The Coming Battle Over Medicaid

November 17, 2016


President-elect Trump’s promise to convert the Medicaid program into a state-run block grant has tremendous implications for low-income and disabled Americans and their families. It can also have significant impact on key parts of the healthcare industry including the insurance, hospital, pharmaceutical and nursing home sector as well as physicians, dentists, and home health agencies.

With an annual budget now exceeding $500 billion, Medicaid is the largest single payer for healthcare services in the U.S. According to the Kaiser Family Foundation, Medicaid covers more than 77 million people, including nearly 1 in 3 children under age 19 and 2/3 of nursing home residents. Medicaid’s impact is so broad that it pays for more than half of all births in the U.S.

Since enactment of the Affordable Care Act in 2010, the size of Medicaid has grown by more than 20 million covered lives. To date, 31 states have taken advantage of that provision of the ACA including such “red” states as Indiana, home of Vice President-elect Mike Pence. It’s not clear if Trump plans to wipe out those expansions as part of his pledge to “repeal and replace” the ACA.

Under a block grant, each state would get a fixed amount of money from the feds rather than a percentage of what they spend on care for beneficiaries. The amount would likely be increased each year to reflect inflation in medical costs. Some states worry that such an arrangement would leave them especially vulnerable if the economy turns down. During the Great Recession, as unemployment rose, Medicaid enrollment grew by 12 million people.

States already play a major role in the day-to-day administration of Medicaid. When Congress created the program in 1965, it created a federal entitlement to healthcare coverage for low-income people and the disabled as long as they met income rules set by each state. States were required to contribute to the cost of Medicaid based on a formula that focuses on per capita income. In states with higher income, the federal government matches the state’s contribution dollar for dollar. But in states with lower incomes the federal match goes much higher (in Mississippi, the federal contribution is 74% of total costs or three federal dollars for each state dollar).

In turning the program over to the states, Trump would also cap the federal contribution at a certain dollar amount per state and, most likely, let that number grow by a certain percentage each year. While the initial figure is likely to be quite close to current spending, there is significant concern that time and inflation would eat away at that parity and states would wind up either paying for more of the program’s costs or cutting spending by limiting who is covered or what services they can get.

To assess the impact of a Medicaid cap on parts of the healthcare industry, it is most useful to examine where today’s Medicaid dollars go. As the pie chart illustrates, the lion’s share of the budget goes to managed care plans, nursing homes, hospitals, physicians and other outpatient care facilities (clinics, surgicenters, etc.). All could wind up losers if Congress approves Trump’s proposal. If payments to providers are reduced, more doctors, dentists and others will likely decide to stop participating or cap their patient load.


Trump is not the first President to call for a Medicaid block grant. In fact, Republican Presidents going back to Ronald Reagan in 1981 have included such a proposal in their budget submissions to Congress. House Speaker Paul Ryan (R-Wisc.) has advocated a Medicaid cap for several years, but President Obama vetoed such legislation. President Reagan came closest to accomplishing the deed but was thwarted in Congress by then-Rep. Henry Waxman (D-Calif.), who garnered support from healthcare industry lobbyists and governors from both parties who feared they would be left holding the bag. To preserve the Medicaid entitlement, Waxman swallowed some short-term reductions in federal Medicaid payments to the states. When those cuts expired, the program remained as it was before Reagan took office. In more recent years, Presidents Clinton and Obama argued against GOP proposals to end the Medicaid entitlement by pointing toward the impact on middle class families who rely on Medicaid to help pay for nursing home care for their parents and at-home and institutional care for disabled children and adults.

Now the debate begins anew, and it sounds a lot like those of the past. Lobbyists for the various affected sectors are almost certain to fight the new President on this. As with so many legislative battles, key elements of this fight will be the development of effective messages and use of powerful messengers. In a recent blog posting, Waxman, now a D.C.WH-based lobbyist, advised his former colleagues on Capitol Hill to:

  • Frame their messaging as “fighting on behalf of all Americans to ensure they have access to affordable health care…so the American people understand what’s at stake”;
  • Build coalitions, mobilize Americans, and create new avenues for public expression; and
  • Reach across the aisle to moderate, practically-minded Republicans.

The fight ahead will be pitched. Trump supporters want clear evidence that their votes led to substantial change in the way Washington operates rather than changes around the edges. Repeal of the Medicaid entitlement and transferring power to the states would the kind of change they want. But the half of the country that voted for Hillary Clinton wants Democrats to stand up and fight for programs like Medicaid.

Cabinet Grapevine

As President-elect Trump struggles to put together his Administration the rumor mill for HHS Secretary is constantly changing. The latest list includes several of Trump’s former opponents during the Republican primaries:

Former Louisiana Gov. Bobby Jindal has been the hot rumor of the week. Super smart healthcare policy expert (he ran Louisiana’s Medicaid program in his 20s and advised President George W. Bush in his 30s. His biggest drawback? During his run for the GOP nomination, Jindal called Trump “shallow,” “unstable,” and an “egomaniac.” He could still get the job but would start off way outside the inner circle.

Rep. Tom Price (R-Ga.) is chairman of the House Budget Committee and one of the conservative cast of physicians in Congress. His committee deals with all healthcare programs – Medicare, Medicaid, Obamacare, NIH, FDA, CDC, etc.

Florida Gov. Rick Scott says he’s not interested in a Cabinet post but DC insiders say most serious candidates say that at some point.

Former Arkansas Gov. Mike Huckabee has been mentioned in a few conservative circles but HHS may not be the best match for the social conservative.

Bowing Out: Frontrunner Ben Carson is reportedly bowing out of consideration. A spokesman said, “Dr. Carson does not think he is prepared to run a federal agency.”