Medicaid’s Blue State Bailout

In discussing future coronavirus legislation, Senate Majority Leader Mitch McConnell (R-Ky.) has taken a skeptical view towards additional subsidies to states, including a potential “blue state bailout.” But current law already includes just such a mechanism, giving wealthy states an overly generous federal Medicaid match that results in bloated program spending by New York and other blue states.

Section 1905(b) of the Social Security Act establishes Federal Medical Assistance Percentages, the matching rate each state receives from the federal government under Medicaid. The statutory formula compares each state’s per capita income to the national average, calculated over a rolling three-year period. Poorer states receive a higher federal match, while richer states receive a lower match.

However, federal law sets a minimum Medicaid match of 50 percent, and a maximum match of 83 percent. No poor states come close to hitting the 83 percent maximum rate, but a total of 14 wealthy states would have a federal match below 50 percent absent the statutory minimum. (In March, Congress temporarily raised the federal match rate for all states by 6.2 percentage points for the duration of the coronavirus emergency.)

Absent the statutory floor, Connecticut would receive a match rate of 11.69 percent in the current fiscal year, according to Federal Funds Information Service, a state-centered think-tank. At that lower federal match, Connecticut would receive approximately one federal dollar for every eight the state spends on Medicaid, rather than the one-for-one ratio under current law.

Federal taxpayers pay greatly because the overly generous match rate for wealthy states leads to additional Medicaid spending. In fiscal year 2018, Connecticut spent far more on its traditional Medicaid program ($6.5 billion in combined state and federal funds) than similarly sized states like Oklahoma ($4.9 billion) and Utah ($2.5 billion). Those totals exclude the dollars Connecticut received from Obamacare, which guarantees all states a 90 percent Medicaid match for covering able-bodied adults.

The budget crisis in New York that preceded the pandemic stems in large part from Washington’s overly generous match for wealthy states. Absent the statutory floor, the state would receive a Medicaid match of 34.49 percent this fiscal year, meaning it would have to spend approximately two dollars to receive an additional federal dollar.

But the one-to-one Medicaid match guaranteed under federal law led New York to expand its program well beyond most states’. At more than $77 billion in 2018, New York Medicaid cost taxpayers more than three times the $23.4 billion spent by the larger state of Florida. And a federal audit last summer concluded that New York Medicaid spent $1.8 billion on more than 600,000 ineligible enrollees in just a six-month period. Little wonder that Gov. Andrew Cuomo in January called the state’s fiscal situation “unsustainable” after the state announced a $6 billion budget deficit, most of which came from Medicaid.

To his credit, Cuomo proposed changes to crack down on Medicaid fraud and enact other program reforms. He also criticized Congress when it passed legislation to block New York and other states from changing their Medicaid programs during the pandemic. But he has not acknowledged the underlying flaws in federal law that, by encouraging profligate blue state spending, created the problem in the first place.

Of the 14 wealthy states that benefit from the guaranteed 50 percent minimum Medicaid match, Hillary Clinton won 11. If the dramatic drop in oil and commodity prices in recent weeks persists, the three traditionally red states—Alaska, North Dakota, and Wyoming—that benefit from the statutory floor may no longer do so, should those states’ income decline. In the number of states affected and overall spending levels, the 50 percent minimum Medicaid match encourages overspending by blue states at the expense of federal taxpayers in red states.

In December 2018, the Congressional Budget Office estimated that removing the guaranteed 50 percent Medicaid match would save $394 billion over ten years. If McConnell and his colleagues want to tackle rising federal debt while stopping blue state bailouts, they should amend the Medicaid statute accordingly.

This post was originally published at The Federalist.

How Congress’ Coronavirus Legislation Could See Millionaires on Medicaid

Congress’ urge to legislate quickly on the coronavirus outbreak has resulted in all manner of unintended policy consequences. Numerous reports indicate that the Internal Revenue Service has sent coronavirus relief payments to deceased individualsLarge restaurant chains have received loans from the Paycheck Protection Program intended for businesses that have less access to capital, even as small businesses struggling to survive report being shut out of the PPP.

