Hemi Tewarson [00:00:02]:

States are concerned about overall budget impact. If there are significant changes at the federal level, how they would serve the beneficiaries, the close to 79 million people who are on Medicaid and CHIP and the types of folks we talked about earlier, what impact that would have on the providers that are participating in Medicaid, including hospitals, how will they continue to be able to operate, particularly in rural areas, but other areas as well? And then how do you think about your economy overall?

Narrator [00:00:33]:

Welcome to Hospitals in Focus from the Federation of American Hospitals, here’s your host, Chip Kahn.

Chip Kahn [00:00:44]:

Medicaid covers over 79 million Americans. Children, pregnant women, parents, seniors and individuals with disabilities. It is a lifeline ensuring care for the most vulnerable members of our communities. And as Congress weighs a menu of spending cuts to achieve potentially massive deficit reduction, healthcare spending is exposed to particular scrutiny, including Medicaid. Certain proposals that have been discussed will fundamentally alter Medicaid, possibly shifting more financial responsibility to states or even leaving many covered now out in the cold. So impacts could be great for millions of Americans who rely on Medicaid. With so much uncertainty swirling around Medicaid at this time, we’re fortunate today to be joined by Hemi Terasen, executive director of the National Academy for State Health Policy. She understands the complexities of the program and the implications of policy for individual recipients as well as state and local governments.

Chip Kahn [00:01:50]:

Hemi, thanks for joining me today.

Hemi Tewarson [00:01:53]:

Thanks for having me. Chip. It’s I think a really important time to talk about Medicaid and states.

Chip Kahn [00:01:58]:

Great. So just to get started for our audience, can you give us a sense for the multi facets of Medicaid or maybe the various programs of Medicaid?

Hemi Tewarson [00:02:10]:

Yeah, happy to do that. So I have always loved Medicaid. I have been working on Medicaid for many years as a lawyer and now here at Nashbe as executive director. So Medicaid serves a lot of different types of people and it’s more than a coverage program. So just to talk at a high level, there are, as you said, over 79 million individuals enrolled in Medicaid and CHIP and who are those people? There are folks with disabilities. Medicaid provides health coverage to over 17 million people with disabilities and older adults. That population is about 1 in 5 enrollees. Medicaid also serves nearly half of all US children, over 37 million children.

Hemi Tewarson [00:02:55]:

Medicaid also provides coverage to nearly 24 million women of reproductive age and is the largest single payer of pregnancy related services, financing 41% of all U.S. births. Medicaid also really plays, I think an important role for mental health services and substance use disorder treatment and is the largest payer for those services in the country and the only source of funding for some specialized behavioral health services. For example, Medicaid covers 23% of adults with mental health conditions and 21% of adults with SUD or a combined estimate of about almost 14 million people. And then I also like to talk about Medicaid with respect to long term care coverage. It really is our only coverage program for nursing homes and for those who are aged or disabled. And it is really helps pay for premiums, cost sharing and services that aren’t covered by Medicare. And one last thing I’ll just share and then we can talk about other parts of Medicaid is really the impact of Medicaid in rural areas.

Hemi Tewarson [00:04:02]:

That’s an area that isn’t always talked about at great length. But you know, when you look at some of the research, you see that the non elderly adults and children living in small towns and rural areas are more likely than those living in metro areas to rely on Medicaid and CHIP for their health insurance. For example, in 15 states, at least one fifth of non elderly adults living in small towns and rural areas are covered by Medicaid.

Chip Kahn [00:04:27]:

I want to talk about the price tag and the size of the program and how it’s financed. But before we get there, let’s dig a little bit deeper on the rural side. I assume that this rural Medicaid, the dependence really in rural areas has grown over time. That that’s something that has become more of a presence as we’ve seen more aging in the population and also people leaving rural areas.

Hemi Tewarson [00:04:55]:

Yeah, and I think that’s why you see sort of in the statistics that I listed, why there are more people who are rural areas relying on Medicaid and CHIP for coverage. And that’s a result of, you know, fewer job and employment opportunities that offer insurance, the population shrinking, as you said, and really kind the challenges of them to really get access to care with Medicaid, you know, being a really important resource to those who live in those areas.

