Tinkering with Medicaid is a tricky task

President Donald Trump’s administration has made clear its intention to remake Medicaid, the federal-state program that provides health care to lower-income families and individuals, seniors, and those with disabilities. It won’t be easy.

Medicaid was dramatically expanded under the Affordable Care Act, which the new administration has begun to phase out. The growth in the number of Americans covered by Medicaid (and the related Children’s Health Insurance Plan) — a 30 percent increase from before the ACA to today — and concerns over long-term funding have drawn the ire of some elected officials. In fact, 19 states to date have declined the opportunity to expand their Medicaid programs under the ACA, fearing a runaway budget train.

A solution to the Medicaid cost quandary favored by Trump, Vice President Mike Pence, and Seema Verma, the incoming administrator of the Centers for Medicare and Medicaid Services, is a block grant approach designed to limit funding while providing states with more flexibility.

When the federal government provides a Medicaid block grant, it gives a state a fixed sum and the state must figure out how to cover all of its Medicaid members with that allotment. Currently, states share the cost of Medicaid with the federal government. Poorer states pay less than richer states. In Mississippi, for instance, the federal government pays about 75 percent of the cost of Medicaid, compared to 50 percent in Massachusetts.

Medicaid is a highly complex program that provides vital care for a broad array of individuals. There are no easy solutions when it comes to reducing its costs. Changing Medicaid, just like reforming health care, is at best an incremental process, particularly when one considers the new populations now covered by the program as a result of the ACA, such as families in which an adult is employed but in a lower-income job.

It has often been said that there are two ways to lower Medicaid costs: reduce eligibility to the program or cut the services provided. Neither are attractive options. Turning the program into block grants firmly delegates decisions on that dilemma to the states.

Here are five things the Trump administration must know about Medicaid before it proceeds with any change:

It’s about more than poor people. Medicaid has become an essential program for many working families. Eligibility guidelines are set by each state, with the income eligibility ranging quite dramatically. Some states, like Alabama, cover children up to 141 percent of the poverty line while others cover them up to more than 300 percent of the poverty line. In Massachusetts, where I live and work, a family of four earning approximately $48,000 can qualify for Medicaid, and more than 1 in 4 Massachusetts residents is on Medicaid. That means almost everyone living in the state has a family member, close friend, neighbor, or coworker covered by the program. Those Medicaid-covered individuals represent a powerful constituency.

A minority of members comprise a majority of the cost. According to the Kaiser Family Foundation, in 2011 more than half of the program’s expenses went to pay for just 5 percent of Medicaid enrollees. Nationally, the elderly and people with disabilities account for just 21 percent of those covered by Medicaid but 48 percent of Medicaid spending. For this population, nursing home care is a major driver of Medicaid costs. Those numbers are significant because any reduction in the covered population that is not elderly or disabled will yield a smaller share of savings.

A majority of those covered by Medicaid are already in managed care. Many people on Medicaid are on managed care plans, in which case Medicaid pays a fixed fee to a health plan and the plan provides all of the care the member needs, even if the cost of care exceeds the Medicaid payment. That limits how much additional savings states can capture because they are already controlling risk by delegating it, in essence, to health plans.

In most states, the federal match is the largest source of revenue. The federal government covers between half and 90 percent of the cost of Medicaid. In many states it is the largest single source of revenue from the federal government. Capping those dollars means limiting a critical revenue source for states.

It is indispensable to families with severely disabled children. Medicaid provides health coverage for children with significant disabilities regardless of their parents’ income. This can often mean the difference between financial survival and insolvency for many families that have a child with a disability. If Medicaid doesn’t cover these families, the costs bubble up elsewhere in our health care system. The result will be more bad debt and bankruptcies.

There are ways to do things better in any government program, including Medicaid. Every opportunity make the program more efficient should be explored.

At the same time, it’s important to keep in mind the remarkable complexity and vital nature of this government program. There is no new material here: Medicaid has been scrutinized for decades by academics, think tanks, government agencies, and private health care entities. In fact, entire organizations, like the Massachusetts Medicaid Policy Institute, exist just to study Medicaid.

Since Medicaid touches so many American lives, all of us should wish the administration well as it tries to reimagine Medicaid. Trump, Price, Verma, and their colleagues must be fully cognizant that there are no easy answers and that changes made to the program will have downstream effects on both our health care system and our economy.

Gerard A. Vitti is the founder and CEO of Healthcare Financial Inc., a company that helps individuals obtain health care benefits.