Possibility of State Medicaid Cuts Looms in 2021

Public health experts are warning that possible cuts to Medicaid loom over the next couple years as states seek to balance budgets strained by unplanned costs and revenue losses brought on by the coronavirus pandemic.

Because of the way the program is designed, every dollar of reduced spending at the state level is multiplied by a loss of federal matching funds. A new report from the Commonwealth Fund shows that, under current law, the total federal and state funding loss for Medicaid in fiscal 2021 if a state cuts $1 of spending on the program is $2.28 to $6.23 depending on the state.

Medicaid provides health coverage to lower-income Americans, including nearly 39% of children nationwide, according to an analysis cited in the Commonwealth report. After education, it is one of the biggest costs for states, accounting for nearly 20% of general fund spending in 2019.

Joan Alker, a professor and executive director of the Georgetown University Center for Children and Families, said the expectation is that proposals for Medicaid cost cutting will emerge early next year as state lawmakers begin work on budgets. “We've heard from quite a number of states that they are contemplating Medicaid cuts,” she said.

“This is not a foregone conclusion yet, but it's something that's going to be happening over the next few months,” Alker added. “The federal government really has to jump in here.” She noted that, since the virus struck, Medicaid enrollment has grown by about 11%.

The Commonwealth report includes findings from a review of research on the long-term benefits of Medicaid coverage of pregnant women and children when those kids reach adulthood. 

It concludes that important long-term benefits do exist, including improved health and lower rates of disability. Coverage is also associated with higher educational attainment and greater financial security, the report says.

Melinda Williams-Willingham, a pediatrician in Georgia and the chair of the Committee on Federal Government Affairs at the American Academy of Pediatrics, said that Medicaid supports about 67% of the children that her practice cares for. She described the program as crucial as kids’ lives are disrupted by the virus outbreak and as many families face financial stress and other difficulties due to the virus.

“Cuts to Medicaid would be devastating,” she said, adding that reductions to the program would disproportionately impact children.

While the majority of kids enrolled in Medicaid are white, it covers a disproportionate share of Black, Latino and American Indian children, the Commonwealth report notes. It also points out that the nearer-term considerations lawmakers tend to weigh when crafting budgets can overshadow long-term benefits from programs like Medicaid.

A federal coronavirus relief law enacted earlier this year—the Families First Coronavirus Response Act—prohibits states from cutting Medicaid eligibility or benefits, or taking certain steps to curb enrollment, if they want to receive a temporarily increased federal matching rate. 

Those guidelines will remain in place at least until a federal public health emergency in response to the virus ends. Another law bars states through September 2027 from cutting eligibility for children in families with incomes below 300% of the federal poverty level.

Alker said that when the dis-enrollment freeze in effect under the public health emergency finally lifts it will be a critical time for Medicaid programs, and a juncture when kids and adults could be knocked off the program if states are looking to slash costs. The current public health emergency is set to expire on Jan. 20, but is likely to be extended for at least another 90 days.

The Commonwealth report notes that even without cutting Medicaid benefits or eligibility, states can reduce reimbursement rates to hospitals, doctors, dentists and other health care providers. This can lead to situations where providers scale back services to Medicaid patients, limit the number of those patients that they see, or stop participating in the program.

Williams-Willingham said the pandemic was already taking a financial toll on many health care providers who accept Medicaid patients and suggested that cuts to reimbursement rates would threaten to “put pediatricians out of business” and diminish kids' access to care.

If practices reduce their hours and close, she added, it often means families end up traveling farther to see doctors or face longer waits for appointments.

Alker said she expects states will target provider payment rates if they make Medicaid cuts.

The Commonwealth Fund report floats the idea of the federal government boosting spending on Medicaid during the current public health crisis and also raises the possibility of automatic increases in federal spending on the program during future economic downturns.