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Trump’s audacious new plan to cut Medicaid, explained

The Trump administration wants to put new spending caps on Medicaid.

President Donald Trump, flanked by top health officials Alex Azar (left) and Seema Verma (right), would allow states to set up Medicaid block grants under a new proposal.
Alex Wong/Getty Images
Dylan Scott covers health care for Vox. He has reported on health policy for more than 10 years, writing for Governing magazine, Talking Points Memo and STAT before joining Vox in 2017.

President Donald Trump’s administration is taking its most audacious step yet to roll back Medicaid, with a new plan that would cap spending for the government program upon which poor Americans depend for health insurance.

The Centers for Medicare and Medicaid Services announced on Thursday they would accept applications from states that want to set up a Medicaid block grant, a long-held goal of ideological conservatives who want to scale back the social safety net, and one deployed successfully to severely limit cash welfare benefits in the 1990s.

These spending caps would fundamentally change how the program is financed, ending Medicaid’s days as an open-ended entitlement by putting new hard limits on how much the government is willing to spend on health care for certain enrollees. Medicaid would no longer pay whatever is necessary to provide medical care to the people in or near poverty who qualify for its benefits. Instead, spending would be limited in states that got a waiver from the federal government, and they could impose cuts on benefits.

Trump has already tried to fundamentally alter the Medicaid program through work requirements, though he’s been stopped in the courts. But the block grants represent an even more basic remaking of Medicaid on his watch, one that would lead to spending cuts and fewer benefits.

The block grants are also, like work requirements, a roundabout way to roll back Obamacare’s expansion of Medicaid specifically. Under the guidance released by CMS, it would be benefits for people newly eligible under the health care law — mostly childless adults and parents who are living in or near poverty — that would be subject to the block grants. In that context, despite Trump’s campaign promise not to cut Medicaid, these policies make sense as a means to an end for the conservatives whom Trump has put in charge of his health department.

Block grants could run into trouble in the courts, just as Medicaid work requirements already have, if judges find they are contrary to the purpose of the Medicaid program (which is supposed to be providing medical benefits to vulnerable people).

But Trump’s latest steps to pare back Medicaid, taken early in an election year, are a reminder that his administration has proven steadily committed to cutting federal health care spending.

The Trump administration is opening the door for states to cut Medicaid

Right now, Medicaid is an open-ended entitlement program. Depending on how many people are eligible in any given year and how many medical services they require, states receive as much federal funding as it takes to cover 50 percent to 75 percent of the cost for the traditional Medicaid populations (like kids, the elderly, the disabled, and pregnant woman). For people covered by the Medicaid expansion, generally working-age adults, the federal government contributes 90 percent of the total cost, whatever it might be.

But under a block grant, that would change. States would get a fixed amount every year from the feds to cover the expansion population. In the ultimate end state of a block-granted Medicaid, the federal share would be indexed to inflation, usually at a rate that would grow slower than medical costs. So over time, the federal share of Medicaid funding would start to decrease, a cut in spending relative to current law. States could make up those shortfalls by administering the program more efficiently (as conservatives claim they can do) or by reducing benefits and enrollment (as advocates fear they will).

Conservatives say block grants are a good way to rein in government spending (Medicaid is one of the biggest federal line items) and to give states more control of the program (it has always been a shared state-federal responsibility) to make it work best for their populations. In practice, the likely effect is lower Medicaid spending and fewer benefits.

Tennessee is one of the states that has already proposed a Medicaid block grant and sought the Trump administration’s approval. One analysis projected what would happen to spending for children covered by Medicaid if the Tennessee proposal took effect across the whole country and found a 16 to 24 percent cut, a reduction of $150 billion or more, over 10 years. Previous estimates of Republican block grant legislation showed billions of dollars in Medicaid cuts over time and millions fewer people enrolled in Medicaid.

The effect of a block grant as outlined in the Trump administration’s new guidance might not be quite so dramatic, as CMS is limiting the proposals to the expansion population and they are optional for states. Those prior iterations were more sweeping. But the effect should be expected to be the same direction: cuts to Medicaid expenditures and benefits. States would be permitted to limit prescription drug coverage under these waivers. (The Trump administration, surely mindful of potential lawsuits, says it will require states to track the effect of the spending caps.)

Trump’s record on Medicaid is quite clear: His administration continues pursuing legally dubious changes that would scale back the program. Before courts put them on hold, his work requirements led to 17,000 people in Arkansas losing Medicaid benefits, without any noticeable improvement in employment.

What’s surprising is how it conflicts with his campaign promise to leave Medicaid alone as president — and with the American public’s improving opinion of the program.

Medicaid is popular but Trump keeps trying to cut it anyway

A few states seem likely to take up Trump’s offer. Tennessee has already signaled its interest. Oklahoma and Missouri are two other states that Medicaid advocates are keeping an eye on. But it’ll be interesting to see whether there is much more interest in actually taking this dramatic step to curb Medicaid spending — because Medicaid has proven quite popular.

The polling on proposals like Medicaid work requirements and block grants can be complicated. Americans tend to like the abstract ideas of “state flexibility” and people being required to work to receive benefits. But when they are told about problems that could arise, and the bare reality that these proposals would likely lead to fewer Medicaid benefits, their popularity tends to drop.

Block grants aren’t particularly popular with the American public, while Medicaid is. Even Republicans are mixed on the idea.

Kaiser Family Foundation

Trump seemed to recognize this when as a candidate he lumped Medicaid together with Medicare and Social Security when naming programs that would be off limits for his administration. He even noted this made him an outlier among Republicans. But he has put diehard conservatives in charge of his health department, and they keep rolling out policies that would unavoidably cut Medicaid.

And it keeps putting Trump in an uncomfortable position on health care, one of his toughest issues, heading into a 2020 election where the stakes for health care will be high. Somebody is going to challenge the Medicaid block grants in the courts, guaranteeing this will be a live issue heading into November. A Democratic president would be the end of Medicaid block grants and work requirements.

Democrats are talking about expanding government health programs, whether Medicaid or Medicare. Trump keeps proposing different ways to cut them. He even softened recently on his commitment to leaving Medicare alone, which seemed unthinkable given how old most of his base is.

But this has been the fundamental paradox of Trump’s health agenda. His instincts are populist — he once promised health care for everybody, he has accused drug companies of “getting away with murder” — but his agenda as president has been commandeered by conservative ideology. The latest proposal for Medicaid block grants is just another example.

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