Chip Kahn [00:05:22]:

So now let’s go to the price tag. So how much does Medicaid cost nationally? And then there’s unique arrangements in terms of how it’s paid for between the federal and state governments. If you can give us some background on that as we talk about the price tag.

Hemi Tewarson [00:05:39]:

Medicaid has always been a federal state partnership. That’s how the program was created and that’s where we are today. On average, the federal government pays about 62% of state and territory Medicaid costs and the federal matching rate or what the federal government pays is higher for certain populations and services. So that what does that mean? That means for every dollar that the state spends, the federal government is paying a portion of that dollar or 62% on average. It depends on the state. There is a range. There are some states based on a calculation called the FMAC map or a federal matching assistant percentage where states are on a scale. So some states with higher income and other sort of factors.

Hemi Tewarson [00:06:28]:

So for some states the matching rate is at 50% for states and then for other states it can be as high as 77% of the cost of providing healthcare services to most Medicaid enrollees. There is also certain matching rates that are higher for certain types of populations. For example, for expansion populations which are the non elderly, non disabled adults, There is a 90% match for expansion enrollees. So the federal government pays a much higher share for all the costs for those people in that category.

Chip Kahn [00:07:00]:

So Hami, beyond the percentages we just described in terms of responsibility between the states and the federal government, what’s the total spend and what’s sort of the trajectory been in recent years?

Hemi Tewarson [00:07:11]:

The total Medicaid spend that would be federal and state dollar spend was around 860 billion in 2023. 3 Interestingly, when you look at some of the trends in spending growth, looking at 2024, the spending growth slowed to 5.5% in fiscal year 2024 and they expect to slow further to 3.9% in 2025. And if you just look at that compared to other programs, Medicaid is a more efficient program actually than other than the commercial insurance program. Medicaid has grown at a slower rate compared to private health insurance. So for example, per enrollee spending by private health insurance grew by around 62%. If you look at the trend from 2008 to 2022, much faster than actually both Medicare and Medicaid spending growth per enrollee, which was about 41% and 22% respectively. So Medicaid was a 22% spending growth rate. And generally speaking, private insurance pays higher rates for healthcare than Medicare and Medicaid.

Chip Kahn [00:08:22]:

So considering the size and this share between the federal and state governments, can you give us some sense of what the economic effect is of Medicaid on state budgets and broader economies in states?

Hemi Tewarson [00:08:37]:

Yeah, when you look on average across state budgets, Medicaid is the highest spend. When you look across both federal and state expenditures for any other category in state budgets in Terms of state only dollars, it’s generally second only to education spend in states. So it really is quite a significant driver of both the state economy and its spend. What’s really interesting to see when you’ve looked at different research studies and the impact of spending all that money, what does it do for the economy within states? It’s really interesting. There’s a couple of things that have really come to light. One is that Medicaid and particularly Medicaid expansion has significantly reduced state payments for things like public health and substance use disorder treatment and mental health costs. The other category that comes to light is money spent on services. And payments to health care providers through Medicaid is spent in local communities, which has further bolstered their economies.

Hemi Tewarson [00:09:41]:

So the inflow of federal spending that’s been associated with Medicaid services has acted as a fiscal stimulus that’s really increased state tax revenues more generally by increasing economic activity in the state. So for example, there was one state that found when they expanded Medicaid, they generated annual fiscal savings that they expected would continue to generate savings over the next many years. And then finally, just looking at sort of Medicaid expansion and other expansions of Medicaid within its program, there have been studies that have found that it’s improved the financial performance of hospitals and other providers as well.

Chip Kahn [00:10:20]:

Just to close out on the basics of the program, obviously for those in nursing homes, I mean, the state pays for the services. But for other recipients that are covered for healthcare in various ways, health plans play a role. Can you sort of describe where we are with the proportion in most states of where the health plans are and where the state provides sort of fee for service coverage and what that blend is now?