Even more worrisome than these reports: A series of Medicaid-related provisions that provide a potential steppingstone toward a single-payer health-care system. These provisions not only encourage waste, fraud, and abuse, but will also further entrench government-run health care—the left’s ultimate objective.

Maintenance of Effort Provisions

Section 6008 of pandemic relief legislation the president signed on March 18 provides states a 6.2 percent increase in the federal Medicaid match. But the funds, designed in part to offset states’ revenue loss during the economic downturn, come with a huge catch.

To receive the additional federal funding, states may not adopt more restrictive Medicaid eligibility standards, impose new premiums, or otherwise restrict benefits. These “maintenance of effort” requirements echo provisions included in the 2009 “stimulus” legislation, which also raised states’ Medicaid match. But this year’s bill went even further, prohibiting states from terminating benefits for any enrollee during the coronavirus public health emergency “unless the individual requests a voluntary termination of eligibility or the individual ceases to be a resident of the State.”

In layman’s terms, this provision prohibits state Medicaid programs from terminating the enrollment of individuals with income that exceeds state eligibility limits. For instance, following a scathing report by the state’s legislative auditor, Louisiana last year disenrolled 1,672 individuals with incomes of more than $100,000 from the state’s Medicaid program—including some with income higher than Gov. John Bel Edwards’ salary.

But the provisions Congress enacted in March now prohibit Louisiana, or any other state, from disenrolling these ineligible individuals during the coronavirus outbreak. To put it another way, an individual who enrolled in Medicaid while unemployed could take a new job making $1 million per year, and the state would have absolutely no recourse to kick that individual off of the government rolls, so long as he wants to remain enrolled in “free,” taxpayer-funded health coverage.

Pave the Way for Single Payer?

It doesn’t take a rocket scientist to see how the next president could use these provisions to empower a vast expansion of government-run care. A Biden administration could leave the public health emergency declaration in place for its entire presidency—and would have strong policy incentives to do so. By preventing states from removing ineligible beneficiaries for its entire presidency, a Biden administration could massively expand Medicaid, turning the program into something approaching liberals’ dream of a single-payer system.

The Louisiana experience also shows the direct correlation between eligibility checks, enrollment, and spending on Medicaid. State officials removed at least 30,000 individuals from the program last spring, reducing enrollment in expansion by more than 10 percent, and lowering program spending by approximately $400 million. A Biden administration that prohibits states from removing ineligible beneficiaries for four or eight years would see taxpayers spending billions of dollars funding millions of ineligible enrollees—an enrollment explosion that could prove difficult to unwind.

Don’t Bail Out the States

House Speaker Nancy Pelosi (D-Calif.) has already begun work on the next coronavirus package, with she and her fellow Democrats adamantly insisting that a bailout of states stands next on Congress’ “to-do” list.

But it seems highly disingenuous for Pelosi and Democrats to call for bailing out state budgets, even as they prohibit those same states from removing ineligible individuals from the Medicaid program. Even Gov. Andrew Cuomo (D-NY) has called the new requirements on state Medicaid programs absurd: “Why would the federal government say, ‘I’m going to trample the state’s right to redesign its Medicaid program, that it runs—that saves money?’”

Conservatives in Congress should demand that lawmakers fix the Medicaid provisions, either by allowing states to remove ineligible beneficiaries, setting a specific end-date for the increased federal matching funds, or (more preferably) both. Otherwise, by prohibiting states from purging their rolls of Medicaid enrollees who don’t belong in the program, the United States could find itself with a single-payer system by the back door.

This post was originally published at The Federalist.

Democrats in Congress Won’t Let Andrew Cuomo Fight Medicaid Fraud

Over the past several weeks, Gov. Andrew Cuomo has taken several shots at Sen. Chuck Schumer, his fellow New York Democrat, about the coronavirus “stimulus” bills passed by Congress. Cuomo has repeatedly attacked Schumer for not looking out for their home state’s interests, calling the most recent measure, which cost more than $2 trillion, “terrible” for the Empire State.

