Don’t worry about Medicare. Worry about Medicaid.


(Kaiser Family Foundation)

“In in-the-know political circles,” says Chris Jennings, who ran President Bill Clinton’s health-care reform efforts, “it’s just assumed Medicaid is going to be hit. No one is going to want to touch Medicare. Medicare is where the political juice is. But we’re going to need savings. So that leads to Medicaid.”

There are two reasons Medicaid is more vulnerable than Medicare. The first is who it serves. Medicaid goes to two groups of people: the poor and the disabled. Most of the program’s enrollees are kids from poor families, though most of the program’s money is spent on the small fraction of beneficiaries who are disabled and/or elderly. These groups have one thing in common, however: They’re politically powerless.

The second is who pays. Medicare is a federal program. Medicaid is a state-federal match, and it kills states during recessions, as unlike the federal government, states can’t run deficits, and so they find themselves with increased costs because they have more people in need but decreased revenues. So there are a lot of governors — particularly GOP governors — straining under overstretched state budgets who’d like a way out of their fiscal crisis that doesn’t include raising taxes, and there are a lot of federal legislators who’d like to save money without having seniors mounting protest marches outside their office, and Medicaid begins to look like an answer to everyone’s problem. “You can shift costs to states so they can be the bad guys while the federal policymakers pretend they didn’t hurt anybody,” says Bob Greenstein, president of the Center on Budget and Policy Priorities.

Indeed, one place where the difference between Medicare and Medicaid comes clear is that Medicare reforms tend to be talked about in terms of health-care policy. It’s all Independent Payment Advisory Boards and choice of private plans just like congressmen have. Medicare rhetoric is about convincing seniors that these reforms will be good for their health care. Medicaid rhetoric, conversely, is almost never about health care itself. It’s usually about state budgets.


Which is why Paul Ryan’s plan doesn’t have anything in particular to say about the way Medicaid should deliver care more efficiently. Rather, he’d convert Medicaid into a “block grant” — notably, most people have no idea what a block grant is — that would give states more “flexibility.”

A block grant simply means that the federal government will give states a lump sum, rather than varying their contributions to cover the actual needs of the program. This saves money in two ways: First, the block grant grows more slowly than health-care costs, meaning the government is paying less and less of the tab. Second, if there’s a recession and many more people suddenly need to use Medicaid, the federal government’s contribution doesn’t change. A block grant, in other words, means less Medicaid funding. It has nothing to do with making the system work better, which means you’ll have more uninsured people flooding into emergency rooms. That’s one reason hospitals and other providers might oppose plans that shifts costs — the costs, after all, will be shifted to them — giving Medicaid some much-needed friends with political clout.

But even without provider opposition, block-granting is a pretty radical move. More likely is an effort that Suzy Khimm has been reporting on to separate federal contributions from state eligibility rules. Right now, states can’t kick people off the rolls or radically reduce benefits without losing federal money. Under the terms of the State Flexibility Act, they could. “That’s the number one likely option,” says Jennings. “It’s relatively invisible. It’ll give states the flexibility they say they want. And it’ll hurt a population that doesn’t vote.”

Which is, in the end, why it might actually happen.

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