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The Trump administration’s new attempt to gut Medicaid

Turning to an old playbook, it wants to “block grant” a program for the poor

Health and Human Services Secretary Alex Azar at the White House on Jan. 31. (Sarah Silbiger/AFP/Getty Images)

Thwarted on the issue in Congress, the Trump administration announced last Thursday that it was inviting states to end Medicaid as we know it.

That’s not what President Trump’s health officials said, of course. In a detailed letter, they encouraged states to submit proposals to change the way that a big chunk of Medicaid — the joint federal-state health program for the poor — is paid for. Once accepted, these proposals will afford states “new levels of flexibility” while “providing federal taxpayers with greater budget certainty.”

But there’s no mistaking that the Trump administration is moving to transform Medicaid from an entitlement program covering all the poor into a selective welfare program funded by fixed and limited block grants — a shift that, over time, could starve the program of funding.

As matters stand, states get a fixed number of federal dollars for every dollar they spend on Medicaid. Under traditional Medicaid, for example, the federal government covers somewhere between half and three-quarters of the states’ costs. And in the Affordable Care Act, Congress said that it would contribute $9 for every $1 in state spending on people at or near the poverty level who weren’t previously covered. The unusually generous 90 percent match rate was meant to shield the states from incurring excessively burdensome financial obligations on account of Obamacare.

Because Medicaid is an entitlement program — if you qualify, you’re covered — Medicaid payments grow during recessions and contract when the economy is sound. That’s good public policy: Medicaid should be there when people need it most. But its structure exposes both the federal government and the states to big financial fluctuations. If the economy sours, an expensive new drug is approved or a pandemic hits, payments inevitably grow.

The administration’s new proposal would change that. For states that ask for and receive a waiver from the Trump administration, federal expenditures for certain groups — mainly the population receiving coverage through the ACA expansion — would be capped at current levels, subject to adjustments for inflation or for new enrollment. The federal government wouldn’t pay a dime for medical expenses over the cap.

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In exchange, states will gain “flexibility” — meaning the freedom to restrict access to the program. Under the Trump administration’s proposal, the flexibility would only affect adults under 65 who aren’t disabled. States could ask those people to shoulder more financial costs, limit their access to prescription medications and even adopt restrictive new eligibility rules.

States could also sidestep federal regulations designed to guarantee that Medicaid beneficiaries can access medically needed care. As matters stand, those regulations prevent states from cutting their payment rates to the degree that no doctors will see Medicaid patients. Now, however, the Trump administration is telling states they can write their own oversight rules.

Under one approach sketched out in the letter, the states will be allowed to keep a portion of the money they save for the federal government, so long as they devote those “shared savings” to programs that have something to do with health — whether the programs help the poor. The letter offers, as an example, running a tobacco cessation program open to the general public (not just Medicaid enrollees).

As a result, the stingier the states are with Medicaid, the more federal money they can channel to other purposes. Pruning the Medicaid rolls will thus yield a financial windfall for them. In a striking example of doublespeak, the Trump administration is calling this new program Healthy Adult Opportunity — as if the chance to go without health insurance counts as “opportunity.”

The agenda here isn’t subtle. Republicans see “block granting” Medicaid — turning it into a fixed yearly payment rather than one that automatically rises to meet needs — as a way to limit the federal government’s obligations to the poor. There’s a clear parallel to 1990s-era welfare reform. In 1996, President Bill Clinton cut a deal with Republicans to transform cash assistance to the indigent into block grants to states — “to end welfare as we know it,” as Clinton famously said.

The size of those block grants hasn’t budged in more than two decades. In real terms, they’re worth about one-third less than they initially were, even as the U.S. population has swelled by 60 million.

With the erosion of cash assistance, the very poor have been left high and dry. By early 2011, as many as 1.5 million households in the country were living on less than $2 a day, as sociologist Kathryn Edin and professor of public policy Luke Shaefer have documented. “Reformers didn’t merely ‘replace’ welfare,” they write. “They killed it.”

The Trump administration wants to run the same game plan for Medicaid. But it faces a challenge: The American public doesn’t dislike Medicaid the way it disliked “welfare” in 1996. A lopsided 74 percent of Americans adults say that they have “very” or “somewhat” favorable opinions toward Medicaid, including 65 percent of Republicans, according to a 2018 poll from the Kaiser Family Foundation.

The program’s popularity goes some distance to explaining why Republicans couldn’t block-grant Medicaid when they moved to repeal and replace Obamacare in 2017, despite controlling both Congress and the White House. The public increasingly seems to view Medicaid not as a stigmatized welfare program, but as a crucial part of a broader social commitment to universal health coverage.

Undeterred by public sentiment, the Trump administration is trying to achieve through executive action what it couldn’t get done in Congress. But while its authority to waive Medicaid rules is broad, it is not unlimited. In particular, the Trump administration doesn’t have the power to waive the section of the Medicaid law that fixes the relative contributions of the federal and state governments.

Changing their relative contributions, however, is exactly what the Trump administration means to do. No longer would a state get $9 for every $1 it spends on the expansion population, for example. Instead, if a state exceeds its annual cap, federal payments would cease and the state’s share of Medicaid spending would increase. On the other hand, if a state keeps its expenditures down and retains some of the savings, the federal government would pick up a larger share of the tab.

Either way, the waivers would make an end run around Congress’s prohibition on changing how Medicaid is paid for. Litigation is inevitable, and the courts have so far displayed little patience with the administration’s stretching of its waiver authority. A federal judge, for example, has already struck down waivers allowing Arkansas, Kentucky and New Hampshire to kick people off Medicaid if they don’t work enough hours in a month. The courts may be even more impatient with waivers that purport to make a more fundamental change to the state-federal program.

Which raises a question: Why would any state take the administration up on its invitation? The courts are likely to pull the plug — and if they don’t, there’s also the risk that the waivers would be revoked if a Democrat wins the presidential election this year. In both cases, any money spent retooling Medicaid will be wasted.

Tennessee, Alaska and Oklahoma, however, have already signaled their interest in block grants. Other states may follow suit. Tampering with Medicaid in this manner won’t be popular with most Americans. It certainly won’t help the poor. But it’s of a piece with Republicans’ long-standing commitment to slashing federal support for the neediest among us.