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The “Blended Rate” – A Dangerous Proposal in the Debt Limit Deal to Cut Medicaid or Render It Ineffective

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The most dangerous plans I’ve seen coming out of the debt limit talks are chained CPI and the Medicaid blended rate. I’ve written extensively about chained CPI, which would cause a Social Security benefit cut of hundreds of dollars a year for the average beneficiary. The way that can be most easily combated is by calling it what it is – a tax increase. Only $100 billion of the $300 billion projected savings in chained CPI comes from Social Security; the other $200 billion comes from the effect of slowing the cost of living adjustment in other programs, including… tax brackets. In other words, where as a tax bracket stops now at $50,000 and may go up to $51,000 next year, under chained CPI it would only go up to $50,500. Therefore people making $50,750 get thrown into a higher tax bracket than they otherwise would. As soon as Republicans figure out that messing with the COLA equals a tax increase, including on the top tax bracket, they’ll veto that without delay.

So the real issue is in Medicaid. And the Center for Budget and Policy Priorities has the best explanation of what the Medicaid blended rate would do. Essentially, if you strip away the jargon, this would reduce the federal share of Medicaid and the Children’s Health Insurance Program (CHIP), forcing the states to reduce provider payments or reduce coverage in their programs.

The proposal would replace the various matching rates at which the federal government reimburses states for their costs in insuring people through Medicaid and CHIP with a single “blended rate” for each state. A state’s blended rate would be set at a level that provided the state with less federal funding than under current law, thereby saving the federal government money.

Calculating the blended rate would be byzantine and problematic, but the whole goal is to save money, so we can assume that the end result will be a less generous match for the state-federal programs. That’s the point, after all.

Combined with this is a proposal to limit or bar states from raising taxes on medical providers to make up the costs. Forty-six states currently use provider taxes, and would see a key source of revenue for Medicaid and CHIP lost. These combined limits – restricting federal dollars for Medicaid through a different rate of payment, and banning provider taxes – have the effect of forcing states, which have less money to sustain their programs, and no way to raise that money outside of stressed general revenue pots, to cut back their Medicaid and CHIP programs. This lowers federal costs even more. The total target for the reductions is $100 billion.

What does this mean in the real world? It means that poor people and children will either have less generous health care services through Medicaid and CHIP, or that providers will see their payments cut again, which could lead to a lack of access to those services. Medicaid reimbursement rates are already as low as you can get. So cutting them even more could represent a tipping point, where providers simply refuse to accept Medicaid patients.

This just follows what is already happening in the states. At least 15 states cut their rates starting this month (see the graphic). This puts tremendous stress on the Medicaid system, and turns the coverage provided into unusable junk. If beneficiaries cannot find doctors to treat them under Medicaid, then the program becomes somewhat irrelevant. Perhaps community health centers, boosted by the Affordable Care Act, could fill in the gaps, but you would need a lot of them to overcome this.

Now, a lot of people simply cannot believe that the President would cut a program so fundamental to his signature policy, the health care law. But in effect, he’s not cutting it. He’s shifting costs to the states so they have to react. The maintenance of effort provisions in the Affordable Care Act so far remain the same, and the government will still pick up the costs of Medicaid expansion. They’ll just use a different rate to determine that and expect the states to make up the difference. Quoting Igor Volsky:

It simply follows that if states are faced with a situation where they have decreasing revenue (in part due to the recession) and less federal dollars to spend on Medicaid, they will make provider cuts (as well as many other reductions) that will leave beneficieires without doctors and sink the program. This does not bode well for conservative proposals that seek to transform Medicaid into a block grant system that doesn’t keep up with projected health care costs. We’d see this happen and then multiplied.

It doesn’t bode well for the blended rate program, which doesn’t cap Medicaid spending, but is essentially “block grant lite” because it would lower the quality of and access to treatment under Medicaid. So the promised Medicaid coverage expansion of the Affordable Care Act, which is expected to add 16 million by 2020, will either not be realized, or Medicaid will be so crippled by then that the “coverage” will be ineffective.

The ACA (Affordable Care Act) gives states strong incentives to reach and enroll individuals made newly eligible for Medicaid because the federal government will pick up all of states’ costs in providing health coverage to these people in the initial years and 90 percent of the costs over the long run. By contrast, under the blended-rate proposal, states would have to pay a much greater share of the cost of each newly eligible individual who enrolls (and a smaller share of the cost of those already eligible under current state Medicaid rules). States would likely be less energetic in their outreach efforts as a consequence, with the result that fewer newly eligible individuals likely would apply and enroll, and the number of people who remain uninsured would be higher.

This must be fought and fought hard. Millions of poor people and seniors depend on Medicaid and cannot make up the difference if the program services are cut or access denied.

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David Dayen

David Dayen