State report details steep cost of potential federal Medicaid cuts for Michigan
Lansing — As the U.S. House plots cuts to the federal government's health care spending, Michigan officials have calculated the potential risk of doing so to low-income Michiganians receiving Medicaid and found one congressional proposal, based on plans floated so far, would rescind coverage for up to 500,000 recipients.
The state report released last week by the Michigan Department of Health and Human Services was prepared in response to an April executive directive from Gov. Gretchen Whitmer, who ordered the department to calculate potential risks to Michigan's Medicaid program.
Michigan's Medicaid program serves about 2.6 million people, about a quarter of the state's population, including 1 million children, 300,000 people with disabilities and 168,000 seniors. About 1.9 million Michigan Medicaid enrollees qualify for traditional Medicaid and 749,000 receive coverage through a state-specific Medicaid expansion created in 2014 called the Healthy Michigan Plan.
Michigan's Medicaid budget for fiscal year 2025 stands at about $27.8 billion, with roughly $19 billion of that total provided via federal dollars.
Whitmer, who has been relatively muted in her criticism of the Trump administration in his second term, released a series of statements and social media posts over the past week raising concerns about the impact of the federal Medicaid cuts for children, seniors and low-income adults.
The state Department of Health and Human Services said Monday that more than 5,000 statewide community partners registered for virtual briefings on what the menu of Medicaid cuts could mean for Michigan.
"Michiganders will suffer because these proposed cuts go too far, too fast, and everyone, including those not on Medicaid, will end up paying more for their insurance," Whitmer said Wednesday. "Republicans in Congress cannot let this happen."
U.S. House Republicans are expected to hold a series of hearings this week on plans to seek at least $1.5 trillion in savings to cover the cost of preserving 2017 tax breaks. Among the various committees advancing plans, the Energy and Commerce Committee is tasked with generating about $880 billion in savings, largely through health care cuts and some rollbacks of the Biden administration's green energy programs.
About $715 billion of the current $912 billion plan under consideration by the U.S. House committee would come from health care cuts, including through implementation of Medicaid work requirements and decreases to state-level medical provider taxes that help states match federal spending on the program.
Republican U.S. Rep. Brett Guthrie of Kentucky, chairman of the House Committee on Energy and Commerce, said Monday that the GOP's Medicaid reforms would refocus the program on providing health care to disabled adults, children and seniors "not illegal immigrants and capable adults who choose not to work."
"It is reckless that my colleagues on the other side of the aisle claimed an artificially high number in alleged coverage loss just so they can fear-monger and score political points," Guthrie said in a statement.
In its report last week, the Michigan Department of Health and Human Services explored four categories of possible federal cuts to the Medicaid program, based on actual proposals and rumored cuts at the federal level. Those four categories include: A reduction in federal match rates, the implementation of Medicaid work requirements, limits on provider taxes, and the implementation of per-capita caps or block grants.
Heading into Tuesday, House Republicans appear to be focused more on work requirements and provider tax limits, and have scaled back or eliminated proposals that would reduce federal match rates for state Medicaid expansion programs and place per-capita caps on federal funding, the Associated Press reported Monday.
The current plan also includes proposed cuts in federal funding for groups like Planned Parenthood, a ban on using Medicaid funding for gender-affirming care for youth and limits funding states covering undocumented people, according to Politico.
Dominick Pallone, executive director of the Michigan Association of Health Plans, which represents health insurers that manage Medicaid plans for the state, said the group is still analyzing the plan released by House Republicans Sunday night to determine potential ramifications for Michigan. While some of the governor’s report already is irrelevant based on rapidly changing plans at the federal level, Pallone said he was appreciative of the effort to assess Michigan’s vulnerability.
“There’s a number of concerns they lay out,” Pallone said. “Large cuts to the Medicaid program would create a lot of instability if those cuts were to come to fruition.”
Medicaid work requirements could be implemented
One of the plans advanced by House Republicans would require Medicaid recipients to spend a certain number of hours a month — about 80 — searching for a job, performing some type of service, or participating in an education program. In order to maintain coverage, enrollees would have to provide documentation of such to a state agency.
