As the U.S. House of Representatives returns from its District Work Period, its top priority will be to assemble its budget reconciliation package. The House Budget Resolution has charged the Committee on Energy and Commerce to produce $880 billion in savings over the next 10 years. The Congressional Budget Office (CBO), the nonpartisan scorekeeper for Congress, has informed leadership and members this level of savings cannot be achieved without reductions in spending levels to the Medicaid program.
With apologies to the poet John Donne, Medicaid is not an island. Any changes to Medicaid will reverberate throughout the federal, state, public, and private sector budgets. The uniquely American health insurance “system” can be visualized as a Rubik’s Cube. Its six sides, in order of participation of 330 million Americans, are:
Large employer coverage (including public sector employers)
Medicaid
Medicare
Small employer coverage
Direct purchase coverage (subsidized and unsubsidized)
Uninsured
The participants in the health insurance system can also be described as one of the sides of a cube:
Patient
Provider
Purchaser (employer, Medicare, Medicaid, self)
Plan
Producer (drugs, durable medical equipment)
Processor (fiscal intermediary, Pharmacy Benefit Manager)
With nine squares on each of the six sides of a Rubik’s Cube, there are 43 quintillion possible arrangements. Turning one side of the cube affects the others. Therein lies the challenge to Brett Guthrie (KY-02), Chairman of the House Energy and Commerce Committee. It will be imperative to consider each tile and side.
Medicaid Pays When Others Don’t
It is useful to review the past to help understand how Medicaid got so big today. Medicaid is well-known as the “payer of last resort.” It is also one of the most useful utility tools of the federal government. The federal government requires states to cover the cost of caring for 11 million low-income seniors and people with disabilities who are on Medicare but cannot afford their cost-sharing obligations. Medicaid pays for Part A deductibles for the first day in a hospital, monthly Part B premiums, and point-of-service Part B coinsurance. In June 2024, the CBO estimated the federal share of Medicaid’s payments for Medicare premiums would total $247 billion over 10 years.[1] The states would contribute another $86 billion. The states contribute about $20 billion to the cost of the Medicare Part D drug benefit. Medicare coverage of long-term services and supports (LTSS) is limited. Medicaid picks up where Medicare stops.
To name a few other ways the federal government relies on Medicaid to meet its federal obligations, consider that it pays for the medical expenses of refugees, asylees, and Lawful Permanent Residents. Medicaid fills in the gaps left by the Indian Health Service (IHS) and for veterans. The Individuals with Disabilities Education Act (IDEA) authorizes programs to provide special education and early intervention services for children with disabilities for them to have the benefits of a “free appropriate public education.” In FY 2024, $15.4 billion was appropriated for IDEA which supports programs for approximately 7.6 million children. It is widely recognized the federal government has never fully funded its share of IDEA which is 40% of the average per pupil expenditure. Current federal appropriations are less than half of the cost. Thus, states and local educational agencies have turned to Medicaid to fill the gaps.
In a speech entitled, “The Root of the Problem: America’s Social Determinants of Health,” Alex Azar, the Secretary of the U.S. Department of Health and Human Services (HHS) throughout the first Trump Administration, declared, “… we believe we could spend less money on health care—and, most important, help Americans live healthier lives—if we did a better job of aligning federal health investments with our investments in non-healthcare needs.”[2]
In the forward to Community Health and Economic Prosperity: Engaging Businesses as Stewards and Stakeholders—A Report of the Surgeon General, Azar penned, “healthier people means a stronger economy, but a stronger economy also means healthier people. Those who care about both health and prosperity -–in the public and private sectors—must recognize this connection and engage on both causes.”[3]
The discussion of Medicaid reductions should, therefore, open new discussions about the investments in non-healthcare needs. The Temporary Assistance to Needy Families (TANF) block grant has been locked in at $16 billion for nearly 20 years. In 2000, there were 12.9 million people below 50% of the federal poverty level or 4.5% of the total population. In 2023, there were 17.2 million people below 50% of the FPL or 5.2% of the total population. In 2000, there were 43.6 million people with income below 125% FPL, compared to 48.9 million in 2023.[4]
In addition to paying direct benefits to families in poverty, TANF may be used by states for emergencies and social services. The Social Security Block Grant (SSBG) is a capped entitlement to the states. The federal government has provided funding for social services under various titles of the Social Security Act for nearly 70 years. States may use the SSBG for a wide variety of purposes “… promoting self-sufficiency; eliminating dependency; preventing abuse, neglect, or exploitation of children and adults; reducing inappropriate institutional care; and supporting institutional care, when appropriate.”[5] At its highest appropriation level, the SSBG provided states with $2.8 billion. The ceiling is now $1.7 billion and has not been raised since 2002.
The recent histories of the Maternal and Child Health Block Grant (Title V of the Social Security Act) and the Mental Health Block Grant show a similar pattern of less federal funding for these programs. If social needs are indeed hidden as medical costs, history invites two questions: “did Medicaid spending go up because spending for these other programs went down?” And “if Medicaid spending goes down, will other types of spending need to go up?”
Any significant reductions in federal support for Medicaid will have far-reaching implications. Medicaid is a grant to the states. Thus, it will be left to the governors and state legislatures to navigate through uncharted waters. Changes to Medicaid will have more than an impact on state budgets. They will also economically impact states and communities along with families and providers.
As many have experienced, solving a Rubik’s cube can often be a daunting and overwhelming task. Some might even admit to trying to pull the stickers off and placing them on the other side when attempting to shortcut the solution. Reflecting on complexity often brings fraud, waste, and abuse to mind. With the many sides and squares and far-reaching and often unidentifiable outcomes, government programs like this are often challenged in the areas of mitigating fraud, waste and abuse, especially when agencies are operating with talent and capacity gaps.
HORNE has over 60 years of Medicaid and social needs funding expertise and has developed fraud risk identification and prevention expertise through decades of oversight of federal and state funds and applications. Our team comprises certified public accountants, attorneys, certified fraud examiners, former federal OIG and IRS investigators, former state Medicaid directors, GIS analysts, data modelers and data visualization experts with decades of program oversight and program management experience. These leaders have monitored more than $110 billion for various federal and state programs. They can deploy this expertise to enhance innovation, rapid deployment, oversight and accountability for outcomes to benefit vulnerable populations, while ensuring program integrity and reporting of transparent impacts.
