Major cuts to Medicaid remain a mystery

By Raymond J. Castro, Senior Policy Analyst

Governor Christie spent little time in his budget address talking about Medicaid cuts, but what he did say raised as many questions as he answered.  The Christie administration proposes to cut state funding to Medicaid by $550 million, which may well be the largest reduction in the state’s funding of the program since it was established a half century ago. If federal matching funds are also lost, as expected, the total cut in Medicaid could reach a staggering $1 billion.

Medicaid cuts in other states have received more coverage than those proposed by Gov. Christie, largely  because the governors in those states have been more direct about where those cuts will be made. Governor Christie has specified how $250 million of the cuts will be made. They range between creating more efficiencies such as making more use of managed care in HMO’s, to direct service cuts like terminating Medicaid for 1,400 childless adults below the poverty level. But the other $300 million in proposed cuts are lumped into savings from “a $300 million global waiver to reform Medicaid,” and he has yet to explain what the phrase actually means.

The term “global waiver” usually refers to a waiver given the state of Rhode Island in the last waning days of the Bush administration. That waiver converted Medicaid into a block grant, or a lump sum payment. In other words, the state was given maximum flexibility to change how Medicaid services were delivered in Rhode Island in exchange for an agreement to place a cap on federal expenditures over a five-year period. This was a radical change in how Medicaid operates because federal funds have always been open-ended entitlements- the federal government has always matched whatever states spent for medical assistance regardless of the amount and need for assistance.

It seems highly unlikely the Obama administration would approve another Rhode Island type waiver for New Jersey, given its radical departure from current federal policy and the elimination of requirements that are intended to protect Medicaid beneficiaries. However, the administration has indicated to states that it wants to work with them to curb Medicaid expenditures. It is therefore possible that the Obama administration might approve some sort of waiver for New Jersey that would change the current structure of Medicaid to provide the state with more flexibility.

On the surface this might seem like a good idea. But the question that must be asked is: flexibility to do what?

Historically, federal waivers have been used to improve services or make them more cost-effective. A state, for example, may want to waive federal requirements to make it easier to care for individuals in the community rather than institutionalizing them. This could benefit the individual needing care and reduce state costs – a win-win situation.

But the likelihood of the state achieving $300 million in savings through efficiencies alone is slim. It is more likely cuts in services or eligibility would be needed to achieve the full measure of a $300 million reduction. It seems likely that direct care cutbacks would be part of the waiver, because the Governor has clearly and publicly stated his opposition to the mandate in federal health reform called a maintenance-of -effort requirement intended to prevent states from cutting Medicaid eligibility.

The Christie administration justifies these cuts by claiming Medicaid expenditures are out-of-control. But are they?

Medicaid is an expensive program. Nearly 1 million New Jerseyans- mostly seniors, the disabled and children – rely on it for all of their health care needs. Funding has grown at a higher rate during the recession, which is understandable given increased need and the loss of health coverage in families where breadwinners have lost their jobs.

But funding has grown far less than might be expected given the exceptionally high unemployment rate.  Total federal and state Medicaid expenditures in New Jersey increased by an annual average of 4.5 percent in the first three years of the economic downturn (fiscal years 2008-2010).

Also, during that period, state expenditures went down because they were offset by federal stimulus funds. Other states have experienced much higher demand for increased services. Further, New Jersey’s Medicaid expenditures since 2003 have been consistently below the national average as has their share of the state’s General Fund expenditures.

It is also inappropriate to argue that the elimination of about $1 billion in federal stimulus funds should trigger Medicaid cuts. The federal government simply used Medicaid as the most convenient vehicle to distribute fiscal relief to states, and most of those funds delivered to New Jersey were used to balance the state’s budget- not to offset increased Medicaid costs.

It is important that the Christie administration share the details of the proposed waiver with the public and the Legislature before there is a budget agreement.  And any waiver should establish as a basic principle that the waiver will be used to improve services in a cost effective manner, not reduce the number of people eligible for Medicaid. If that is not possible, the savings generated from the waiver should be lowered in the budget and other cuts should be made or new revenues identified. Medicaid is the ultimate health safety net in New Jersey. It should be strengthened, not weakened.