The Medicaid Cliff

Note: This transcript has been created with a combination of machine ears and human eyes. There may be small differences between this document and the audio version, which is one of many reasons we encourage you to listen to the episode!

Dan Gorenstein: As the coronavirus pandemic continues to batter the economy and push at least 30 million people out of work, two things have become all but certain.

One: The country’s economy is in freefall, leaving states short on money. 

And two: A lot of people are already turning to Medicaid for health care, with millions more expected to sign up. 

As states careen toward this head-on collision today, we look back to see what lessons we can learn from when states squeezed their Medicaid programs during the Great Recession.

From the Annenberg Studio at the University of Pennsylvania, I’m Dan Gorenstein, and this is Tradeoffs.

Imagine: Your job is to put out fires, many fires a day, every day. And each day, you see even bigger blazes on the horizon. 

Welcome to MaryAnne Lindeblad’s world. 

MaryAnne Lindeblad: What are the things that we need to think about? How do we want to approach this, what makes sense? 

DG: MaryAnne runs Washington’s Medicaid program, which today serves 2 million people. 

But more than 5,000 each week are signing up as people get laid off and lose their insurance. 

ML: I think we can pretty much be assured that we’re going to be covering many more individuals under Medicaid three to six months from now.

DG: Medicaid covers some of the country’s most vulnerable: low-income families, people with developmental disabilities, people struggling with schizophrenia and opioid addiction.

States each run their own programs and split the $600 billion price tag with the federal government, which picks up more than 60% of total costs.

One of MaryAnne’s biggest fires right now is the financial health of the places where people in the program go to get care.

When the pandemic hit, patients stopped going to doctor’s offices and clinics, pushing some of those providers to the financial edge.

ML: That’s been a huge issue. How do we make sure that our providers are viable? How do we get some monies to the rural hospitals? Making sure that our mental health providers and our substance disorder providers can continue to connect with members.

DG: MaryAnne needs cash. She needs it to help providers keep the lights on. She needs it to pay the bills for the growing number of people in the program. But she knows money is going to be tight with Washington state looking at a major budget shortfall.

And if there’s anything MaryAnne knows after working in Medicaid for 30 years, it’s that Medicaid is a go-to target for lawmakers when they need to pinch pennies. Her $9 billion dollar budget will be scrutinized. 

ML: We know that we’re going to have to really be very mindful of expenditures and budgets, but we’ve not started those discussions yet. I’m sure at some point we will be starting those discussions.

DG: Medicaid directors felt this same pressure during the nation’s last recession.

CBS News: The Dow tumbled more than 500 points…

DG: The Great Recession forced about 6 million people nationwide onto Medicaid and led to about half a trillion dollars in state budget shortfalls. 

There are a few obvious lessons that apply to the COVID pandemic. 

First:

Tom Betlach: When you have to cut Medicaid, you have limited options.

DG: Tom Betlach took over as Arizona’s Medicaid director at the start of the Great Recession.

The options he had more than a decade ago are the same options states have today.

TB: The three levers in terms of creating immediate savings are: What do you do on benefits, what do you do on rates, and what do you do in terms of coverage? And in Arizona, we cut all three.

DG: Arizona lost a third of its revenue in the downturn, and people poured into Medicaid. 

TB: We grew by 350,000 members over the course of about a year and a half, which is like in Arizona, adding a small city every month.

DG: The state stopped paying for things like organ transplants and dental coverage for adults. Arizona slashed what they paid doctors, hospitals and addiction counselors by 15 percent. And they stopped letting kids from some poor families get coverage. Across the country, nearly a third of all states cut benefits, and almost all of them froze or reduced what they paid to providers.

TB: Those were the types of really challenging, awful decisions that we had to make, and trying to get an organization whose really singular mission is providing comprehensive quality health care for those in need to accept that as the only route that we had available to us was an incredible challenge.

DG: Lesson number 2: A federal bailout can be a beautiful thing.

Tom says he and his staff would have had to make even deeper cuts had it not been for the big 2009 stimulus package. 

President Barack Obama: The American Recovery and Reinvestment Act that I will sign today is the most sweeping economic recovery package in our history.

DG: The feds gave states an extra $100 billion for Medicaid, as long as states didn’t make it harder for people to qualify.

It’s a move Congress was quick to repeat this time around.

MSNBC: Tonight Trump signed the emergency coronavirus aid bill just hours after it was passed by the Senate…

DG: This March, Congress agreed to send states about $50 billion over the next year, as long as states don’t make it harder to qualify or cut benefits. 

