Medicaid and Taxes

Medicaid, the health and long-term care coverage program for low-income Americans, faces drastic changes that could have profound consequences for both the old poor and the newly poor. Medicaid is jointly financed by the states and the federal government. In an effort to balance their budgets, states are considering deep cuts into the primary safety net for some of the nation’s most vulnerable people, including the elderly and disabled. Among these are formerly middle-class people who have turned to Medicaid for help after losing their jobs and their insurance in the economic downturn. The complex health care bill that is expected to be voted on as this editorial goes to press raises reimbursements but does not adequately address long-term underfunding of Medicaid.

Congress will be considering how best to handle this difficult issue in the weeks ahead, as time runs out for renewal of the American Recovery and Reinvestment Act, last year’s economic recovery legislation, which extended federal stimulus support for state Medicaid programs. The act expires on Dec. 31. In exchange for receiving these funds, states have agreed not to stiffen eligibility requirements. But if the Recovery Act legislation is not extended, deeper cuts in state budgets could cause hundreds of thousands to lose their Medicaid benefits entirely, and eligibility requirements could be tightened. With the 2011 fiscal year beginning this coming July, about half the governors have assumed that fiscal relief may not be forthcoming from the federal government and are consequently proposing draconian cuts.

In a report released in early March, the nonprofit Center on Budget and Policy Priorities cited the example of Arizona’s governor, Jan Brewer, who has proposed dropping 310,000 recipients from the state’s Medicaid program, including several thousand patients with mental illness. Similarly, the governor of California, Arnold Schwarzenegger, is contemplating slicing a quarter of a million people from that state’s program. Both governors, moreover, are also considering complete termination of their states’ children’s health insurance programs if expanded federal aid is not forthcoming this December. Such a move would end coverage for over a million low-income children if Congress fails to act. Moves of this magnitude would undermine the very concept of state-federal cooperation on which Medicaid is built.

The Budget and Policy report notes that during a recession, as people lose their jobs and private health coverage, the number of people who become eligible for Medicaid increases greatly. The Kaiser Commission on Medicaid and the Uninsured has found that between June 2008 and June 2009, enrollment grew faster than in any period since the program was created in 1965. Over 3.3 million more people were added in the year between June 2008 and June 2009. Every state had increases in enrollment, and 32 grew twice as fast as in the year before. Sadly, however, at the very time that Medicaid is most needed, states are weighing the possibility of sharp cuts as they struggle to balance their budgets in the face of falling revenues caused by the weak economy.

A number of states have already cut benefits in some areas of service that they formerly provided. Thus Michigan, Nevada and Utah have ended coverage for dental care, for eyeglasses and other ancillary services. Almost 40 states have also reduced or frozen reimbursements for hospitals and nursing homes. Tennessee’s governor has gone so far as to cap inpatient hospital reimbursements at $10,000. Moreover, with Medicaid reimbursement rates already far below those of Medicare, some doctors are refusing to accept more Medicaid patients. Compounding the overall problem, many states have cut their Medicaid administrative staffs, even as the number of applications has increased dramatically.

Because of the recession, the crisis is already at the door. It is clear that without more federal support many states cannot afford to continue the Medicaid they currently offer, which in many cases is already inadequate. How then can health care reform succeed when current proposals require states to accept 15 million more Medicaid recipients by 2019, while full federal support for that expansion will wind down by 2017? A funding formula must be devised that will not only accompany states through this immediate national health emergency but will also establish a credible, long-term structure for Medicaid funding that ensures the program’s reliability even during times of economic distress.

An increase in taxes for the wealthy and for corporations is inevitable, and a serious reduction in defense funding must be undertaken to bring the national accounts into balance. Until those politically difficult steps are taken, health care for both poor and middle-class Americans will remain in a state of permanent crisis. In the short term, however, the Recovery Act must be renewed with a view to propping up the Medicaid system.

This article appears in March 29 2010.