The intraparty feuding seems all the more noteworthy for one reason Cuomo found the “stimulus” terrible: It precludes New York from taking steps to right-size its Medicaid program. That senior Democrats in Congress tied the hands of a governor from their own party as he works to enact reforms, and combat fraud, in the costly program speaks to how leftists will fight tooth-and-nail to maintain every facet of the welfare state.

New York’s Medicaid Mess

Even prior to the coronavirus pandemic, New York’s state Medicaid program faced major difficulties. In fiscal year 2018, New York’s Medicaid program spent nearly as much ($74.8 billion) as California’s ($83.9 billion), even though California has more than twice the population (39.5 million vs. 19.5 million for New York).

Some of New York’s high Medicaid spending stems from rampant waste and fraud. A 2005 in-depth investigation by The New York Times quoted a former investigator as saying that 10 percent of all Medicaid spending constituted outright fraud, with another 20-30 percent representing “unnecessary spending that might not be criminal.”

New York’s Medicaid program also spends disproportionate sums on institutional care for individuals with disabilities. The state spends more than twice as much on nursing home care ($5.5 billion) as California ($2.5 billion), despite having less than half the population. New York also exceeds California’s spending on intermediate care facilities for the intellectually disabled.

Smart reforms to Medicaid would attempt to keep individuals in their own homes wherever possible. Paying for home and community-based services would save taxpayers money. More importantly, it would also treat patients in the location the vast majority of patients prefer: Their own homes. Changes to move in this direction, coupled with efforts to fight waste and fraud, would bring long-overdue reform to Medicaid in New York.

Cuomo Tried to Fix the Problem

Prior to the pandemic, New York faced a $6 billion budget shortfall that Cuomo blamed (correctly) on the Medicaid mess. He asked a commission to recommend reforms, and the commission came back with a series of proposals that would save more than $1.6 billion in state dollars during the coming fiscal year, and additional sums thereafter. (Because the federal government provides at least a 50 percent Medicaid match to New York, the changes would save federal taxpayers at least as much as they would save state taxpayers.)

While the recommendations do include across-the-board reductions in provider payment levels, changes to long-term care represent the largest amount of savings ($715 million of the $1.65 billion total). The package includes a focus on home- and community-based services, tightens restrictions on households who attempt to hide assets to have Medicaid cover their long-term care costs, and includes reforms to program integrity as well.

Did Schumer Stop Reform?

As New York’s Democrat governor proposed a Medicaid reform package, what did New York’s senior senator do? By one account he worked to ensure that his fellow Democrat could not enact the needed changes.

As I previously noted, the second “stimulus” bill included a Medicaid bailout for states, coupled with maintenance of effort provisions. These provisions prohibit states from making any changes to eligibility or benefits in exchange for the 6.2 percent increase in the federal Medicaid match (which will last for the duration of the coronavirus public health emergency). States that increase cost-sharing, change benefits, impose premiums—pretty much any change to the Medicaid benefit package, other than arbitrary reductions in provider payments—lose eligibility for the increased federal match.

Cuomo railed against these restrictions: “Why would the federal government say, ‘I’m going to trample the state’s right to redesign its Medicaid program, that it runs—that saves money?’…I don’t even know what the political interest is they’re trying to protect.”

The governor appeared to win the argument—at first. Section 3720 of a draft version of the third “stimulus” bill (beginning at page 394 here) would have amended the second “stimulus” bill to allow New York to go ahead with its reforms, while still receiving the 6.2 percent increase in the federal Medicaid match.

But Section 3720 of the version that made it into law (page 147 here) stripped out the original language that allowed New York to proceed with its Medicaid changes. Rep. Lee Zeldin (R-N.Y.) claims Schumer got the language removed, presumably because he opposes Cuomo’s reform package:

Lee Zeldin

@RepLeeZeldin

Re-upping here for additional background on what Gov Cuomo is talking about right now re FMAP and the stimulus bill.

