Safety net providers wary about Medicaid's place in debt talks

As Congress and the White House brace for intense deficit-reduction negotiations, the nation's safety net providers are anxious about what changes might be in store for Medicaid.

On Friday, House Speaker John Boehner said lawmakers must consider revenue and spending in their attempt to reach a grand bargain on reducing the nation's federal deficit. A few hours later, President Barack Obama said the plan he highlighted during his re-election campaign calls for lowering the deficit in a “balanced and responsible way.”

“Last year, I worked with Democrats and Republicans to cut a trillion dollars' worth of spending that we just couldn't afford,” the president said in his remarks. “I intend to work with both parties to do more—and that includes making reforms that will bring down the cost of healthcare so we can strengthen programs like Medicaid and Medicare for the long haul.”

Although the Medicaid program is exempted from the automatic spending cuts scheduled for next year through sequestration, the nation's safety net hospitals are worried that Medicaid might take a hit down the road, especially if lawmakers avert sequestration with a short-term fix.

“You'd need about $60 billion to get a six-month delay,” said Shawn Gremminger, assistant vice president for legislative affairs at the National Association of Public Hospitals and Health Systems. “That's where we're at risk. They have to do something to pay for this.”

One potential target is the Medicaid provider tax, which the National Commission on Fiscal Responsibility and Reform—led by former Sen. Alan Simpson (R-Wyo.) and Erskine Bowles, former White House chief of staff during the Clinton administration—referred to as a tax gimmick.

“Many states finance a portion of their Medicaid spending by imposing taxes on the very same healthcare providers who are paid by the Medicaid program, increasing payments to those providers by the same amount and then using that additional 'spending' to increase their federal match,” the panel noted in its deficit-reduction report nearly two years ago. “We recommend restricting and eventually eliminating this practice.”

As Gremminger explained, the current threshold on the Medicaid provider tax is 6%, and recent proposals on Capitol Hill suggest lowering that threshold to 5.5%, which the nonpartisan Congressional Budget Office estimates could save the federal government about $10 billion over 10 years. Gremminger said his organization is worried that this is definitely on the table as a cost-cutting measure. In the coming weeks, the NAPH staff intends to meet with congressional staff on the Senate Finance Committee and House Energy and Commerce Committee about the issue.

“Any changes to provider tax policy in D.C. would have significant impacts on state budgets and state Medicaid programs,” Gremminger said.