Why State Governors Are Freaking Out About the GOP Health Plan
Policy + Politics

Why State Governors Are Freaking Out About the GOP Health Plan

REUTERS/Kevin Lamarque

A potent bipartisan coalition of the nation’s governors including Republicans John Kasich of Ohio and Brian Sandoval of New Mexico and Democratic Gov. John Hickenlooper of Colorado is pressing Republicans to reject the Senate health plan because of the deep cuts to Medicaid for the poor and disabled.

The governors warned on Tuesday – shortly before Senate Majority Leader Mitch McConnell (R-KY) postponed votes on the legislation before the July 4th recess – that the proposed phase-out of expanded Medicaid and more than $800 billion of Medicaid cuts over the coming decade would victimize the poor and mentally ill and provide major tax breaks to wealthy Americans and businesses that don’t need them.

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Kasich said the bill was “unacceptable” at a Washington press conference. But the governors were also responding to a more fundamental challenge:  If the Republican-controlled Congress ultimately approves the plan, it would shift funding and administrative responsibilities from the federal government to the states at a time when many governors and state legislatures in both parties are struggling with budgetary and pension problems.

Medicaid covers 72.5 million low-income adults, children, disabled persons and seniors who are not eligible for Medicare. Under current law, the Congressional Budget projects the federal government will spend nearly $5.2 trillion over the next ten years on Medicaid.

The health care reform measures approved by the House in early May and awaiting action in the Senate would shift hundreds of billions of dollars in costs to the states over the coming decade, analysts estimate, likely prompting states to end their Medicaid expansion and drop coverage for millions of low-income adults.

By 2024, any of the 31 states and the District of Columbia that wanted to continue covering low-income, able-bodied and childless adults in expanded Medicaid coverage would have to pay nearly three to five times their current costs for each enrollee, according to a new study by the liberal-leaning Center on Budget and Policy Priorities.

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Taken together, the expansion states would have to spend a total of $43 billion in 2024 alone to preserve the coverage. And as the federal government moves towards changing Medicaid from an open-ended entitlement with no limit on overall spending to a block grant or per-capita-cap payment to the states, many of the states would be forced to find ways to cull the rolls or make cuts in other portions of their budgets.

“For many states, the Medicaid changes that are proposed would be fiscally disastrous,” Steve Bell, a senior official of the Bipartisan Policy Center and former Republican Senate budget aide, said in an interview. “They would probably have to cut into other things they are doing, and some of that is spending on state police, prisons, real nuts and bolt things, let alone their capital budgets for building and repairs.”

What we’re seeing, Bell and others said, is the first big skirmish between the states and the federal government in redefining federalism and the balance of power in the country. Since President Trump and the Republicans swept to control of the White House and Congress, the new GOP leadership has pressed for a plethora of policies that would off-load spending and administrative responsibilities from Washington to the states and local officials.

John Hicks, the executive director of the National Association of State Budget Officers, said that from administration to administration the expectations about what states take financial responsibility for and what the federal government covers tend to vary. But major changes, he said, are usually accompanied by lengthy public discussions about the proper relationship between Washington and the states.

Related: Senate Health Bill Would Drive Coverage Down by 22 Million: CBO

He recalled working in the Kentucky budget office during the Reagan administration when there was a nationwide reconsideration of the state-federal relationship. “There was a larger discussion going on around that between Congress, the president, and states -- it was participatory,” he said. “Here, we’re kind of having the president’s budget declare these things and governments and state legislatures are only reacting.”

And the issues involved, he said, are much larger than in the past. “The scale of this one is bigger than anything I’ve seen in the last 35 years,” he said, adding, “This is something larger than ‘Repeal and Replace.’ This is the biggest decision between state and federal governments in many, many years.”

There are multiple areas where either Congress or the Trump administration has signaled the intention to force states to choose between losing certain services and benefits or financing them on their own.

Among the most obvious examples is environmental protection regulations. Because pollution often crosses state lines, it has long been agreed that the federal government should enforce environmental rules. However, the Trump administration is proposing a 31 percent cut in the Environmental Protection Agency’s budget, which includes a 44 percent cut in enforcement grants to states.

In a statement to Bloomberg earlier this year, the EPA described passing the burden for enforcement to states: “The administrator’s commitment to cooperative federalism means that we want to make sure states are active partners in the implementation, enforcement, and development of environmental statutes,” the agency said.

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Similar transfers of responsibility are likely in other areas like education and infrastructure.

The Department of Education is facing proposed cuts of $10.6 billion under the Trump administration’s proposed budget, and much of that money is funneled to public schools and state universities. If anything approaching the level of cuts Trump is requesting actually becomes law, states will have to choose between slashing services and raising taxes to make up the difference.

The Trump administration’s plan for revamping the nation’s infrastructure, once thought to involve a massive infusion of federal dollars, has turned out to look a lot more like another effort to force states to come up with money, often by ceding future toll and fee revenue to private investors who are willing to enter public-private partnerships.

Medicaid is the focal point because the need for health care among low-income Americans and those suffering from addiction and mental illness is so compelling, and because the dollar figures are so high.

Both the House and Senate bills would dramatically reduce federal spending on Medicaid, particularly for states that accepted the Affordable Care Act’s expansion of the program, which covered 90 percent of the costs of new enrollees, considerably higher than the percentage of care the federal government picks up for other Medicaid recipients.

The House bill would roll back the 90 percent match in 2020, dropping it immediately to the level of compensation for other Medicaid patients. The Senate bill would cut the Medicaid reimbursement for people receiving benefits under the expansion more slowly at first, reducing it five percent per year for five years before dropping it down to the same level as the House.

In both bills, the goal is a per capita block grant that limits the federal obligation to the program, and which will grow more slowly than the rate of inflation expected to impact the program.

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Under the Senate bill, the federal share of spending for expanded Medicaid would steadily fall from the current 90 percent to 85 percent in 2021, 80 percent in 2022, 75 percent in 2023 and then finally to the states’ standard Medicaid match, which averages 57 percent nationwide. States would have little choice but to severely tighten eligibility to limit their exposure or dig deep into other portions of their budgets or raise taxes to preserve their expanded Medicaid coverage.

The CBPP Study says that 12 states would have to boost their spending by 400 percent once the expansion matching rate fully ratcheted down in 2024: Alaska, California, Colorado, Connecticut, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New York, North Dakota, and Washington.

Other states like Arizona, Indiana, Kentucky, Ohio, Nevada, West Virginia and Vermont would be forced to increase their share of the cost by between 168 percent and 386 percent in 2024. The size of the burden on individual states, though, is also a symbol of how large a part of the American economy the Medicaid program has become. And it could be argued that it strengthens the need for fundamental reform.

“Medicaid, along with Social Security and Medicare, is a primary reason that the federal government is running large budget deficits today and will run growing and unsustainable deficits in the future,” writes James C. Capretta, of the American Enterprise Institute.

“Congress needs to proceed with significant reforms of all three major entitlement programs to lower the risk of a damaging fiscal and economic crisis. The reforms to Medicaid in the Senate bill are not perfect, and unlikely to be the final word on the subject. But they are a start, and are not inconsistent with the important goal of finding ways to increase the efficiency of the health system so that it is more affordable for future taxpayers.”