McConnell offered Schumer exactly what Cuomo asked for on this fix and Schumer rejected it. https://twitter.com/RepLeeZeldin/status/1243210360334815232 

Lee Zeldin

@RepLeeZeldin

Gov. Cuomo just said the stimulus package could’ve & should’ve provided additional support for the NYS budget.

He is right.

Here’s the context not mentioned:

McConnell offered the FMAP language Cuomo asked for & Schumer blocked it, resulting in the loss of SIX BILLION for NY.

Stop Defending Fraudsters

Who exactly nixed the language helping New York, and why, may remain a mystery. But it seems highly unlikely that Senate Republicans would have insisted on its removal. Most conservatives support states’ Medicaid reform proposals, and fought maintenance of effort requirements included in the 2009 “stimulus” and Obamacare that thwarted state flexibility. The objection that led to the New York provision’s removal almost certainly came from the Democrat side of the aisle.

As to why, consider this quote from Politico: “Critics argue…that even if there is some sense in targeting waste and fraud, it also makes sense to raise taxes on the wealthy to support a program that poor New Yorkers rely on.”

Yes, by all means let’s raise taxes during the midst of an economic cataclysm. If we crack down on fraud too much, the fraudsters might go out of business—and they need to eat just like the rest of us!

It’s exactly this kind of mentality that left the United States with $23 trillion in debt (and rising). Cuomo rightly called out the members of his own party for their socialistic games, because the American people deserve better than the left’s welfare-industrial complex.

This post was originally published at The Federalist.

The Tough Cost-Benefit Choices Facing Policymakers Regarding Coronavirus

Right now, the United States, like most of the rest of the world, faces two critical, yet diametrically opposed, priorities: Stopping a global pandemic without causing a global economic depression.

Balancing these two priorities presents tough choices—all else equal, revitalizing the economy will exacerbate the pandemic, and fighting the pandemic will worsen economic misery. Yet, as they navigate this Scylla and Charybdis, some policymakers have taken positions contrary to their prior instincts.

In his daily press briefing Tuesday, Gov. Andrew Cuomo (D-NY) discussed the false choice between the economy and public health. He made the following assertions:

My mother is not expendable, your mother is not expendable, and our brothers and sisters are not expendable, and we’re not going to accept the premise that human life is disposable, and we’re not going to put a dollar figure on human life. The first order of business is to save lives, period. Whatever it costs….

If you ask the American people to choose between public health and the economy then it’s no contest. No American is going to say accelerate the economy at the cost of human life because no American is going to say how much a life is worth.

On this count, Cuomo is flat wrong. Entities in both the United States and elsewhere—including within his own state government—put a dollar figure on human life on a regular basis.

Rationing on Cost Grounds Already Happens

Consider the below statement describing the National Institute of Health and Care Excellence (NICE), a British institution that determines coverage guidelines for the country’s National Health Service (NHS). NICE uses the quality-adjusted life year (QALY) formula, which puts a value on human life and then judges whether a new treatment exceeds its “worth” to society:

As a treatment approaches a cost of £20,000 [about $24,000 at current exchange rates] per QALY gained over existing best practice, NICE will scrutinize it closely. It will consider how robust the analysis relating to its cost- and clinical-effectiveness is, how innovative the treatment is, and other factors. As the cost rises above £30,000 [about $36,000] per QALY, NICE states that ‘an increasingly stronger case for supporting the technology as an effective use of NHS resources’ is necessary.

Entities in the United States undertake similar research. The Institute for Clinical and Economic Review (ICER) also performs cost-effectiveness research using the QALY metric. The organization’s website notes that “the state of New York has used [ICER] reports as an input into its Medicaid program of negotiating drug prices.” In other words, Cuomo’s own administration places a value on human life when determining what the state’s Medicaid program will and won’t pay for pharmaceuticals.

