Know the consequences of cutting Medicaid


Of the nation’s major social insurance programs, Medicaid tends to be the one that gets the least respect.

The reason is not because it’s small — with some 53 million enrollees, the federal-state program is slightly smaller than Social Security but larger than Medicare — but because it serves the poorest and sickest Americans, those with the fewest healthcare options.

Yet Medicaid (or Medi-Cal, as it’s known in California) may also have the greatest economic impact of those programs, not only on its recipients but also on the hospitals and clinics in many ill-served communities. In many cases their financial health depends on Medicaid.


That’s why government officials should be careful when they talk about reining in the program or narrowing its reach. If you’ve been paying attention during this politically turbocharged year, you know that careful is exactly what they’re not.

GOP vice presidential candidate Paul Ryan has proposed converting Medicaid from a traditional reimbursement program into a block grant, through which states would get a lump sum from Washington to spend on beneficiaries as they please; this plan was part of the budget passed this year by the GOP House and has been endorsed, at least implicitly, by Mitt Romney’s presidential campaign.

Meanwhile, the governors of six Southern states have announced that they’ll be rejecting a sizable expansion of Medicaid written into the 2010 healthcare reform act. They’ve been empowered to do so by the U.S. Supreme Court, which eliminated the government’s ability to enforce the expansion in the same decision in which it upheld the rest of the healthcare act. Five other states are leaning toward nonparticipation but haven’t pulled the trigger. Eleven so far, including California, have committed to expansion.

Much of this maneuvering has flown under the radar or been lost in the noise devoted to Medicare reform proposals. But former President Clinton highlighted the issue during his Democratic convention speech last week.

“You won’t be laughing when I finish telling you this,” he remarked, explaining that the GOP wants to “block grant Medicaid and cut it by a third over the coming 10 years. Of course, that’s going to really hurt a lot of poor kids.”

In the interest of fact checking, Clinton’s figure was a bit exaggerated: The Ryan budget would cut Medicaid by about 22% over the 10-year period; it’s in Year 10 that the shortfall reaches 34%, compared with projections under the current program.

As for the Medicaid expansion that the governors of Florida, Texas and four other states are so cavalierly rejecting, it was designed to take more than 16 million residents off the rolls of the uninsured. It does so by expanding Medicaid eligibility to all those under 65 earning less than 138% of the federal poverty level, or $15,415 for an individual. In practical terms, the most heavily affected groups are low-income parents and childless adults; most states have more forgiving rules for children.

Some of these individuals would still be eligible for federal subsidies to buy private insurance if their states reject the Medicaid expansion, but according to the Congressional Budget Office, two-thirds would be left without coverage.

Here’s the kicker: For the first three years of the expansion (2014 through 2016) the federal government will pay 100% of the cost; after that, the federal share declines in steps, reaching 90% in 2020 and sticking there.

“I just don’t understand how any state could refuse 100% funding for the first three years,” says Jim Lott, executive vice president of the Hospital Assn. of Southern California, a veteran of healthcare funding wars. “Take the money and provide your citizens with coverage.”

Hard to understand? No kidding. The two biggest states to reject the expansion, Texas and Florida, rank first and second in their percentage of uninsured residents (25% and 21%, respectively). The Medicaid expansion rejected by their governors, those outstanding humanitarians Rick Perry and Rick Scott, would provide insurance to as many as 4.2 million residents, according to the Kaiser Family Foundation.

Are these governors looking out for their constituents’ interests? Perry, in his truculent letter to Health and Human Services Secretary Kathleen Sebelius rejecting the expansion, labeled it, along with the creation of an insurance exchange to provide lower-cost private coverage to individuals, “brazen intrusions into the sovereignty of our state.” The egregious Scott — whose former company, Columbia/HCA, pleaded guilty in 2000 to 14 federal felony counts and paid $840 million in fines and penalties to settle charges that it defrauded Medicare and Medicaid — groused that what he called “ObamaCare” would eventually become a “burden” on Floridians.

