Personal Finance

Medicaid cuts could hurt the most vulnerable Americans, including seniors

One silver lining during the economic crash caused by the coronavirus pandemic has been the existence and expansion of Medicaid. The massive federal and state program has helped millions of Americans who have lost jobs get health care for themselves and their families.

But Medicaid may soon become a victim of its own success. So many people have enrolled in the system this year that states, overwhelmed and facing tight budgets, may have to make cuts.

Why should Medicaid take a hit?

“Because,” as Joan Alker, executive director of the Center for Children and Families at Georgetown University points out, “two things—Medicaid and education spending—are the top two areas of spending in pretty much all state budgets.” Indeed, Medicaid eats up about 30% of all state spending, according to the National Association of State Budget Officers.

That usually makes it a fat target when cuts have to be made.

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Unlike the federal government, which can run deficits each year and let debt pile up, most states are required to balance their budgets each year. And budget gaps right now are enormous: About $305 billion through 2022, estimates the Washington-based Center on Budget and Policy Priorities. Meantime, Moody’s Analytics estimates the gap at around $434 billion. Both forecasts say actual deficits could be even worse depending on factors such as how long the pandemic lasts, whether there is new federal stimulus spending, and whether new restrictions on business and travel are implemented.

This could be bad news for anyone who has signed up for Medicaid in recent months, warns Alker, who points out that enrollment in the program rose in the fiscal year that ended Sept. 30.

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“Federal data lags,” Alker says “but the latest national number we have is from July and it shows 75.5 million (people getting some form of Medicaid), which is an increase of about 6% from enrollment pre-pandemic in February. That’s an increase of 4.3 million people.” Enrollment for the fiscal year ending Sept. 30, 2021, is expected to jump 8.2%, says The Wall Street Journal.

What’s particularly interesting here is that Medicaid enrollment was actually going down prior to the pandemic, because, as Alker points out, enrollment is closely correlated with unemployment rates. And the national unemployment rate in January was a rock-bottom 3.5%.

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You might have heard that states aren’t allowed to bar anyone from signing up for Medicare, thanks to the Families First Coronavirus Response Act, which Congress passed and President Trump signed into law in March. But Alker says states could save money anyway by cutting Medicaid reimbursement rates to hospitals, physicians, nursing homes and other providers. This, in turn, could “significantly reduce access to needed care if providers are unable to continue to furnish the same level of services to Medicaid beneficiaries.”

What makes this even worse is that for every dollar states cut in Medicaid, it means less federal aid as well. That’s because the federal government kicks in a fixed percentage of states’ Medicaid costs with federal funding.

This “multiplier” effect could be extraordinarily damaging for citizens seeking health care. If a state like Colorado wanted to cut $1 in its spending on Medicaid, for example, it would have to make a total Medicaid cut of $2.28, Alker’s Center for Children and Families estimates. If Mississippi wanted to cut $1 in its spending on Medicaid, it would have to make a total Medicaid cut of $5.95.

Adding to this finance pressure is the calendar. The Families First Coronavirus Response Act (mentioned above) expires on Dec. 31. The pandemic certainly won’t be over in a month—and in fact is worsening—meaning that President Trump, in his final days in office, and the outgoing Congress—will have to decide whether to extend it or let it expire, adding to more financial pressure on states—and misery for citizens.

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