Hemi Tewarson [00:10:48]:

Yeah, it’s really interesting if you look at it over time. It’s really been such a, such an increase on the number of states that now really rely on Medicaid managed care plans in their programs to serve beneficiaries. We are now on average over 80% of Medicaid enrollees enrolled in health plans across the states. So it’s really quite a dramatic shift, I would say with respect to the aging population, that’s also been a significant increase. There was a much smaller number of states, I’d say 10, 15 years ago in terms of that population enrolled in managed care. And there’s been a significant increase in individuals now enrolled in what’s called Medicaid long term services and support plans as well.

Chip Kahn [00:11:34]:

You know, that’s been a helpful sort of groundwork laying a foundational, laying for talking about what potential changes could be. We’re in a process this year and it’ll probably be a while before we know what the fate of Medicaid is if there are major changes. But why don’t we talk about some of the specific proposals that are out there and you can give us a sense for cost benefit. And you know, you have described Medicaid actually as a very efficient program in terms of providing care coverage and basic living security for the for seniors, mostly seniors who were in institutions in nursing homes. I’m going to go through a number of these possible policies and maybe you could describe the effects. So the first one I’ll mention is that’s been much discussed is work requirements where much as welfare, there would be new rules applied to Medicaid where those who are, let’s say able bodied would would have some kind of requirement to work or provide some community service in order to receive eligibility for the program. What effect could these policies have? And I know some states have applied them. What’s been the record on them?

Hemi Tewarson [00:12:58]:

So just a background. It’s interesting when you look at the data for Medicaid enrollees and you know, what they’ve been doing with respect to work, it actually shows that nearly two in three Medicaid enrollees do work. Some are part time, some are, you know, there’s different variations of what that is defined as, and the remainder have a disability or caring for a family or attending school and the like. But in terms of like work requirements apply to the program. During the last Trump administration, there were many states, actually 13 states, that got approval for actually applying work requirements in their Medicaid programs with respect to their expansion populations. There was a lot of litigation around those waivers as there were arguments made that it was not furthering the purpose of the Medicaid program. And because of all of the administrative requirements, there would be people who would no longer be eligible for Medicaid. So with all of that litigation and then also the change administration to the Biden era, there was a rolling back of all those work requirements with the exception of one state, which is the state of Georgia.

Hemi Tewarson [00:14:13]:

The state of Georgia won their litigation actually because they had not yet expanded Medicaid. And so they were able to negotiate and actually had some success in the courts with respect to their court case and pursuing their Medicaid expansion, defined as not expansion under the Affordable Care act, but a different type of expansion that would have work requirements for the individuals who were eligible because their argument and the court found that to be a fair argument was because they had not provided any coverage to that population before they were providing a benefit to individuals, even if there was a work requirement that was a part of that. And I would say now that we are with our new Trump administration, I do think there will be states that are interested in thinking about adding work requirements to Medicaid in terms of the impact I think we will have to see. I think there’s a lot to be considered with respect to the implementation and well, will people be able to actually complete the paperwork and the administrative requirements to show that they are working in some capacity? Will the jobs that they do have as two and three actually do work? Will that meet the criteria that’s established? I think those are unknowns. But there are, I think overall concerns for those who serve Medicaid beneficiaries that there would be losses of coverage as a result of a work requirement.

Chip Kahn [00:15:37]:

Do you think? How pervasive do the loss of coverage, how pervasive could it be, do you think?

Hemi Tewarson [00:15:44]:

Yeah, that’s going to be. That’s going to really depend on the nature of the requirements, how it’s implemented and whether people will really be able to to meet those standards. There are concerns which, you know, there can be exceptions for pregnant women, primary caregivers, people with disabilities or health related barriers to employment, full time students and then those that may have, you know, part time and not full time jobs. And so how you define the work requirement and how it’s going to be implemented will, I think, play a very significant role in whether people will be, will remain eligible for coverage.

