States will face hard choices with Medicaid

When Congress approved a sweeping tax bill at the behest of President Trump, lawmakers ended up shifting more of the responsibility for Medicaid programs to the states.

Hospitals and other healthcare advocates have blasted the tax package and say it represents the biggest reduction in federal support for health care in America’s history. The Congressional Budget Office estimates that Medicaid spending will be cut by $1 trillion over the next decade, and nearly 12 million are expected to lose Medicaid coverage.

The package establishes new limits on provider taxes that states have used to help leverage more federal support for their Medicaid programs. States also will be tasked with implementing new work requirements for healthy adults to qualify for Medicaid.

Some of these changes will be phased in over the next few years, but states have to begin planning. And they’ll have to consider raising other taxes to support their programs, reducing benefits or the number of people who are covered, industry leaders say.

States have a difficult road ahead of them, says Robin Rudowitz, vice president of KFF’s program on Medicaid and the uninsured.

“I think in terms of the overall implications for states, in terms of the reduction in federal support for the Medicaid program, will leave states with really hard decisions,” Rudowitz said during a KFF webinar earlier this month.

Hospitals are worried that they will see less funding to support their operations with less Medicaid money in the coming years, even as they see more patients without any health coverage. Hospitals say those competing pressures could force hospitals to reduce services, and some hospitals with financial difficulties could end up closing.

(This video outlines some challenges ahead for states. The story continues below.)

‘Real problem for state budgets’

Matt Cook, president and CEO of the Children’s Hospital Association, told Chief Healthcare Executive® in an interview earlier this month that states are going to find themselves in a difficult position.

While states have pushed the federal government to have a greater role in Medicaid programs, Republican leaders have made it clear that they want “to push back that burden to the states, and make states have the skin in the game that they were intended to have,” Cook says.

But most states have measures requiring them to operate with balanced budgets, so the Medicaid changes place greater pressures on states.

“So if you're going to push the burden back and I still have to balance my budget, I either have to raise taxes, which, as you know, is very politically unpopular, or I have to cut services,” Cook says. “And so the concern is, if you're cutting services or cutting the state budget, am I going to have the resources to ensure eligibility or make sure people are getting enrolled? So it's going to be a real problem for state budgets.”

• Read more: Children’s hospitals brace for overcrowding and staff cuts due to tax package

Hospitals and health systems say Medicaid reimbursement rates are already insufficient, and now the situation looks to get worse.

“The core, fundamental issue is the Medicaid program, the reimbursement, even when you add in state directed payments, provider taxes that the lawmakers are complaining about, the children's hospitals still lose money on every Medicaid patient they treat,” Cook says.

Drew Altman, president and CEO of KFF, said states will likely respond in different ways. A former commissioner of New Jersey’s Department of Human Services, Altman said there will be different strategies in different states.

“I'm pretty certain that blue states and red states will implement them in very different ways,” Altman said in a KFF webinar earlier this month. The blue states hate them, and so that's something you can watch for, and the ways in which they ‘slow walk’ the implementation of the work requirement. There are lots of ways to do that in practice, having been once a leader in the welfare reform work requirements business. So that's something to watch for.”

Some states enjoy more resources than others, but most states are going to find it very hard to replace losses of billions of dollars, Altman said.

“It depends on the state, but it could equal what they spend on corrections or on transportation or on environmental protection,” he said. “They cannot come up with that kind of money. So you will find some states that are able to partially replace some of the lost funds. Most states will just not politically be able to replace most of the lost funds.”

• Read more: Nurses warn Medicaid cuts will hurt patients and hospitals

‘Very hard decisions’

Anthony Wright, executive director of Families USA, said the tax package’s reductions to state provider taxes and state-directed payments result in cuts to “the basic mechanisms that states use to fund their state Medicaid programs.”

Wright talked in a recent webinar about the tough choices ahead for states, including deciding on cuts to “people or benefits or providers.”

“There's a lot of states with balanced budget amendments that are going to have to make some very hard decisions about whether they're scaling back services, like vision and dental or home and community-based services, whether they provide rates to hospitals and clinics and nursing homes and maternity wards, many of which really depend on those Medicaid dollars to keep the doors open,” Wright said.

The federal Medicaid work requirements take effect in December 2026, but states don’t have long to establish mechanisms to determine if adults are working or attending schools.

“Right now we know states are not set up in their Medicaid programs to track work hours,” Rudowitz said, adding, “And we know that it's hard for states to update systems quickly.”

Brian Peters, CEO of the Michigan Health & Hospital Association, said earlier this month that the tax package is “an attack on Medicaid.” He projected the legislation would lead to $6 billion in cuts to Michigan hospitals over the next decade.

“Cuts to funding are cuts to care,” Peters said in a statement. “Limiting how states can fund their Medicaid programs puts Michigan in an extremely difficult position. If the state can no longer provide the same reimbursement, hospitals will be faced with difficult choices that will include eliminating service lines or even entire facilities.”

Carmela Coyle, president and CEO of the California Hospital Association, said this month that hospitals won't be able to afford the cuts to Medi-Cal, the state's Medicaid program.

"While the final tally of the damage that will be inflicted is still unknown, California hospitals could lose up to 30% of their Medi-Cal revenues over the next decade,” Coyle said in a statement. “And this estimate does not include the increase in uncompensated care losses that hospitals will incur resulting from coverage losses and the cuts the state will inevitably be forced to make due to federal funding reductions.”

• Read more: State hospital leaders criticize Medicaid cuts

Cook said he is worried about children losing coverage, and not necessarily because of a change in eligibility. He says he fears that administrative changes could lead to kids falling off Medicaid rolls. He says that happened when the COVID-19 public health emergency ended and states re-evaluated Medicaid eligibility.

“You actually did see a lot of kids drop off those roles,” Cook said. “It wasn't because they were not eligible. A lot of them dropped off for bureaucratic reasons, administrative reasons, and so I think that's the fear in this, is that you may see additional children fall off the roles due to administrative issues in states.”