A state-level version of the mandate, often referred to as Medicaid work requirements, was signed into law in Michigan in 2018 but was largely halted by a federal court order in 2020 and repealed by Democrats last year.
When Michigan began implementing its plan in 2018, officials anticipated it would cost about $70 million to administer and would eliminate roughly 100,000 enrollees during the first year of implementation.
The exact requirements under the federal plan have yet to be revealed. But the state report estimated that the federal version could cost $75 million to $155 million to administer and result in a loss of coverage for 290,000 to 512,000 individuals, depending on whether the requirements are imposed just on the Healthy Michigan population or Michigan's entire pool of Medicaid enrollees.
Lawmakers eye provider tax limits
Like other states, Michigan generates some of its state-level Medicaid match by taxing providers between 5% and 5.5%, then using that revenue to reimburse the providers based on patient volume. That tax revenue helps to boost Michigan's match total, so much so that about 20%, or about $3 billion, of the state's Medicaid match funding comes from the provider tax.
Critics of the provider tax system have said the tax artificially inflates the state's contribution and triggers higher payments from the federal government.
According to the state report, rumored plans for the provider tax would limit it in various ways: One would lower the tax cap to between 3% and 4%, another would cap how much of the provider taxes could be used for the state's Medicaid match, and a third would eliminate states' ability to use provider tax revenue to finance their Medicaid programs.
Currently, Michigan's roughly 5% hospital provider tax generates about $5.8 billion annually; if the cap were lowered to 3%, the hospital tax revenue would decrease to $2.3 billion, according to state data.
“These potential reductions would not only weaken the state’s ability to draw down federal funds but could also destabilize hospital finances, particularly in rural and safety-net facilities, and increase the risk of service cuts or closures," the report said.
Implementing per-capita caps
A third change contemplated by House Republicans and analyzed by the state Department of Health and Human Services would alter the basis for federal Medicaid funding, possibly costing the state between $4.1 billion and $13.4 billion in federal contributions over the next 10 years. The change, while contemplated early in negotiations, is not in the most current House Republican plan released Sunday.
Currently, the state receives federal matching funds based on the cost of providing service, a match that is guaranteed regardless of whether costs goes up or if an outcome isn't achieved, according to the state report.
Potential changes to the federal match would limit those reimbursements by implementing a per-capita cap or through a block grant program. Both options would limit the state's ability to respond to enrollment fluctuations, cost inflation, or changing needs. The MDHHS report said it would effectively "shift financial costs and risks to states."
The exact loss for the state is difficult to know without a specific proposal at the federal level. But, based on previous similar proposals, Michigan losses could top out at $4.1 billion over 10 years when limited to Healthy Michigan enrollees, or $13.4 billion over 10 years if expanded to all Medicaid recipients, according to the state's report.
Federal match rate reductions
One of the biggest hits to Michigan's Medicaid program would be a reduction to Michigan's federal match rates, which the department argues would essentially eliminate the Healthy Michigan plan on which upwards of 700,000 residents rely. House Republicans' most recent proposal, unveiled Sunday, did not appear to contain reductions to federal match rates.
Michigan's two plans — traditional Medicaid and Healthy Michigan — operate under different federal reimbursement rates. The state receives a 65% federal match for traditional Medicaid recipients and a 90% federal match for Healthy Michigan enrollees.
However, changes floated at the federal level would significantly curb the Healthy Michigan match, bringing it in line with the traditional Medicaid match, or from 90% to 65%.
The state estimates the decreased reimbursement would cost the state about $1.1 billion and kick more than 700,000 people off the Healthy Michigan Plan.
“Absent additional state investment to cover the lost funding, the more than 700,000 individuals who rely on HMP would lose their health care coverage," the report said.
Another plan floated would reduce certain federal matching funds for administrative costs and 25 other specific categories, resulting in losses of "hundreds of millions" including about $115 million in IT funding alone, according to MDHHS.
eleblanc@detroitnews.com
The Associated Press contributed.
Want to comment on this story? Become a subscriber today. Click here.
This article originally appeared on The Detroit News: State report details steep cost of potential federal Medicaid cuts for Michigan
