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| Community engagement requirements for the "able-bodied" |
While their $900 billion* in cuts to federal spending on Medicaid over ten years will hurt all classes of Medicaid enrollees, the cuts are aimed primarily at low-income adults insured through the ACA Medicaid expansion — that is, adults under age 65 who are not recognized as disabled by the federal government (though many have varying degrees of disability**). Some cuts not aimed directly at the ACA expansion population target states that have enacted the expansion.
Provider tax cut aimed at expansion states
The major new spending cut added by the Senate Finance Committee to the House package last week is a case in point. Section 71120 would sharply reduce the revenue that Medicaid expansion states derive from “provider taxes,” a financial maneuver, allowed for decades, that all states except Alaska employ to boost Medicaid revenue and fund services. Under current law, states are allowed to hold taxed healthcare providers “harmless” if the taxes don’t exceed 6% of revenue — that is, they can boost payment to an amount equivalent to the revenue collected. Since the federal government pays its standard Medicaid share of the resulting new spending, varying from 50-77% by state, states can use the federal share to further boost spending. Most such taxes are imposed on nursing homes (46 states) and hospitals (45 states).
That financial maneuver is a classic American “kludge” — a workaround chronic Medicaid underfunding initiated by state governments and accepted by CMS. A responsible legislature looking to end such haphazard, convoluted funding mechanisms might replace the revenue from them, built into state budgets, with a more rational funding source. The House bill put a ban on new provider taxes, leaving current arrangements in place. The Senate Finance Committee takes a deep slice out of the revenue, cutting current taxes — but only for Medicaid expansion states. For those states, the “safe harbor” under which hospitals and other providers can be held harmless is cut by 0.5% per year from the current 6% to 3.5% (nursing homes are exempted from the lower threshold). As Georgetown’s Edwin Park notes (citing KFF data), at present 18 expansion states imposes taxes on hospitals above the 3.5% future safe harbor, and some of those states explicitly earmarked that revenue*** to fund the state’s share of the cost of enacting the ACA Medicaid expansion— potentially endangering maintenance of the expansion in those states if this provision is enacted. At the same time, six of the ten nonexpansion states (Alaska, Kansas, Mississippi, South Carolina, Tennessee and Texas) impose taxes on hospitals greater than 3.5% and would be exempt from this cut.
Work reporting requirements for the “able-bodied”
The largest single cut both to federal spending and to enrollment (by CBO’s) estimate comes via mandating states to impose “community engagement” requirements (i.e., work or “work-related” requirements) for the expansion population — nonelderly adults with income up to 138% FPL who lack disability status, with exceptions for disabled veterans, the medically frail, and parents of young children. The Senate version expands the group subject to these requirements by including parents of children above age 14 (Section 71124).
While Republicans tout work requirements as a spur to employment and a means of weeding out the ineligible, they are proven by past experience to be simply a way to strip coverage from eligible people flummoxed by reams of new red tape. I won’t reiterate the powerful, incontrovertible case against work requirements made by virtually every reputable source of health system analysis, e.g., here. CBO estimates that the House version of this provision will reduce Medicaid enrollment by 5.2 million in 2034— all from the expansion group, which currently numbers about 20 million. The Senate inclusion of parents of teens among those subject to the requirements will doubtless boost the CBO estimate.
FMAP penalty for states that cover some undocumented residents
A third major provision aimed exclusively at expansion states is the penalty for 14 states states that use their own funds to provide comprehensive medical coverage to groups of undocumented residents. The bill (Sect. 71111 in the Finance Committee legislation) would cut the federal share of the cost of covering the ACA expansion population from 90% to 80% — i.e., would double the state share for the expansion population. Theoretically, a nonexpansion state could cover some or all of its undocumented population and escape the penalty. In practice, states holding out against the expansion are not known for embracing their undocumented workers.
