“The fact of the matter is that Medicaid spending under the proposal and under the budget goes up every single year.”
– Health and Human Services Secretary Tom Price, interview on CNN’s “State of the Union,” May 7, 2017
Price defended the American Health Care Act, the House GOP plan to overhaul the health-care system, in an interview with CNN. But his claim about the Medicaid budget was rather misleading. Let’s take a look.
The Facts
When challenged by CNN’s Jake Tapper over reductions in Medicaid spending – $839 billion over 10 years, according to a Congressional Budget Office estimate in late March – Price responded with some Washington double-talk about funding for the health-care program for the poor. (An earlier CBO estimate had pegged the reduction at $880 billion, which is the number Tapper used in the interview.)
“Well, remember what the $880 billion is off of. It’s off what is called a baseline, which is what the federal government, what the Congressional Budget Office says we would spend if we just continued current law,” Price said. “The fact of the matter is that Medicaid spending under the proposal and under the budget goes up every single year. And it goes up by a factor that is great – that is equal to the cost of medical care.”
Debates over a baseline are an old Washington tradition. The CBO calculates what would be necessary to maintain current services over a 10-year period, accounting for inflation, population growth and so forth. One dollar in 2026 will not go as far as a dollar in 2016.
Here’s our favorite example of this phenomenon: Defense spending technically remained constant from 1987 to 1994 – $282 billion a year. But look what happened to the military during those seven years: The number of troops fell from 2.2 million to 1.6 million, the number of Army divisions was reduced from 28 to 20, Air Force fighter wings dropped from 36 to 22, and Navy fighting ships declined from 568 to 387. That’s because, over time, inflation ate away at the value of those dollars. By most measures, defense spending was trimmed in that period, although in theory, not a penny was cut.
Price, having been chairman of the House Budget Committee, certainly understands this concept. Yet he declared that “there are no cuts to the Medicaid program. There are increases in spending.”
The proposed changes to the Medicaid budget would reduce spending by nearly 25 percent over 10 years and cover 14 million fewer people than anticipated by 2026. Price is also wrong to claim that “Medicaid spending under the proposal and under the budget goes up every single year.”
The CBO did not publish these figures, but when you adjust the CBO’s March 2016 baseline for the reductions in outlays in its most recent estimate of the legislation, here’s what happens to annual Medicaid spending:
2017: $390 billion
2018: $395 billion
2019: $409 billion
2020: $395 billion
2021: $396 billion
2022: $405 billion
2023: $419 billion
2024: $436 billion
2025: $455 billion
2026: $475 billion
Notice that when the major part of the Medicaid changes take effect in fiscal 2020, actual spending decreases year over year. In fact, not until 2023 does spending get back above the level of 2019. So never mind “the baseline” – spending year over year declines in 2020. (HHS did not dispute our calculations.)
What happens in 2020? Currently, the federal government pays for a portion of the cost of Medicaid, at least $1 in matching money for every $1 a state spends on Medicaid, with 90 percent of the costs if a state expanded Medicaid under President Barack Obama’s Affordable Care Act.
But, under the American Health Care Act, financing would be set per enrollee in a state, using 2016 as a base year. Then, increases in spending in each subsequent year would be limited to the medical care component of the consumer price index for all urban consumers, with a higher rate set for the elderly, the blind and the otherwise disabled starting in 2020. (In other words, the base rate is locked in for four years even for the elderly, the blind and the disabled, so that lower baseline would be permanently baked into future calculations even for a group requiring extra resources.)
Price said that spending would increase “equal to the cost of medical care,” but the CBO projected that Medicaid spending per enrollee would grow faster than the medical inflation rate, so it’s clear that less money every year would be available to serve this population. In any case, it’s all but impossible to predict how much pressure the aging of the baby-boom generation would place on Medicaid. (About 25 percent of Medicaid spending goes to nursing home and long-term care.)
At one point, Price assured Tapper that it was “absolutely not” true that people would lose Medicaid as a result of the spending reductions. This is a misleading talking point that we have dissected before, but simple math explains why this is false. People cycle on and off Medicaid on a regular basis. If they try to return to the program once the American Health Care Act takes effect, they will have lost their grandfathered status.
“The Washington habit of measuring the success of a program by how much money is spent is one of the reasons the Medicaid program is in dire need of reform,” said Alleigh Marré, HHS national spokeswoman. “The plain text of the AHCA is clear – spending on Medicaid goes up every year by at least the same rate as average medical expenses. The AHCA is focused on outcomes, who’s actually getting access to quality care, and how can states have the flexibility to tailor their programs to meet the unique needs of the vulnerable populations that Medicaid was created to help.”
– – –
The Pinocchio Test
Price flatly stated that Medicaid spending will go up year after year in the budget, but that’s false. It actually declines in raw dollars after the switch in funding is implemented. Although HHS suggests he was saying that spending would go up by the rate set in the law, that’s still misleading. That’s a fixed amount untethered to the actual expenses of patients, so if the money falls short, states will either have to make up the difference or cut expenses by limiting enrollment or reimbursements.
When you are reducing spending by more than $800 billion over 10 years, you can’t pretend you are boosting spending “every single year.” Price earns Four Pinocchios.