Cost-Effectiveness Thresholds

Cuomo represents but one example of the contradictions in the current coronavirus debate. Donald Berwick, an official in the Obama administration and recent advisor to the presidential campaign of Sen. Elizabeth Warren (D-MA), infamously discussed the need to “ration with our eyes open” While many liberals like him have traditionally endorsed rationing health care on cost grounds, few seem willing to prioritize economic growth over fighting the pandemic.

Conversely, conservatives often oppose rationing as an example of government harming the most vulnerable by placing an arbitrary value on human life. Nonetheless, the recent voices wanting to prioritize a return to economic activity over fighting the pandemic have come largely from the right.

The calls to reopen the economy came in part from an Imperial College London study examining outcomes from the pandemic. The paper concluded that an unmitigated epidemic (i.e., one where officials made no attempt to stop the virus’ spread) would cost approximately 2.2 million lives in the United States. Mitigation strategies like social distancing would reduce the virus’ impact and save lives, but would prolong the outbreak—and harm the economy—for more than a year.

The paper’s most interesting nugget lies at its end: “Even if all patients were able to be treated”—meaning hospitals would not get overwhelmed with a surge of patients when the pandemic peaks—“we predict there would still be in the order of…1.1-1.2 million [deaths] in the US.” Based on the Imperial College model, shutting down the economy so as not to let the virus run rampant would save approximately 1 million lives compared to the worst-case scenario.

A Cost of $1 Million Per Estimated Life Saved

Some crude economic math suggests the value a pandemic-inspired economic “pause” might place on human life. Based on a U.S. gross domestic product of approximately $21 trillion, a 5 percent reduction in GDP—which seems realistic, or perhaps even conservative, based on current worldwide projections—would erase roughly $1.05 trillion in economic growth. The Imperial College estimate that mitigation and social distancing measures would save roughly 1 million lives would therefore place the value of each life saved at approximately $1 million.

Of course, these calculations depend in large part on inputs and assumptions—how quickly the virus spreads, whether large numbers of Americans have already become infected asymptomatically, whether already infected individuals gain immunity from future infection, how much the slowdown harms economic growth in both the short and long-term, and many, many more. Other assumptions could yield quite different results.

But if these types of calculations, particularly when performed with varying assumptions and inputs, replicate the results of the crude math above, policymakers likely will sit up and take notice. Given that Britain’s National Health Service makes coverage decisions by valuing life as worth tens of thousands of pounds, far less than millions of dollars, it seems contradictory to keep pursuing a pandemic strategy resulting in economic damage many multiples of that amount for every life saved.

Tough Cost-Benefit Analysis

Unfortunately, lawmakers the world over face awful choices, and can merely attempt to select the least-bad option based on the best evidence available to them at the time. Slogans like “Why put your job over your grandmother?” or “If you worry about the virus, just stay home” belie the very real consequences the country could face.

Consider possible scenarios if officials loosen economic restrictions while the pandemic persists. Some individuals with health conditions could face the prospect of returning to work in an environment they find potentially hazardous, or losing their jobs. Individuals who stay home to avoid the virus, yet develop medical conditions unrelated to the virus—a heart attack, for instance—could die due to their inability to access care, as hospitals become swarmed with coronavirus patients. And on and on.

The president said on Tuesday he would like to start reopening the economy by Easter, a timeline that seems highly optimistic, at best. If by that time the situation in New York City deteriorates to something resembling Italy’s coronavirus crisis—and well it could—both the president and the American people may take quite a different view towards reopening the economy immediately. (And governors, who have more direct power over their states, could decide to ignore Trump and keep state-based restrictions on economic activity in place regardless of what he says.)

Nonetheless, everyone understands that the economy cannot remain in suspended animation forever. Hopefully, better data, more rapid viral testing, and the emergence of potential treatments will allow the United States and the world to begin re-establishing some sense of normalcy, at the minimum possible cost to both human life and economic growth.

This post was originally published at The Federalist.

