If President Donald Trump's plan to extend additional unemployment benefits further squeezes state budgets already ravaged by COVID-19, states could look to Medicaid as a way to cut costs.
Trump's plan via executive order appears to be a double whammy for states. States may now be on the hook for unemployment benefits that until now had been paid by the federal government, and the orders put a screeching halt to negotiations over a congressional deal that could have included more funding or flexibility for states. If things don't improve, states may have to look to Medicaid to close gaps. Prior restrictions mean some of the only options states are left with to balance Medicaid budgets are cutting provider rates or increasing provider taxes.
Manatt Health counsel Allison Orris said that Medicaid provider rate cuts could be especially harmful in a public health emergency because they would target safety-net providers serving the most vulnerable.
"The administration is throwing states a big curveball and adding another budget item as they are struggling to prioritize spending on healthcare and other needs," Orris said.
After negotiations between Democratic congressional leaders and administration officials fell apart last week, Trump signed an executive order authorizing up to $44 billion from the Federal Emergency Management Agency's Disaster Relief Fund to provide a $400 per week supplemental unemployment benefits, but states would be on the hook for 25% of the bill.
Many details of the program remain unclear including its feasibility for states to administer, what happens when federal funds run out, whether states could opt out of the program, and whether states could request to have their portion of fees waived.
Even with the uncertainty, some governors have said their states can't afford the 25% contribution. National Governors Association Chair New York Gov. Andrew Cuomo (D) and Vice Chair Arkansas Gov. Asa Hutchinson (R) issued a statement of on Monday voicing concern about "the significant administrative burdens and costs this latest action would place on the states."
"The concept of saying to states, you pay 25% of the insurance, is just laughable," Cuomo said during a news conference. "It's just an impossibility. So none of this is real on the federal side. This is going to have to be resolved."
The Trump administration cited a recent watchdog report that showed states haven't spent much of the $150 billion in state and local government assistance funds from the CARES Act, and said states should use that money to fund the new benefit.
But the NGA and other organizations representing local governments said the report failed to account for funding that is allocated but not technically spent yet, and that the Treasury Department didn't finalize guidance on spending the funds until the end of the reporting period. A survey by the National Association of State Budget Officers found that states have allocated nearly 75% of the funds.
If states have to come up with the funds somehow and don't get additional assistance from Congress, the unemployment program creates a new budget line item.
"It undercuts existing fiscal relief and puts even greater pressure on healthcare programs like Medicaid and CHIP, which makes states more likely to cut, including provider rate cuts," said Edwin Park, a research professor at the Georgetown University Center for Children and Families.
Provider rate cuts are an area of focus because federal matching funds limit state Medicaid programs' ability to restrict eligibility, increase premiums, or kick beneficiaries off of Medicaid rolls. That leaves states limited options to control spending in Medicaid, one of states' largest expenses.
The providers that would be hardest hit by Medicaid provider rate cuts are the safety-net providers that serve vulnerable populations and generally operate on thinner margins anyway, Manatt's Orris said.
The situation could get worse the longer the economic downturn lasts, and as some states burn through the reserve funds they had built, said National Academy for State Health Policy Executive Director Trish Riley said.
"It's really the perfect storm for states, states now facing rolling back revenues," Riley said. "They have to balance budget, with few choices and Medicaid is often the second biggest part of budget."
Correction: An earlier version of this article incorrectly stated Edwin Park's title. This error has been corrected.