Buried deep in the Senate health care bill is a provision that is designed to penalize Northeastern states that have traditionally run generous Medicaid programs while carving out special exemptions for sparsely populated Western states like Alaska, which are conveniently represented by Republicans.
Call it the Klondike kickback.1 It is not the most egregious part of this legislation by any means, but it is one of the more infuriating bits if you happen to, say, live in New York.
As you probably know by now, Republicans want to make a historic change to Medicaid by capping the amount of money the federal government spends on each patient. Currently, Washington and the states split the program’s costs, with the feds covering a set percentage of every enrollee’s care—whether they rack up $500 in medical bills or $50,000. Under the new system, that open-ended commitment would end. States would instead receive a fixed amount of money per Medicaid enrollee. Those grants would grow over time with inflation, but initially, they’d be based on each state’s historical spending.
Some states are worse off under this system than others. Places like Alabama, Nevada, or South Carolina that have traditionally spent very little per enrollee would have their federal contribution capped low. Places like New York or Massachusetts that that spend a lot per enrollee would have their federal contribution capped high, and may be able to continue their own state funds to sustain their programs. This is a political problem for the GOP, since Republicans represent a lot of parsimonious states that try to keep their Medicaid budgets small.
So they’ve added a caveat. On page 64 of the bill, it says that if a state spends 25 percent more than average per patient, Washington will reduce its Medicaid contribution by up to 2 percent the next year. (So, if were scheduled to grow by 2.4 percent, it might only grow by .4 percent). If a state spends 25 percent less than average, it will see its contribution increased by 2 percent. Essentially, states—including much of the Northeast—would be penalized for being generous, in order to fund more Medicaid spending in states that are not. It’s only a one-year penalty—so it’s not designed to ratchet down funding for, say, New York or Massachusetts over time. But “it really is hurting states that, for a variety of reasons, have higher spending per beneficiary,” Edwin Park of the Center on Budget and Policy Priorities told me.*
Except, that is, in states like Alaska. The bill states that this rule will not “apply to any State that has a population density of less than 15 individuals per square mile, based on the most recent data available from the Bureau of the Census.” In other words, rural areas like Montana, the Dakotas, and the great white north will be spared from this redistribution scheme.*
Of course, some might say this is only fair. Medical care is expensive in rural areas because there aren’t very many doctors. Alaska and North Dakota simply can’t help it that they spend more per Medicaid than any other states in the country.
Of course, there are perfectly good reasons why densely populated and urban states spend big, other than their desire to run generous social welfare states (which they shouldn’t be penalized for). Services like medical care are expensive in New York and Boston too, after all. But Chuck Schumer and Elizabeth Warren aren’t Republicans. Alaska’s Lisa Murkowski, of course, is.
1Credit for the nickname goes to Jon Bosscher on Twitter. Thanks Jon!
*Correction, June 22, 2017: This post originally misstated that the penalty would be based on whether the federal contribution was 25 percent above average. It is in fact based on combined state and federal Medicaid spending.
*Correction, June 23, 2017: Due to a copy-paste error, this post originally misstated that the Medicaid penalties would not apply to any state “that has a population density of less than 15 individuals per 23 square mile.” The “23” was a line number in the bill.