How Coronavirus is Driving the Medicaid Expansion Reckoning in the States

May 14, 2020
By Naomi Lopez

The current pandemic has driven most every state into a financial tailspin. With businesses shuttered, stay-at-home orders in place, and conferences and tourism cancelled, state revenue coffers are drying up. But while the severity of this crisis may be unprecedented and unexpected, an economic downturn was not.

Today, states are scrambling to balance their budgets, which will mean service and program cuts. Unfortunately, the states that expanded their Medicaid program now have a strong incentive to impose cuts that will do the most harm to the most vulnerable.

Thirty-seven states and the District of Columbia have expanded the program. Under the Affordable Care Act, states chose to expand Medicaid eligibility to those falling under 138% of the federal poverty level. Currently, the federal government pays roughly between 50 and 75 cents for every dollar the state pays in Medicaid spending for the most vulnerable populations. For those eligible under the expansion, which includes those who are healthy enough to work and don’t have young children, the federal government now pays 90% of the tab of their costs.

What that means is that the Medicaid expansion’s funding formula prioritizes healthy adults above the neediest patients. This is especially true in times of budget shortfalls as most every state is now facing.

That is because a state seeking to rein in Medicaid spending would need to cut, on average, more than $2 in Medicaid spending on the traditional Medicaid population to save $1 of state spending. Because the federal government is picking up most of the Medicaid spending for the expansion population, a state would need to cut up to $10 in Medicaid spending to save $1 in state spending—almost assuring services for the most vulnerable Medicaid populations will be first in line for budget cuts.

A recent Politico article detailed how the budget shortfalls—as well as swelling Medicaid rolls—are impacting state budgets. Featured states facing pressure include, but are not limited to, Alaska, Arizona, Colorado, Michigan, New Mexico, Ohio, and Virginia. In recent years, the Medicaid program accounted for more than one-quarter of state budgets, including federal fund. The program spending was already starting to squeeze out spending on other important state priorities such as education and transportation before the crisis. That trend is likely to accelerate now that states are facing a severe budget crisis—and, since Medicaid is a federal entitlement program, states are required to fund the program.

There is no doubt that people need accessible and affordable healthcare. But those who supported Medicaid expansion, as well as those who want to double down on this approach and encourage the remaining states to do so, should be held accountable for any cuts that put the most vulnerable in the back of the line for needed services.

The decisions on where to cut will be difficult, and the political interests with the most muscle are already jockeying to protect their sacred cows. That is why consumer-driven approaches—and not top-down, one-size fits-all bureaucratic approaches controlled by vested political interests—that put patients in charge of their important healthcare decisions should drive healthcare reforms.

Naomi Lopez is the Director of Healthcare Policy at the Goldwater Institute.