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NGA Chair Tells Obama Medicaid Cuts Eyed In Fiscal Debate Put Expansion In Jeopardy

  • December 11, 2012

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    National Governors Association Chair Jack Markell (D-DE) says he made it clear in a Tuesday morning meeting with President Obama on the “fiscal cliff” that Medicaid funding available to states under current law needs to remain in place for states to go forward with the now-voluntary Medicaid expansion, telling Inside Health Policy he is “really concerned about unintended consequences” if states opt in to the ACA’s Medicaid expansion but funding is later cut. The meeting took place as fiscal negotiators are eying Medicaid funding cuts as part of a broad array of possible options to reduce health care spending.

    “Really the only discussion on Medicaid was, as I mentioned, (we) made it clear that we’re really concerned about unintended consequences with respect to our decision to go do the expansion based on an underlying set of economics, and it be important that that stay the same,” Markell told Inside Health Policy following the governors’ meeting on Tuesday (Dec. 4).

    ACA supporters, just after the election, also stressed that Congress during deficit talks should not tamper with the health reform law’s higher federal matching rates that states receive for expanding their Medicaid programs, arguing that such funding is key to making sure states move forward with the expansion. The ACA says the federal government provides 100 percent of the matching funds for newly eligible Medicaid beneficiaries from 2014 to 2016, after which it begins to decline but does not fall below 90 percent. Still, states have voiced uncertainty that the federal government would actually be able to fulfill those funding guarantees, and have cited that as one of the reasons for being hesitant on expanding their Medicaid programs.

    “This guarantee is essential for governors as they decide whether their programs should cover more low-income adults. It is therefore crucial that upcoming federal budget decisions give governors clear assurances that this funding is stable and won’t be reduced,” Families USA Executive Director Ron Pollack said at the time.

    Markell, who said earlier this year that Delaware would expand its Medicaid program, said the governors did not discuss specific proposals such as a “blended rate” for federal Medicaid matching dollars or lowering the threshold for provider taxes — both proposals that are unpopular among the states yet frequently floated in deficit discussions.

    Markell, when asked whether he was concerned a fiscal deal would change some funding aspect in Medicaid, said, “This is one of the reasons that we wanted to be here. I think lots of things are being considered.”

    Utah Gov. Gary Herbert (R) also said the president pledged to look at governors’ suggestions for giving states more flexibility in Medicaid. Herbert said next year as an association governors would seek to provide suggestions on ways to streamline Medicaid and give more flexibility to states. “It’ll help us balance our budgets and it’ll help the federal government balance their budget,” he said.

    Gov. Mary Fallin (R-OK), vice chair of the NGA’s Executive Committee, also said on a conference call Tuesday that the governors discussed a need to have greater flexibility in their handling of dual eligibles.

    The governors’ meetings with the president and congressional leaders took place as interest grows on Capitol Hill in reforming Medicaid provider taxes.

    Senate Majority Whip Dick Durbin (D-IL) and Republican Sen. Bob Corker (R-TN) last week pointed to reducing or phasing out states’ ability to pull down extra federal Medicaid matching funds by taxing providers as a way to cut the deficit and reform the program, and the Washington Post buoyed their argument in an editorial suggesting that policymakers should take the idea and run. Altering the taxes could save up to $50 billion, depending on the specific policy pursued. The idea faces strong resistance not only from state officials but also from other stakeholders who say that the policy would simply shift more costs to the states.

    “It’s not a solution, it’s passing the buck,” says a Medicaid source opposed to changing the provider taxes. “It’s magical thinking to say that by damaging the ability of states to finance the program we will create efficiencies,” the source adds. State sources recently told Inside Health Policy that many states would prefer delaying the start date of the Medicaid expansion to reducing or eliminating provider taxes, or reducing hospital pay.

    But Durbin and Corker both call the provider assessments a gimmick that should be stamped out. Corker would phase out the policy over a 10-year period, according to the Post, but Durbin has been less specific. The assessments are a “nice move to come up with more state funds to be matched by federal funds, but it’s got to come to an end. That to me is a bit of a surety,” Durbin said last week. However, an aide said that the senator would need to see details of any specific proposal on Medicaid provider taxes before gauging his support.

    Sen. Charles Grassley (R-IA) on Monday (Dec. 3) suggested he was miffed by the Post editorial, noting in a floor speech that the paper took no action when the Bush administration put forth a plan to address provider taxes. But the Iowa senator also acknowledged that dealing with the policy now “will take money from states at a time when the administration is encouraging them to expand Medicaid to cover childless adults.”

    The nursing home industry is also staunchly against proposals to reduce provider taxes. American Health Care Association/National Center for Assisted Living has said that opposing the policy is a top priority item for its lame duck lobbying agenda (see related story), and the Alliance for Quality Nursing Home Care in October said both parties’ proposals to reduce the Medicaid provider tax threshold would reduce already insufficient Medicaid funding and threaten the industry with job losses.

    Policymakers have broached several ways of curbing the use of provider taxes to glean additional federal payment. The president’s budget would have limited the tax threshold from the current 6 percent to 3.5 percent for an estimated savings of $21 billion from 2015 through 2022. Corker’s fiscal plan suggested completely phasing out the process over a 10-year period for a savings of $50 billion, according to the Post, and the Simpson -Bowles plan also suggested fully prohibiting the taxes, for an estimated $44 billion in savings. House Republicans this summer also proposed reducing the tax threshold from 6 percent to 5.5 percent — saving $11.3 billion over 10 years — as a way to avert the sequester.

    Another idea recently proposed by the Center for American Progress would ask HHS to develop a methodology, starting in 2021, under which states with the largest provider taxes would also receive the largest cuts to their disproportionate share hospital (DSH) payments. That policy would save $4 billion, according to CAP. — Rachana Dixit ( and Amy Lotven (