Long-Term Analysis of a Budget Proposal by Chairman Ryan (PDF)
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Effects of the Proposal on the Medicaid Program and State Governments
The Medicaid program covers acute care and long-term care services for low-income families with dependent children, the elderly, and people with disabilities. Eligible individuals are entitled to coverage of federally mandated medical services and other optional services as determined by individual states. About two-thirds of Medicaid spending is for acute care services, and one-third is for long-term care services. In terms of the population served, about two-thirds of all Medicaid spending is for the elderly and disabled, while about one-third is for low-income families with dependent children. Under current law, the federal and state governments jointly finance the cost of Medicaid, with the federal government projected to provide about 57 percent of the total cost for Medicaid services in 2012.18 On average, net state spending for Medicaid constitutes about 12 percent of states’ spending from general funds.19 That percentage is likely to increase over time under current law as health care costs continue to rise.
Chairman Ryan’s proposal would shift some of the burden of Medicaid’s growing costs to the states. It would, however, relieve some of the cost burden for states by repealing the provisions related to Medicaid in PPACA and the Reconciliation Act and, starting in 2022, eliminating certain benefits for the elderly under Medicaid. On balance, federal payments to states under the proposal would be significantly lower than under current law.
CBO compared federal payments to states under the proposal with federal spending for Medicaid services that is estimated to occur if spending for provisions related to Medicaid in PPACA and the Reconciliation Act and certain benefits for the elderly are excluded. Under the proposal, CBO estimates, federal spending for Medicaid would be 35 percent lower in 2022 and 49 percent lower in 2030 than currently projected federal spending with those adjustments.
If the costs of medical services for Medicaid enrollees continued to rise faster than the growth in the block grant amounts, states would have to decide how to respond. Under the proposal, states would have additional flexibility to design and manage their programs to achieve greater efficiencies in the delivery of care. Because of the magnitude of the reduction in federal Medicaid spending under the proposal, however, states would face significant challenges in achieving sufficient cost savings through efficiencies to mitigate the loss of federal funding. To maintain current service levels in the Medicaid program, states would probably need to consider additional changes, such as reducing their spending on other programs or raising additional revenues. Alternatively, states could reduce the size of their Medicaid programs by cutting payment rates for doctors, hospitals, or nursing homes; reducing the scope of benefits covered; or limiting eligibility. To some extent, under CBO’s long-run projections, the rise in health care costs under current law would cause states to implement such changes anyway. However, given the size of the reduction in federal spending under the proposal, the magnitude of the changes would probably have to be greater.
If states reduced spending for their Medicaid programs, there would be a number of potential implications for both providers and beneficiaries. Given that payment rates for providers under Medicaid are already generally lower than they are under Medicare and private insurance, if states lowered payment rates even further, providers might be less willing to treat Medicaid enrollees. As a result, Medicaid enrollees could face more limited access to care. If states reduced benefits or eligibility levels, beneficiaries could face higher out-of-pocket costs, and providers could face more uncompensated care as beneficiaries lost coverage for certain benefits or lost coverage altogether.
Under the proposal, the annual block grant amounts would grow on the basis of general population and price growth—factors that would not be expected to vary much with economic conditions (other than inflation). Medicaid spending would not automatically increase during economic downturns, as it does now under current law. By design, the approach would make funding for Medicaid more predictable from a federal perspective, but it would lead to greater uncertainty for states as to whether the federal contribution would be sufficient during periods of economic weakness.
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