Voices’ Blog

Federal Choices Threaten Health Insurance For Virginia’s Kids: Part 2

Posted:  -  By: Margaret Nimmo Holland

A summary of this post is available in our publication “Federal Choices Threaten Health Insurance for Virginia’s Children.”

For many years, Congressional Republicans have talked of changing the way Medicaid is funded. Over the weekend, President Trump’s advisor, Kellyanne Conway, stated that Trump is also committed to changing Medicaid from an entitlement to a block grant or per capita cap to the states. While this change is promoted as allowing states more flexibility in designing their own Medicaid program, in reality, these changes represent cost-saving measures for the federal government. Under a block grant or per capita cap, states will receive fewer federal dollars to cover the most vulnerable parts of their populations, and will be forced to make difficult decisions with limited resources. Children’s health care access will be jeopardized as a result.

Why does this matter? As mentioned in our preceding blog on this topic, one of the single greatest successes in child well-being over the last 50 years (due to Medicaid), and particularly in the last 20 years (due to CHIP), is the fact that millions of children have gained health insurance. Nationally, 95% of children now have health insurance, according to a recent report from the Georgetown Center for Children and Families. Research has shown that having health insurance increases access to health care—both well-child and sick care—leading to better education outcomes, as well as higher earnings and better health in adulthood.

Current Medicaid Program: As an entitlement, Medicaid protects low-income children, certain very low-income parents, pregnant women, the elderly, and those with disabilities by providing them health care coverage. The federal government pays a percentage of the costs (50% in Virginia) even if enrollment increases or care becomes more expensive because of new medications or an epidemic, so the program can scale up to meet the need.

Currently, children are eligible for Medicaid in Virginia if their families have an income below 144% of the federal poverty level (FPL)*. Medicaid also covers children and adults with disabilities and complex medical situations, pregnant women, and some low-income parents. Children up to the age of 21 benefit greatly from the robust array of preventive and treatment services covered by Medicaid that help them get off to a healthy start in life. The Early and Periodic Screening, Diagnosis and Treatment (EPSDT) “is key to ensuring that children and adolescents receive appropriate preventive, dental, mental health, and developmental, and specialty services.”

Children currently comprise 49% of the enrollees in Medicaid, but account for only 20% of expenditures in Virginia. One in three births in Virginia is covered by Medicaid.

Capping Federal Expenditures: The purpose of eliminating the Medicaid entitlement is to reduce costs to the federal government; it is first and foremost a cost-savings strategy, not a measure designed to improve health outcomes. Proposals to change Medicaid into a block grant or per capita cap mean that each state will get a fixed amount of money, regardless of changing needs. States would have to cover any additional costs such as increased enrollment  due to downturns in the economy, public health needs such as responding to the Zika virus, or expensive new lifesaving drugs. It is unclear how the federal government would benchmark the amount each state would receive, though it would likely be based on past expenditures.

Virginia stands to be penalized as our state ranks 48th in per capita spending on Medicaid. This means under any scenario, Virginia will already be starting at a disadvantage compared to other states.

All states will be left to fund any cost differences to maintain the current program – difficult to do given that states must balance their budgets and many are having budget shortfalls already – or make changes to the state Medicaid program to cut costs. Virginia has already identified huge potential losses in federal dollars to the state’s budget due to potential ACA repeal, which will create more pressure on the existing Medicaid program.

How could Virginia change the Medicaid program? Virginia policymakers will face difficult choices because our program is already much less generous than that of other states, so there are only a few levers to pull to cut costs:

  • Reduce reimbursement rates to providers. This measure would face strong opposition from hospitals, nursing homes, doctors, and other provider groups who already think that reimbursement rates are too low. Some providers would likely choose not to serve Medicaid patients, meaning children and others could be left without access to care, even with insurance to cover the cost.
  • Reduce the level/type of services covered. The state could limit the array of physical and behavioral health services that are reimbursable by Medicaid. Such a measure could have dire consequences for children, who benefit greatly from the robust array of preventive and treatment services covered by Medicaid that help them get off to a healthy start in life. Additionally, at a time when Virginia is struggling to improve its already-lagging behavioral health system, cuts to Medicaid services would greatly undermine the ability of community services boards and private behavioral health providers to serve both children and adults.
  • Cut eligibility requirements so that fewer individuals are covered. This measure would force policymakers to prioritize among low-income children and their parents, pregnant women, the elderly, and those with disabilities – all of whom are extremely vulnerable populations. Entire categories of eligible populations could be eliminated, or enrollment caps by population could create waiting lists for health insurance.

What is the difference between block grants and per capita caps?

Both plans are aimed at reducing federal spending on Medicaid. A block grant is a lump sum annual payment to the state for Medicaid. It is adjusted annually for population growth and general inflation (not health care inflation, which runs much higher). It is not adjusted based on growth in enrollment or other factors affecting costs. The state must absorb any additional costs.

Under a per capita cap, the federal government pays the state a fixed amount per beneficiary. While mechanisms for setting this amount are uncertain, it’s likely there would be separate fixed amounts for each category of beneficiaries (children, seniors, people with disabilities, etc). The amount would be adjusted annually for general inflation (not health care inflation).

To give an example of the fiscal impact a block grant or per capita cap could have on Virginia, we can look to Speaker Ryan’s 2012 House Republican budget plan that proposed a 23% reduction in federal Medicaid spending in Virginia through use of a block grant.

While many segments of the population stand to lose health insurance and, thus, access to health care under the federal policy changes being considered, children arguably stand to lose the most. Near-simultaneous changes to the ACA, CHIP, and Medicaid create a perfect storm that threatens 50 years of progress in child well-being.


*The federal poverty level in 2016 for a family of four was an income of $24,250 per year.

The first blog post on this topic covered the impact of potential changes in the ACA and CHIP for Virginia’s kids.

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