Major changes for Medicaid coming under Trump and the GOP

What will happen to Obamacare when Trump takes office?
What will happen to Obamacare when Trump takes office?

Donald Trump likely won't let Medicaid collapse, but he will vastly change the health insurance program for low-income Americans.

Think less federal funding, more state control, fewer participants and higher costs for those in the program.

Here's how Medicaid works now:

Nearly 73 million Americans are on Medicaid or the related Children's Health Insurance Program (CHIP). The programs cost $532 billion in fiscal 2015, with the federal government shouldering 63% of the bill and states paying 37%.

Most enrollees are low-income children, pregnant women, parents, the disabled and the elderly. Under Obamacare, low-income adults with incomes of up to 138% of the poverty line -- $16,400 for a single person -- were allowed to sign up in states that opted to expand their Medicaid programs. So far, 31 states, plus the District of Columbia, have done so, adding about 15.7 million more people to the rolls since late 2013, just before the provision took effect. (This figure includes both those newly eligible under expansion and those who always met the criteria.)

While Democrats say the program is a vital part of the safety net, Republicans have long criticized it as being bloated, inefficient and rife with fraud. They want to limit the federal government's financial responsibility, while giving states more direct control over whom to enroll and what kind of coverage participants receive.

On the campaign trail, Trump was emphatic about having the government provide coverage to the poor, even as he vowed to dismantle Obamacare.

"You cannot let people die on the street, ok?," he said at a CNN town hall in February. "The problem is that everybody thinks that you people, as Republicans, hate the concept of taking care of people that are really, really sick and are gonna die. We gotta take care of people that can't take care of themselves."

Related: Obamacare under President Trump: What happens next?

But he also championed turning much of the program over to the states. Instead of funding the program through a federal match based on enrollment, Trump would give states a fixed amount of money, known as a block grant, and let them administer it. His presidential transition platform calls for maximizing state flexibility, enabling them "to experiment with innovative methods to deliver healthcare to our low-income citizens."

Capping federal funding is also popular among Republicans on Capitol Hill. House Speaker Paul Ryan would let states choose whether they want to receive a block grant or what's known as a per-capita allotment, which would provide a fixed sum based on enrollment. He would also slow the annual rate of growth of funding.

Placing limits on federal reimbursements would end states' incentive to get more money from Washington by enrolling more residents, and it would prompt states to make their programs more cost-effective, said Brian Blase, a senior research fellow at the Mercatus Center, a libertarian-leaning think tank based out of George Mason University.

"They can come up with different ways to cover the vulnerable in their states," he said.

Related: Entrepreneurs to Trump: Don't take away our Obamacare

Left-leaning groups, however, say that funding caps could severely weaken Medicaid. Block grants wouldn't allow the program to expand during economic downturns. Medicaid enrollment soared during the Great Recession and its aftermath, rising from 42.4 million in 2007 to 55 million in 2013. They point to the weakening of the federal welfare program, which was turned into a block grant in 1996. The core grant has been set at a fixed amount of $16.5 billion since 1996 so its real value has fallen a third because of inflation.

There are many different ways to structure block grants and their growth rates, said Diane Rowland, executive vice president at the non-partisan Kaiser Family Foundation. The impact would depend on how tightly Congress reins in spending.

Also, the expansion of Medicaid under Obamacare makes issuing block grants more complicated since the program is now so unequal. she said. States that broadened their eligibility receive a lot more federal funding and serve many more residents. Under Ryan's plan, states that haven't expanded would not be allowed to do so, while states that did would gradually lose the enhanced reimbursements they receive under Obamacare to cover the expansion population.

(The federal government has covered 100% of the expansion population's costs for the first three years of the program. That rate will gradually decrease to 90% by 2020. For the core Medicaid program, the federal government matches between 50% and 72% of a state's spending, depending on the state's average income per capita.)

Related: How Trump may cover Americans with pre-existing conditions

To cope with the reduced funding, states would receive more power over their Medicaid programs. So just what would they do with this increased flexibility?

Currently, some adult enrollees have to pay small premiums or co-pays, but that is the exception rather than the rule. Participants also face no work requirements to get benefits.

Republicans want to change that. Ryan's plan would allow states to require non-disabled adult enrollees to work, seek employment or participate in an educational or training program. Several Republican governors wanted to add work mandates to their Medicaid expansion programs, but the Obama administration turned down their requests.

Also, states could charge non-disabled adults premiums under the Ryan proposal.

One need only look to Vice President-elect Mike Pence to get an idea of how creative states can get. Pence, who is currently the governor of Indiana, agreed to expand Medicaid and even offer participants the option of limited dental and vision benefits. But, in return, enrollees must make monthly contributions of 2% of their annual household income to an account similar to a health savings account.

Related: Obamacare architect says replacing it won't be easy

Hoosiers who elect basic Medicaid coverage face co-pays, which could range from $4 to $8 per doctor visit or prescription and could run up to as high as $75 for each hospital stay.

Having Medicaid enrollees contribute to accounts or pay for medical care provides incentives for them to take more responsibility for their health, Indiana officials said in 2014, when they unveiled the Healthy Indiana Plan 2.0.

"Reforming traditional Medicaid is essential to creating better health outcomes and curbing the dramatic growth in Medicaid spending," Pence said at the time. "HIP 2.0 takes consumer-driven Medicaid reform to the next level by replacing traditional Medicaid for many in Indiana with a plan that empowers participants to take charge of their health and to be cost-conscious consumers."

Some 390,000 residents have enrolled in HIP 2.0, as of July. More than 90% of those who started making monthly contributions continued to do so through the year, according to a report commissioned by the state.

Editor's Note: This story originally noted that Medicaid cost $509 billion for the fiscal year ending June 30, 2015. It's been updated to reflect the data for federal fiscal year 2015, which ended Sept. 30, 2015.

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