Chip Kahn [00:16:21]:

Matt, you’ve already described Medicaid as being frequently the largest part of a state budget. So I assume there would be great sensitivity if Congress chose to change the match rates. You discussed those in our introduction, the match rates between the federal and state government and I know they vary from state to state. All of them aren’t identical because of various technical adjustments and other factors. But just roughly, if there was some kind of collapsing of the match rate, say going back to the original 50, 50, what would the effect be of that? Would it affect the ability of states to continue to cover as many people, what do you think would happen?

Hemi Tewarson [00:17:07]:

It’s hard to say. I will just say this. We have been in the past couple of years in a place where there has been a lot of federal funding flowing to states and states have been able to do new things with Medicaid programs, for example, we can even talk about the workforce shortages and the workforce challenges that face not just Medicaid. Beneficiaries but also commercial insurance folks. And states have thought about increasing rates to behavioral health providers and long term care providers and hospitals. All of that investment, investments and spend actually is going to be something that they’re going to have to think about whether they can continue in a tighter fiscal environment. And I’ll just say regardless of what happens at the federal level, states have tighter budgets this year. A number of them, not all of them, but a number of them have Medicaid budget shortfalls where they’re already trying to identify efficiencies.

Hemi Tewarson [00:18:00]:

There are overall tightening of federal budgets for different reasons, some of which there’s less federal funding available post pandemic. That’s that money has been spent, but there’s also other reasons. So I just give that as a background for why it will be, I think, even more difficult for states to absorb and really effectively manage a significant loss in federal funding for the Medicaid program as it stands today.

Chip Kahn [00:18:27]:

Now, one of the other changes that’s really described as a reform because it would affect the sort of the fundamentals of Medicaid would be to go from the kind of program now where basically eligible people receive coverage and the state covers them and then the federal government and the state work together to fund the care. If they went to something that’s known as a per capita cap that would limit the payment over time per recipient to some inflationary amount. What do you think the effect of that would be? That that’s I know from a savings standpoint, when you look at Congressional Budget Office estimate of what various kinds of changes could gain savings, obviously this is one that you could dial up and dial down in terms of the allowed amount, that of the of inflation that was allowed in each year. But it’s the one that depending on that lever and where you set it could actually save the federal government a lot of money, but it could change the program dramatically. What would you see as the effect of this, what is referred to as the per capita cap?

Hemi Tewarson [00:19:36]:

We’ll see what actually happens in Congress to be determined. But in terms of how states are thinking about this possibility, we saw some of this conversation back in 2017 and it’s certainly happening now. States are very concerned about that because without any changes to the way the Medicaid program is structured, and we talked earlier about the expansive nature of the program, who is served, what benefits are being provided, if there was an effective per enrollee cap and that was unlimited to an inflationary increase and costs exceeded that, then states are then responsible for coming up with the difference and having to continue to provide these really important services to people without any benefit of the federal government sharing in that. So it is essentially a cost shift to states. And I think that is what is most concerning to states in these types of proposals. Knowing that they have very tight budgets and they’re not going to be able to absorb and make up that difference.

Chip Kahn [00:20:35]:

To sort of close out the policy alternatives. And here’s one that complexity is an understatement is something called state directed payments, where states come up with relationships with providers and clinicians that provide services to Medicaid and then are able to generate costs that lead to a different contribution in terms of the federal and state governments. And I don’t even know whether that was sort of a very blunt and maybe not completely correct, but sort of blunt kind of description of it. There are two aspects of it. One is in these programs that the federal government has to approve under special waiver authority, they do allow for payment that ultimately accumulates to the average commercial rate. Can you sort of describe how that works? And I know it varies. You know, you’ve seen one state directed payment program, you’ve seen one state directed payment program. But can we generalize a bit about the role that play that that plays and why, as a policy, it was put in place?

Hemi Tewarson [00:21:46]:

So there has been a significant increase in the use of state directed payments, really because the Biden administration provided a lot more flexibility to states in making those types of payments. And just to maybe explain a little bit more about at least how I view state directed payments, so I talked about how about 80% of Medicaid populations or more are enrolled through managed care. So normally the state would make a capitation payment to the managed care organization. Managed organization would then pay providers directly and that would be the flow of money. This option allows states to direct MCOs to pay providers according to specific rates or methods. And it really is allowing basically the state to decide. Hospitals need more funding for the following reasons. And I think a number of states have used this mechanism to really help hospitals.

