How Medicaid Actually Works—And Three Ways Trump Can Cut Funding | WSJ

Medicaid Spending Cuts: Options and Implications

Key Concepts: Medicaid, Federal Matching Dollars, ACA (Affordable Care Act), Medicaid Expansion, Work Requirements, Improper Payments, State Flexibility.

1. Medicaid Overview and Growth

• Definition: Medicaid provides health insurance coverage for low-income parents, children, pregnant women, people with disabilities, and elderly individuals with long-term care needs.
• Growth: The program has experienced significant growth, covering nearly 23 million people in 1990 and over 70 million in the past year (approximately one in five Americans).
• Cost: In 2023, Medicaid cost taxpayers over $870 billion.
• Funding Structure: Jointly funded by the federal government and individual states. States administer the program under different names.
• Federal Matching Dollars: The federal government provides matching dollars to states, ranging from 50% to 76% of costs, based on a formula tied to the state's per capita income. States with lower per capita income receive a larger federal share. In 2023, the federal government paid 69% ($606 billion) of the program costs.

2. Proposed Medicaid Cuts and Republican Perspectives

• Trump Administration's Stance: While promising to "love and cherish" Medicaid, the administration's budget blueprint proposed $880 billion in cuts over the next decade.
• Republican Rationale: Republicans argue that cuts can be achieved by eliminating waste, fraud, and abuse.
• Expert Skepticism: Experts doubt that $880 billion in savings can be achieved solely through fraud reduction.
• Proposed Options for Cuts:
  • Reducing waste and fraud.
  • Reducing federal matching dollars.
  • Adding work requirements.

3. Addressing Waste, Fraud, and Abuse

• Improper Payments: The White House has cited billions of dollars in improper payments to states or providers.
• CMS Report (2024): The Centers for Medicare and Medicaid Services (CMS) reported an improper payment rate of just over 5%, or $31 billion, a decrease from 8.5% the previous year.
• Causes of Improper Payments: 79% of improper payments were due to insufficient documentation, often due to missed administrative steps by states or providers.
• Funding for Improvement: Addressing improper payments likely requires additional funding.

4. Impact of the Affordable Care Act (ACA)

• Medicaid Expansion: The ACA allowed states to expand Medicaid eligibility to adults making up to 138% of the federal poverty line, including single, able-bodied adults.
• State Adoption: Since 2010, 40 states and D.C. have expanded Medicaid.
• Federal Funding for Expansion: The federal government initially covered 100% of the costs for new enrollees under the ACA expansion, later phased down to 90%.
• Enrollment Increase: The ACA expansion led to an increase of approximately 20 million people enrolled in Medicaid.

5. Reducing Federal Matching Rate for Expansion Enrollees

• Argument for Reduction: Congressman Chip Roy argues that the enhanced federal matching rate for the expansion population should be reduced, as they are often able-bodied individuals.
• Financial Impact: Reducing the matching rate for expansion enrollees is estimated to save the federal government $561 billion over 10 years.
• Political Considerations: 21 states that expanded Medicaid also voted for President Trump in the 2024 election, making this option politically challenging for Republican leaders in those states.

6. Implementing Work Requirements

• Arkansas's Experience: Arkansas was the first state to implement work requirements for Medicaid in 2018.
• Initial Requirements: Enrollees were required to report 80 hours of activity each month to maintain coverage.
• Coverage Loss: 18,000 people in Arkansas lost coverage within the first five months.
• Legal Challenges: A federal judge shut down Arkansas's work requirement program in 2019 due to the number of recipients who lost coverage.
• New Program in Arkansas: Governor Sarah Huckabee Sanders announced a new work requirements program in January, pending approval from the Trump administration.
• Personal Development Plan: The new program requires Medicaid enrollees aged 19 to 64 to be on track with a personal development plan to maintain benefits.
• Data Matching Technology: The state plans to use new technology for data matching to reduce the reporting burden on enrollees.
• Target Population: The program is intended to apply broadly to the expansion population, encouraging education, skills training, or employment.
• KFF Analysis: A KFF analysis of census data found that about 64% of Medicaid expansion enrollees were already working.
• Reasons for Not Working: Many individuals who are not working cite illness, disability, caretaking responsibilities, or school attendance as reasons.
• Consequences of Non-Participation: Enrollees who do not participate and are deemed "not on track" could have their Medicaid insurance suspended.
• Arkansas as a Model: Secretary Putnam hopes Arkansas will serve as a model for the future of Medicaid.

7. National Implications of Work Requirements

• House Bill Analysis (2023): An analysis of a bill that passed the House in 2023, mandating work requirements for all states, estimated it would reduce federal spending by $109 billion over a decade.
• Coverage Loss Estimate: The same analysis estimated that about 1.5 million adults would lose coverage.

8. State Flexibility and Hard Choices

• State Implementation: Even if Congress passes cuts to Medicaid, states ultimately decide how to implement them.
• Difficult Decisions: States face difficult choices in the face of reduced federal funding.
• Potential Actions: States may need to cut coverage, reduce access and benefits, or cut provider reimbursement rates.

Conclusion

The future of Medicaid is uncertain, with proposed cuts and reforms potentially impacting millions of Americans. The debate centers on balancing cost control with ensuring access to healthcare for vulnerable populations. Key areas of focus include reducing improper payments, adjusting federal matching rates for expansion enrollees, and implementing work requirements. States will play a crucial role in navigating these changes and making difficult decisions about how to allocate resources and maintain coverage.