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Thursday, January 24, 2013

Proposals to Reduce Federal Medicaid Expenditures

Alison Mitchell
Analyst in Health Care Financing

Medicaid is a means-tested entitlement program that finances the delivery of primary and acute medical services as well as long-term services and supports (LTSS). Medicaid is jointly financed by both the federal government and the states. The federal government’s share for most Medicaid expenditures is called the federal medical assistance percentage (FMAP), and under the FMAP, the federal government pays a larger portion of Medicaid costs in states with lower per capita incomes relative to the national average (and vice versa for states with higher per capita incomes).

Federal Medicaid funding to states is open-ended, and in a typical year, the federal government funds 57% of the total cost for Medicaid. In FY2012, federal Medicaid expenditures accounted for almost 8% of all federal spending. As a result, controlling federal Medicaid spending has been a focus of deficit reduction and budget proposals.

The National Commission on Fiscal Responsibility and Reform’s final report included savings from Medicaid totaling $58 billion over 10 years. The provisions with Medicaid savings included eliminating states’ ability to fund Medicaid through provider taxes and covering dual-eligibles under managed care arrangements.

The Bipartisan Policy Center’s Debt Reduction Task Force estimated its proposals would reduce federal Medicaid expenditures by about $25 billion over 10 years. The task force proposed removing barriers for states to use managed care to cover dual eligibles and limiting the growth in Medicaid expenditures by changing the structure of Medicaid financing.

The President’s FY2013 budget included a number of Medicaid provisions estimated by the Administration to reduce federal Medicaid expenditures by $56 billion over the next 10 years. The Medicaid provisions in the President’s budget included limiting states’ ability to utilize provider taxes, implementing a blended FMAP rate, limiting Medicaid reimbursement of durable medical equipment, and “rebasing” Medicaid disproportionate share hospital (DSH) payments.

The House FY2013 Budget Resolution (H.Con.Res. 112), based on Representative Ryan’s Path to Prosperity: A Blueprint for American Renewal document, proposed restructuring the Medicaid program from an individual entitlement to a block grant and repealing the Patient Protection and Affordable Care Act (ACA). Together these provisions are estimated to reduce federal Medicaid expenditures by $1.4 trillion from FY2013 to FY2022.

In November 2012, the Congressional Budget Office (CBO) published the document Choices for Deficit Reform, which provides the following options to reduce federal Medicaid expenditures: repealing the ACA Medicaid expansion, converting the federal share of LTSS into a block grant, and reducing the FMAP floor. Together, CBO estimated these options would reduce federal Medicaid expenditures by $156 billion in FY2020.

This report provides some background about Medicaid, including information about Medicaid expenditures. Then, the report explains the major proposals to reduce federal Medicaid expenditures. These proposals include repealing the ACA’s Medicaid expansion, restructuring Medicaid financing, reducing or eliminating states’ use of provider taxes, reforming the FMAP, changing coverage options for dual eligibles, reducing federal Medicaid DSH allotments, and limiting Medicaid reimbursement for durable medical equipment.

Date of Report: January 10, 2013
Number of Pages: 28
Order Number: R42893
Price: $29.95

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