California, which has in several stages expanded eligibility to undocumented residents of all age groups, accounts for 85% of undocumented people covered by state programs (1.6 million out of 1.9 million nationally) and would take the largest financial hit (an estimated $4 billion annually). California would also be strongly hit by the cut to provider taxes — illustrating the extent to which the array of cuts converge on the expansion population and expansion states. Other states with smaller programs for select undocumented residents — like New Jersey’s Cover All Kids program, which covers 24,000 undocumented children — will also be left with a Sophie’s Choice. In New Jersey’s case, that would be to either un-insure these children or take a $6 billion ten-year hit to federal funding.
Other provisions that specifically target the expansion population or expansion states include Senate Finance sections
71107 - Increases the mandatory frequency of eligibility redeterminations from annually to every six months — a change CBO estimates will reduce enrollment by 700,000.
71112 - Cuts reimbursement in expansion states for emergency Medicaid services provided to the undocumented whose income would qualify them for the ACA expansion from the expansion FMAP of 90% to the state’s FMAP for the “traditional” (nonexpansion) Medicaid population (50-77%, depending on the state).
71114 - Cuts retroactive coverage for new enrollees from the current three months to two months for “traditional” Medicaid enrollees — and one month for expansion enrollees.
71119 - Eliminates an incentive for nonexpansion states to the adopt the expansion (the incentive: a two-year 5 percentage-point increase in the state’s traditional FMAP).
71121 - A companion provision to the limits on state provider taxes, this provision limits state “directed payments” — extra payments to MCOs, earmarked for increasing payment rates to providers. This provision also favors nonexpansion states, limiting the provider rate bump to 110% of Medicare for nonexpansion states and to 100% Medicare for expansion states.
71125 - imposes new cost-sharing for medical services for enrollees in the “upper” Medicaid expansion income bracket (100-138% FPL). Cost sharing can total up to 5% of income.
While Republicans stopped short of defunding the expansion entirely, the bill’s approach to cutting Medicaid spending —as well as its rhetorical strategy to justify the cuts —fulfills the agenda of the hard-right freedom caucus, as expressed in a March op-ed by Reps Eric Burlison , Chip Roy, and Andy Harris:
We are not asking you to slash Medicaid, only turn back the clock and reverse its explosive expansion in the last few years that has put it on an unsustainable course…Medicaid was intended to assist vulnerable populations like the disabled, pregnant women, children and people in poverty. Today, able-bodied, working-capable adults are on course to become the largest subgroup on Medicaid.
Republicans regard, or purport to regard, the ACA Medicaid expansion, enacted by a Democratic Congress, as fundamentally illegitimate. They smear low-income adults as “able-bodied” - a denigration of the poor that goes back centuries — and constantly stereotype expansion enrollees as lazy freeloaders — the “able-bodied workers, young men…who are not working, who are taking advantage of the system,” whom House Speaker Mike Johnson invoked while asserting a “moral component” to the bill’s work requirements. In the name of these phantom freeloaders, Republicans are poised to strip coverage from millions of low-income adults to fund tax cuts that overwhelmingly benefit the wealthy.
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* CBO estimates the House bill’s cuts to Medicaid at about $783 billion over 10 years. I am assuming that the Senate’s added cut to provider taxes adds another $100 billion at least. CBO previously estimated that limiting the safe harbor for such taxes to 2.5% would reduce spending by $241 billion over ten years.
** The bill purports to exempt the medically “frail,” those with significant disabilities, and those with a substance use disorder, but past experience shows that identifying and documenting such statuses is also a source of boondoggle.
*** As to states that have funded their share of the ACA Medicaid expansion with provider taxes, Edwin Park writes in a separate brief: “While there is no comprehensive tally of which expansion states have used provider taxes to finance states’ 10 percent share of expansion costs, Arizona, Arkansas, Colorado, Illinois, Indiana, Nevada, Ohio, Oregon, Virginia and West Virginia all relied on provider taxes for expansion according to a 2019 analysis from Families USA. In addition, states that more recently implemented the Medicaid expansion, like Missouri in 2021 and North Carolina in 2023, have also used provider tax increases to finance their share of expansion costs.” The Families USA analysis indicates that Arizona, Colorado, Indiana, Oregon and Virginia rely on hospital taxes to fund the expansion. Missouri also taxes hospitals at 4-5%.
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