Health Law Accelerates a Medicaid Meltdown

Over the weekend, both the New York Times and Kaiser Health News ran stories about the dire warnings being issued from several states regarding their Medicaid programs.  Facing massive budget shortfalls, governors as politically diverse as Florida’s Rick Scott and New York’s Andrew Cuomo are looking to achieve significant savings from their Medicaid programs.

However, the restrictions written into the health care law and the “stimulus” bill (which gave states temporary Medicaid relief) prevent states from reducing their eligibility requirements (i.e., cutting the budgetary coat to meet a state’s fiscal cloth) until the law takes full effect in January 2014.  Arizona’s Governor has already requested a waiver from the requirements, but it’s unclear whether the federal government will approve such a request, from Arizona or any other state.  If the Administration does not, some states may then face other, even more difficult, budgetary choices.  The National Governors Association and Republican Governors Association have both written to the Administration objecting to these “maintenance of effort” requirements, which the RGA said would have “unconscionable” effects.

Kaiser Health News quotes two other possible “solutions” to the Medicaid dilemma, neither of which would have much appeal to most Republicans.  Referring to the Medicaid program, HELP Committee Chairman Harkin suggested that “maybe the federal government should take over the whole thing.” (Remember, these are the folks arguing that the health care law is NOT a government takeover of health care.)  Besides just shifting costs from the states to the federal government, such a one-size-fits-all program would stifle states’ flexibility (not to mention sovereignty) in a way that allows them to generate innovative solutions on health care – including solutions that are more market-based.

The other option floated by several Democrats – including Finance Committee Chairman Baucus, HELP Committee Chairman Harkin, and former Speaker Pelosi – would extend federal Medicaid aid first included in the “stimulus” until 2014.  That however raises two important problems of its own.  First, such a move would cost hundreds of billions of dollars – likely wiping out the purported deficit “savings” from the health care law.  Second, if states’ Medicaid programs are in such a poor state that they require a federal bailout for over five years (the “stimulus” aid was made retroactive to late 2008, and Democrats want to extend it until 2014), why on earth should the federal government be forcing MORE individuals on states’ strapped Medicaid rolls in the years after 2014?

In a story this morning about a new Medicaid advisory commission, Politico quotes commission member Sara Rosenbaum as saying that the advisory body should “not add…one cent to the burden of the states.”  It’s unfortunate that Democrats didn’t take the same tack before imposing the new and onerous unfunded mandates on state Medicaid programs included in the health care law.

Yet Another Unsustainable Program

A Tuesday afternoon quick quiz – what government program are all these quotes talking about?

  • “The money, it seems, is never enough.”
  • “The program’s costs quickly outpaced expectations,” forcing massive new government spending in the middle of a fiscal year.
  • “It cannot continue to grow at this rate,” accounting for a whopping 37% of the budget, up from 21% in 2000 – a near-doubling in just ten short years.
  • It’s “been a so-called budget buster for 25 years.”
  • “If we continue on the same track, it’s a recipe for disaster.”

If you said the health care law, you’d only be half right.  In reality, all the damning quotes above come from a single Boston Globe story about Massachusetts’ troubled Medicaid program, which has needed nearly $600 million in additional cash infusions just since the Commonwealth’s fiscal year started on July 1.  And Massachusetts isn’t alone; the Wall Street Journal reported this morning that New York’s new Governor, Andrew Cuomo, is considering more than $2 billion in reductions to that state’s troubled Medicaid program.

Granted, New York’s Medicaid program has been plagued with allegations of fraud for years, such that cracking down on improper and illegal spending could very well achieve Gov. Cuomo’s savings target.  But at a time when state budgets are already stressed to the breaking point, why is the federal government forcing states to expand their strapped Medicaid programs?  Does the federal government want all states to face the kind of fiscal problems that New York and Massachusetts – two states that expanded their Medicaid programs years ago – are now experiencing?  How will requiring more states to use the same “recipe for disaster” that Massachusetts has cooked up for itself do anything but give struggling taxpayers another bitter pill to swallow?