Hemi Tewarson [00:22:41]:

Behold, you know, concerns coming out of the pandemic that they needed to get more funding for different reasons. I think they really looked at it to see as a method to actually recruit providers into reform efforts and an opportunity to increase rates to really help them serve the populations that are in their communities. I’d say a couple of things in terms of actually setting these state directed payments. They can use minimum or maximum fee schedules, they can require participation in value based payment arrangements, or they can just make Them uniform increases like similar to just a supplemental payment across the board. When you see how much is being spent, it looks as if at least the data that we saw from Macpac in 2024, the cumulative spending on federally approved state directed payments was projected to reach 110 billion, which was up from 69 billion in 2023. So clearly a significant increase. I would say there are some folks that feel that state directed payments in their state has really helped them ensure that rural hospitals, for example, keep their doors open, that hospitals that are serving areas that have a lot of Medicaid beneficiaries where the payments may have been lower than commercial, it’s bringing them up so that they’re able to continue to serve those patients efficiently. On the flip side, there’s folks that feel like this program has become too broad and too costly and is not serving its intended purpose of really improving access to care.

Hemi Tewarson [00:24:18]:

So there’s two sides to the debate. But there’s a number of reasons that I listed as to why states really wanted to invest in this and really want to retain these payments now.

Chip Kahn [00:24:26]:

So another aspect of these payments has to do with the words hold harmless. Whether or not hospitals will receive payment back from the state after they’ve gone through setting their rates for Medicaid and whether or not you can or can’t hold them harmless. Could you describe that a bit and if that was required, so what the effect might be in terms of the disbursement?

Hemi Tewarson [00:24:54]:

And just to clarify, you mean in terms of the proposals that are coming from.

Chip Kahn [00:24:58]:

Well, yeah, well, let me, let me say this. In the regulation that the CMS put In effect after 28, it’s my understanding you can’t hold hospitals harmless. If you could sort of describe that because that’s something, I suppose that either cms, the new CMS with the new administration or Congress could come in and say, well, we’re going to do this before 28. So I think that way we can sort of deal with the policy as one that could lead to, I guess, curtailment potentially of some of the expenditures.

Hemi Tewarson [00:25:34]:

In the past, the hold harmless provision has been in place for other types of supplemental payments, not just the Medicaid directed state directed payments that we’re talking about now. And that essentially has meant that, you know, a state can’t say, oh, we’re going to increase your rate, but by the way, you have to pay another provider tax or you have to actually, you know, pay into an igt. If you qualify to pay for an igt. Intergovernmental transfer or certified public expenditure because then essentially the hospital is, is helping to finance that increase in the payment. So that’s like the concept I think is that if that if that’s what we’re talking about now I know it’s.

Chip Kahn [00:26:09]:

Complicated but I think it, it’s something that’s really critically important in terms of this, these deliberations about potential changes.

Hemi Tewarson [00:26:16]:

Yeah. And whether they want to change that. I think we will see states, of course, when they’re able to have the ability different ways to finance a payment that has gone on for many, many years. Right. In Medicaid. Hospitals have helped to finance the Medicaid program in different ways and some of it has been tied to sometimes increase in their provider rates and sometimes not. I don’t know, to be very honest, where that will fall with respect to changing the regulation on the whole homeless provision. Whether they are going to look to kind of make that earlier or whether they would think about just rethinking the structure of the state directed payments overall.

Hemi Tewarson [00:26:55]:

There’s been a lot of conversation around that. And then others were saying, well, I don’t think that’s going to be maybe top of the list for them to change right now. So we’ll just have to see how that plays out. And I, you know, I hate to speculate at this time of uncertainty as to whether they would actually change that hold harmless provision or not or whether they think about doing something else.

