About those poor people

Some sobering news out of Arizona today:

Nearly 10,000 working parents will lose their health insurance
this month in the wake of state budget cuts, leaving some families with nowhere to turn as they seek affordable coverage.

KidsCare Parents, a program that provides low-income families with inexpensive insurance, will end Sept. 30. The Arizona Health Care Cost Containment System, which administers the program, could not pay the $6 million annual cost following cuts by the Legislature. The state faces a $3 billion budget shortfall.

The move comes as demand for government assistance is skyrocketing. Arizona has lost an estimated 240,000 jobs since December 2007, and AHCCCS has added 150,000 people to its rolls since January. . .

KidsCare Parents began in 2003 as an extension of the federal State Children's Health Insurance Program, called KidsCare in Arizona. To be eligible for coverage, families had to make less than two times the federal poverty level, or about $44,000 a year for a family of four.

For a $6 million annual contribution, Arizona received $18 million in federal grants to administer the program for parents. Patient premiums, which were set at 3 to 4 percent of monthly income, covered the rest. The parents' program was a boon to families like the Dowlings, who were told they made $40 a month too much to be eligible for AHCCCS.

A sign of the times, to be sure. But it raises an important question: how does health care reform help the poor?

Right now, the health insurance program most closely associated with the poor is Medicaid. It's important to note that not all poor people are eligible for Medicaid; in fact, a significant chunk of the poor are not eligible. Childless adults are ineligible, as are parents whose incomes, while still below the poverty line, pass some threshold. In other words, even adults in an eligible class can't just be poor, they must be poor enough.

The situation in Arizona illustrates a key issue with Medicaid (though technically Arizona's KidsCare Parents Program is an outgrowth of SCHIP, the programs work in the same way): unlike Medicare, which is funded and administered entirely by the federal government, Medicaid is administered and partially funded by the states. This is why each state has slightly different standards and programs. The way Medicaid funding works is simple: the federal government pays some portion of a state's Medicaid costs (between 50% and 83% of costs) by providing some amount of matching funds for every dollar a state spends on its Medicaid program. The exact portion the federal government contributes, called the federal medical assistance percentage (FMAP), is determined by a formula in which the only real variable is the state's per capita income. States with higher per capita incomes have to foot a greater percentage of their Medicaid bills.

You can imagine the problem this causes. When a state falls on hard times, the drag on its social safety net gets hit on two fronts: (1) if incomes take a hit, so too do the tax receipts that fund the state-financed part of programs like Medicaid and (2) more residents of the state slip into the range of eligibility and thus benefits paid out will tend to increase. The result is that states facing budgetary shortfalls are likely to cut spending on programs (and thus also get fewer federal matching funds) just when they're needed the most, as we see today with the KidsCare Parents program in Arizona.

For people who don't get employer-based health insurance but are not technically poor, the health reform plans provide subsidies ("affordability credits" in the House bill) to help them pay for health insurance. In the House bill, H.R. 3200, these subsidies are available for people with incomes between 133 and 400 percent of the federal poverty line. The needs of poor people are addressed by expanding Medicaid eligibility to everyone with incomes below 133 1/3 percent of the federal poverty line. Since Medicaid-eligible individuals are ineligible for affordability credits in the Exchanges, Medicaid will effectively be their only option.

As I mentioned above, simply being poor isn't enough to make you eligible for Medicaid right now. Under H.R. 3200 it will be. But these Medicaid expansions are going to cost money. The original version of the House bill promises "100% FMAP for non-traditional Medicaid eligible individuals," meaning the federal government will foot the entirety of the bill for expanding Medicaid (for a few years). In other words, the burden on states would not increase. But as I discussed in my last post, H.R. 3200 only made it out of the Energy and Commerce committee because Blue Dog Democrats and members of the Progressive Caucus agreed to pass a Blue Dog amendment and two unity amendments.

The Blue Dog amendment was about lowering the price tag of the final bill; a cynic might say this was for cosmetic reasons. But one of the ways they did that was by revising the "100% FMAP" promise. Instead, initially the federal government will cover the full cost of expanding Medicaid but starting in 2015 states will face 90% FMAP, meaning the federal government will cover most of the costs of expansion but states will still have to pick up 10% of the check. For every dollar a state spends on the Medicaid expansions after that point, they get nine dollars in federal matching funds. But states will still be paying more than they are now; the Medicaid expansions will thus be a further strain on state budgets.

The genius of the Blue Dog amendment, of course, is that it makes the health care plan look slightly cheaper over the next decade. It puts some of the costs of Medicaid expansions on the states and it slightly lessens the amount of affordability credits non-poor shoppers in the Health Insurance Exchange can collect. No less money is actually being spent, they've just found ways to transfer the costs to someone else and make the federal government's books look a little better. Meanwhile states face larger Medicaid liabilities and people buying insurance in the Exchanges have to spend a little more out of their paychecks.

Needless to say, state governments don't like the Medicaid provisions of the Blue Dog Amendment. And I'm left wondering what happens when states get into situations like the ones they're in now--the kind of situation that leads Arizona to eliminate health insurance for 10,000 poor parents. Sure, everybody below 133% of the poverty line is supposed to be eligible and the original draft makes paying for that the federal government's problem. But with the Blue Dog amendment, states take a degree of financial responsibility for this. What happens during the lean years? Clearly, some states can't even pay for the Medicaid or SCHIP programs they have now. Hence the cuts.

The reality, of course, is that even if over 12% of the population is technically poor, the poor are not a powerful political constituency. Suggest cutting Medicare and AARP, a group that's almost 40 million strong, will raise hell. Cut Medicaid or SCHIP benefits and you'll hear nary a whisper. Senator Ron Wyden, a Democrat from Oregon, has described Medicaid as a "caste system" (his own health care plan--the Wyden-Bennett plan--does away with Medicaid, integrating the poor into the same program as everyone else). This is one of the dangers of pursuing incremental change. On the one hand, incrementalism is often politically necessary because if the Haves under the current system stand to lose, then their opposition can kill hopes of reform. But the sad fact of the matter is that those who lose under the current system might well still lose under an incrementally reformed system. Even one that takes a stab at universality.