Caps on federal Medicaid funding will hurt healthcare providers and patients

Medicaid is in the throes of a debate about its future but with little clarity about the problem Republicans in Congress are trying to solve. Are runaway costs the problem? Medicaid is a large program — it covers more than 70 million people. Most enrollees are low-income children but most of the costs are attributable to the elderly and people with disabilities.

Covering people, particularly those with significant health care needs does cost money, and Medicaid spending has indeed grown over the years. But not because of runaway costs. 

{mosads}Spending has grown mostly because Medicaid is covering more people. On a per enrollee basis, Medicaid spending has actually grown very modestly in recent years — averaging a 2.6 percent increase per year between 2007 and 2015 (excluding an influx of healthier adults and children during this period, whose inclusion would result in a growth rate of 2.0 percent)

This is well below growth in costs for commercial insurance and Medicare. 

Reducing healthcare costs is an appropriate goal, but given that Medicaid costs are driven largely by coverage, there is little question that reductions in federal Medicaid spending will result in reductions in coverage and access to care. That would drive up system-wide costs by increasing uninsured rates and uncompensated care expenses.

If out-of-control spending growth isn’t the problem, what is? Representative Greg Walden (R-Ore.), who is the chairman of the House of Representatives committee with jurisdiction over Medicaid, articulated his identification of the problem. While noting his strong support for Oregon’s Medicaid program and its recent innovations, Walden recently lamented that Oregon should not have had to ask the federal government for a waiver to undertake its innovations.

His commentary about Medicaid hits another common refrain: states need more flexibility to take the program in a better direction. But as with Medicaid costs, it’s important to examine this proposition more closely.

Chairman Walden is right that Oregon ought to be applauded for its efforts to achieve long-term improvements in health while lowering costs. The state set clear spending and quality targets and established locally directed Coordinated Care Organizations (CCOs). The state holds CCOs accountable for the health of their communities while providing them with the flexibility to design delivery systems that target the issues the CCOs and their partners identify as most salient in those communities.

But let’s be clear: Oregon implemented its CCO initiative through a waiver primarily to secure additional federal investment. Oregon needed federal funds—above and beyond the normal payments it receives through its Medicaid program — to invest in health system transformation.

As is true with most enterprises, upfront investment is often key to moving forward with innovative health initiatives. Oregon made its case — a strong one, from the federal government’s point of view — and teams of state and federal agency staff, working closely together, moved the waiver through the process in four months.

It was a wise federal investment; evaluations to date show that Oregon is meeting its care improvement and cost targets. As a result, the federal government is poised to reap a large return on that investment.

Ironically, congressional leaders’ proposals to reduce and cap the amount of federal funding states receive for their Medicaid programs would take away the flexibility Oregon needed most — the ability to ensure a foundation of coverage and financing flexibility to invest and innovate. No doubt Oregon, like every state, would appreciate more programmatic flexibility and less review at the federal level. And we should always be examining the balance between federal minimum standards and oversight and state flexibility and accountability.

But the Oregon experience underscores common misconceptions about state innovation in Medicaid. Oregon had the flexibility it needed to move ahead, but it required additional federal financial support to carry out its plan. That’s exactly the flexibility states will lose if Congress imposes caps on the federal government’s Medicaid investment.

Arbitrary caps on federal Medicaid funding as well as the loss of the enhanced federal financing for the Medicaid expansion will neither relieve our nation’s health care spending burden nor improve health.

They will erode the foundation of coverage necessary for innovation. foreclose investments that are essential for promising initiatives like the one in Oregon, and shift costs to states, hospitals and others who bear the heaviest burdens of taking care of uninsured patients. That result is bad for states, bad for healthcare providers and, most importantly, bad for patients. 

Cindy Mann, JD is the former director, Center on Medicaid and CHIP Services responsible for leading CMS’s negotiation with Oregon.

The views of contributors are their own and are not the views of The Hill.