But Medicaid directors are urging Congress to keep its foot on the gas. That’s because when federal dollars stopped flowing in the summer of 2011, states suffered. 

TB: There, in essence, was a cliff that states fell off of, and as that additional federal assistance went away, now, all of a sudden, the states had to backfill that loss of federal funds.

DG: The fallout from this fiscal cliff provided the third and perhaps most important lesson from the Great Recession.

Without the additional federal support, almost every state cut provider rates even further. Several states added or increased co-pays for some of its members. In Arizona, the state stopped enrollment in its program for low-income adults without children.

TB: Individuals who may have been homeless, who may have had a serious mental illness or substance use disorder issues.

DG: Ultimately, over the next two years, enrollment shrank in this program from 220,000 people to less than 70,000. 

TB: People that might have been in the midst of cancer treatment that didn’t complete their paperwork, fell out of coverage, and there was nothing we could do about it but say, “Maybe you can go to your hospital and see if they’ll provide you some uncompensated care.” So yes those are the types of decisions we had to make in the Medicaid program during the last recession. They were shitty decisions and they were awful.

DG: The natural question Medicaid directors and policymakers are asking themselves today in 2020 is, what was the impact of those Great Recession cuts? 

Did mortality rates shoot up? Did providers close down? 

Knowing that would help inform the decisions facing them now. 

As much as people may want those answers, though, Harvard Medicaid researcher Ben Sommers says they don’t exist.

Ben Sommers: It’s much harder to study this than you would think.

DG: Ben says that’s because there was so much else going on at the time on top of changes to Medicaid — people were losing their jobs, their homes.

BS: None of these changes were happening in isolation, which makes it really hard from a research perspective to say, well, this is the cause and this is the effect.

DG: But Ben says there is a lot of useful evidence from the Affordable Care Act thanks to the expansion of Medicaid.

Back when the ACA first passed, reasonable people debated if having Medicaid actually improved someone’s health. 

BS: As of 11, 12 years ago, there just wasn’t much good data on this.

DG: But over the last few years, there have been more than 400 studies looking at different impacts of states expanding their Medicaid programs.

So here’s what we know:

Much of that research shows people with access to Medicaid are more likely to be financially stable than if they are uninsured, and Ben points to a growing number of papers concluding that people are healthier, too. 

BS: Appendicitis? Check. Cancer diagnosis, depression outcomes, mental health? Check. Chronic diseases like diabetes and chronic kidney disease and dialysis? Check. Overall survival. Yes.

DG: We’re unlikely to see many people losing their Medicaid, for now.

But if additional federal assistance goes away, there could be a repeat of that big cliff states fell off in the Great Recession.

If that happens, Ben says we will backslide, and he argues if giving people Medicaid has made them healthier, taking it away will make them less healthy.

BS: It’s a fair caveat to say it’s not going to be an exact prediction of how this unfolds in reverse. But it’s still probably the best evidence we have that there will be substantial health impacts if millions of people lose coverage.

DG: That’s why states are pressing the federal government to increase its share of Medicaid spending even more and to extend it beyond this pandemic.

The National Governors Association and the National Association of Medicaid Directors each sent letters to lawmakers in April asking them to nearly double their initial increased support and keep it in place until state economies have bounced back.

DG: Okay, one final lesson, and it’s about the economy.

Helen Levy: During the recession, the federal government realized that increasing the amount of Medicaid money that states had was a very effective form of stimulus.

DG: Helen Levy is a health economist at the University of Michigan.

She says there’s evidence from both the Great Recession and the ACA that makes it clear to her that when the federal government sends more money to states for Medicaid, that money creates jobs.

HL: It goes right into the bloodstream. We know it helps the people who gain coverage. We know it helps the hospitals that treat the people who need that coverage. And we also know it’s an effective way of providing fiscal stimulus for the economy as a whole.

DG: Helen points out that researchers have not found proof of this in every state.

And increasing the fed’s Medicaid bill could add hundreds of billions of dollars just this year to the country’s mounting debt.

But the evidence is pretty clear now that Medicaid is a good investment in people’s health and state economies.

Still, there is a long line of people looking for a bailout — hospitals, businesses, laid-off workers.

Whether Congress picks Medicaid and learns the lessons of the past is far from a guarantee.

I’m Dan Gorenstein, this is Tradeoffs.