Chip Kahn [00:27:16]:

I really appreciate all your time, Hemi, and I know that we’ve really gone a bit into the weeds. But you know, the problem with the Medicaid program is that whether on the coverage side or the benefits side or on the side of the financing, this is just such a complex program sort of looking forward at this process of potential reductions. I mean, what are you most concerned about? What will be most limiting if Congress chose to go in a certain direction as we close out? Can you give me some insight into that from your expertise and for your knowledge of the states?

Hemi Tewarson [00:27:59]:

Yeah, and this really comes from our work with state leaders in how they’re thinking about their overall state budget and how they’re thinking about their Medicaid program specifically. So again, as I mentioned earlier, state budgets overall are much tighter now than they were in past years. States are really looking to find efficiencies and we all want efficient, high quality healthcare. Right. We want people to have access and we want it to be efficient. I think that’s a shared goal. I think the concern is if there are all of a sudden sort of Changing the rules essentially in how the federal government and states have partnered to actually implement and run this Medicaid program that, as you said at the top, serves, you know, 79 million people. That could have very significant and drastic impacts on states with respect to cost shifting and the inability of states to really even pay for the program that they, that they have run for all these years.

Hemi Tewarson [00:28:56]:

So, so I would say a couple things. States are concerned about overall budget impact if there are significant changes at the federal level, how they would serve the beneficiaries, the close to 79 million people who are on Medicaid and CHIP and the types of folks we talked about earlier, what impact that would have on the providers that are participating in Medicaid, including hospitals, how will they continue to be able to operate, particularly in rural areas, but other areas as well. And then how do you think about your economy overall? There’s health plans and there’s all sorts of other community based organizations and other types of providers that are part of the Medicaid ecosystem. And how will those changes impact not only just providing access to services, but also the overall fiscal sustainability of local communities? So I guess I might end it at that. I think, you know, depending on what we’re looking at, there could be a lot of concerns that are going to be raised as the discussions go on.

Chip Kahn [00:29:53]:

You know, this is just, this discussion’s been so helpful. I hope our audience gets a sense for what a lifeline for so many millions of Americans Medicaid is and how in a sense, keeping it going for all of those who depend on it is just a balancing act. And hopefully we’ll go through a legislative process that will act wisely in terms of making sure that Medicaid stays available and is there and that the providers and clinicians can be there to provide the services that the exchanges and the coverage for the individual market remains stable. And obviously those of us that are on Medicare, you know, Medicare is there and then finally the employer market, hopefully with a strong economy can continue to provide coverage for, you know, 160 million Americans. So with that, thanks a lot Hemi and really appreciate your time.

Hemi Tewarson [00:30:53]:

Thank you for having me and for this important discussion.

Narrator [00:31:01]:

Thanks for listening to Hospitals in Focus from the Federation of American Hospitals. Learn more at fah.org. Follow the Federation on social media @FAHHospitals and follow CHIP at @chipkahn. Please rate, review and subscribe to Hospitals in Focus. Join us next time for more in depth conversations with healthcare leaders.

Hemi Tewarson, JD, MPH is the executive director of the National Academy for State Health Policy (NASHP), a nonprofit and nonpartisan organization committed to improving the health and well-being of all people across every state. At NASHP, Hemi leads an organization that is at the forefront of engaging state leaders and bringing together partners to develop and advance state health policy innovations. Under her direction, NASHP is leading efforts with states in areas including state COVID-19 recovery, health care costs and value, coverage, child and family health, aging, family caregiving, health care workforce, behavioral health, social determinants of health, health equity, and public health modernization. Previously, Hemi worked at the Duke-Margolis Center for Health Policy as a senior fellow and served as the director of the Health Division at the National Governors Association’s Center for Best Practices. She also served as senior attorney for the Office of the General Counsel at the U.S. Government Accountability Office addressing Medicaid and related health care topics for members of Congress.  She holds a JD from George Washington University, an MPH from George Washington University, and a BA in Psychology, University of Pennsylvania. She lives in Maryland with her husband and two daughters.