Governors eye Medicaid cuts to ease COVID-19 budget pain

Governors facing huge budget shortfalls are eyeing cuts to Medicaid, even as millions of unemployed Americans flock to the health insurance program after losing their employer-based coverage.

States that are buckling under declining revenues and increased Medicaid enrollment due to COVID-19 say they may have no choice but to cut the program for the poor unless they get more financial support from the federal government.

“These are cuts that can be triggered and eliminated with the stroke of a pen,” California Gov. Gavin Newsom (D) said Thursday about cuts to Medicaid and other programs that will go in effect July 1 without help from Congress and President Trump.

Federal law requires states to balance their budgets, and during economic downturns, governors and state legislatures tend to cut costly programs like Medicaid. States as a whole could face budget shortfalls of $500 billion, according to one analysis by a University of Pennsylvania professor, meaning cuts could be particularly steep this time around.

Medicaid consumes about 20 percent of state budgets, with spending on the program spiking during recessions as more Americans sign up after losing their jobs.

Medicaid already covers 71 million people and enrollment is projected to increase anywhere from 10 million to 23 million over the next several months, according to Health Management Associates.

And because this economic downturn was caused by a pandemic, Medicaid spending is expected to increase even more as beneficiaries seek care for COVID-19 testing and treatment.

Cuts would result in a devastating blow to the social safety net when it is needed most, experts say.

“This isn’t like in 2008. In 2008, Medicaid programs weren’t dealing with a pandemic and a recession at the same time,” said Lindsey Browning, program director for Medicaid Operations for the National Association of Medicaid Directors (NAMD).

“We’re looking at much deeper cuts than in 2008 that underscores the pressing need for Congress to act now.”

Thirteen out of the 33 states with projections told the Kaiser Family Foundation they are anticipating Medicaid budget shortfalls for the current fiscal year, which ends June 30. Several of those states said broader reductions in overall revenue may require reductions in spending for Medicaid and other programs.

Of the 19 states with projections available for the upcoming fiscal year, 17 said a Medicaid budget shortfall is “almost certain” or “likely.”

To avoid shortfalls, NAMD and the National Governors Association have called for Congress to increase the federal government’s share of Medicaid funding to states by 5.2 percentage points.

Congress already approved a temporary 6.2 percentage point increase in a coronavirus response bill passed earlier this year, which will result in an extra $36 billion in Medicaid funds to states.

While that increase was helpful, experts say, more is needed to avoid painful Medicaid cuts as states franticly revise their budgets for the new fiscal year.

“Some states are directing all agencies to look for savings. I don’t think Medicaid can escape from those types of things because it is a big piece of state budgets, but it’s going to be a difficult puzzle given the magnitude of the economic issues,” said Robin Rudowitz, co-director for the Program on Medicaid and the Uninsured at the Kaiser Family Foundation.

“There are limited options for states to save a lot of money in the Medicaid program without making some drastic changes.” 

Federal law prohibits states receiving increased Medicaid funding from cutting benefits, increasing premiums or restricting eligibility — restrictions Congress put in place to protect beneficiaries from losing coverage during the pandemic.

That means in order to find savings, states turn to cutting provider rates, which some experts say could be disastrous.

Medicaid providers are already struggling as fewer patients come in for routine services and procedures. Providers may close down, cut services or leave the Medicaid program if rates are cut, reducing access for beneficiaries. Medicaid rates are already typically lower than rates paid by Medicare and private insurance.

“The Medicaid provider network is highly stressed and particularly fragile,” said Edwin Park, a research professor and Medicaid expert at the Georgetown University McCourt School of Public Policy. 

“If you cut Medicaid rates, the impact on access would likely be much more harmful than even after a typical recession where states look to cut Medicaid and they look to cut provider payments.” 

House Democrats passed a COVID-19 response bill Friday that would once again boost the federal government’s share of Medicaid funding, this time by 7.8 percentage points. However, Senate Majority Leader Mitch McConnell (R-Ky.) has called the bill “dead on arrival,” and has repeatedly shot down the idea of sending more help to state governments.

But those comments have drawn criticism from members of both parties, including the bipartisan chairs of the National Governors Association.

“With widespread bipartisan agreement on the need for this assistance, we cannot afford a partisan process that turns this urgent relief into another political football,” Maryland Gov. Larry Hogan (R) and New York Gov. Andrew Cuomo (D) said this week in a joint statement. 

“This is not a red state or blue state crisis. This is a red white and blue pandemic. The coronavirus is apolitical. It does not attack Democrats or Republicans. It attacks Americans.”