Patient advocates, knowing political poseurs when they see them, are hoping that hospitals and other providers in those states will lead their governors toward the light.

That’s because Medicaid is an economic safety net for hospitals and clinics in the most stressed-out communities. That’s likely to become more true in the future. Starting in 2014, the healthcare act reduces “disproportionate share payments” (heightened reimbursements for facilities serving poor and uninsured communities) on the expectation that more of those patients will be carrying Medicaid or private insurance coverage. Eliminate the expansion, and they’re going to be in worse shape.

Keep in mind that no institution is getting rich off Medicaid. On the contrary, institutions that serve indigent communities are the most financially hobbled of any elements in our healthcare system, in part because Medicaid barely covers two-thirds of their costs — and the ratio is poised to fall.

Among those hit will be White Memorial Medical Center, a 360-bed hospital in Boyle Heights. About 87% of its patients rely on some form of government healthcare; as many as 5% are indigent, according to Beth Zachary, White’s chief executive.

Thanks to payment reductions in the healthcare reform act, White Memorial is facing a decline in government reimbursement, including the disproportionate share reduction, of $20 million starting in 2014.

How much of that will be recovered from the expansion of Medicaid? About $2 million, Zachary told me.

“We’re very busy trying to find that $20 million,” she said. The cuts could mean not only reduced services for patients, but also job losses in the East L.A. community, from which White does about 30% of its hiring.

So to put two basic scenarios in perspective from the standpoint of hospitals and clinics in low-income areas: Without the healthcare reform act, their future is untenable. With its implementation minus the Medicaid expansion, their future moves from untenable to catastrophic.

Presumably, the hospitals on the firing line will spell out the consequences for Perry, Scott, Louisiana Gov. Bobby Jindal and others who think ideological posturing is a higher calling than serving their constituents.

“Ultimately, the pressure these governors get from their provider community will decide whether they take the Medicaid expansion or not,” says Diane Rowland, executive vice president of the Kaiser Family Foundation. She adds that money to keep public hospitals operating often comes from state budgets, which could further discourage a hasty decision to turn away tens of billions in federal assistance. (Texas would be in line for up to $62 billion over the first six years of the Medicaid expansion, the largest handout due any state.)

That brings us to the idea of converting Medicaid from its current federal-state shared-cost structure into a block grant, paid out to states to spend as they wish. As with so many elements of the Romney-Ryan program, this doesn’t compute.

The 2013 federal budget proposed by Ryan and passed by the House this spring would cut the projected federal Medicaid bill by more than $800 billion over 10 years, not even counting the cost of the Medicaid expansion in the healthcare act.

The cuts come from giving the states the same amount in block grants as they get from the traditional federal Medicaid share now, and increasing it only by the rates of inflation and population growth. The resulting squeeze, according to its promoters, will force states to “innovate” to deliver care efficiently.

Is this reasonable? Up to now, states have customarily “innovated” in Medicaid by lopping people off it. Some make eligibility standards ridiculously strict, for example. Texas already considers a family with one child to be too wealthy for Medicaid if their income is $4,818 a year. Human inventiveness should never be underestimated, but it’s hard to see how you can get more “innovative” than that.

The basic profile of members and costs makes it especially difficult to cut Medicaid budgets simply by paring enrollments. The largest group of Medicaid beneficiaries is children, but they’re also the least costly per person, Aaron Carroll, a Medicaid expert at Indiana University, has shown. The most expensive groups are the blind, disabled and elderly, who cost on average seven times as much as kids. But they’re also far less numerous. What that means is that extracting significant savings by cutting benefits requires sharply rolling them back for children and non-elderly adults.

Inventive as you are, “there are no easy choices,” Carroll wrote earlier this year. That’s worth keeping in mind whenever you hear a business or political leader say that cutting government spending is a snap. What hangs in the balance of “easy” budget cuts are the economic health of communities, the survival of hospitals in neighborhoods that don’t have enough of them, and the lives of human beings.

Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at, read past columns at, check out and follow @latimeshiltzik on Twitter.