased home- and community-based services is money. The Administration’s plan would cap funding. Since nursing home services, hospitals, and physician services would remain mandatory, financial pressures will likely lead to less access to home- and community-based services. While the overwhelming preference of people with disabilities and our nation’s elderly population is for home- and community-based services, in the competition for scarce resources, states may be forced to protect institutional services at the expense of home- and community-based services.