Cutting Medicaid, CHIP rolls is no way for governors to help their states

February 10, 2011 at 3:32 pm

A number of Republican governors have asked Congress to repeal a provision of health reform so they can save money by dropping people from Medicaid and the Children’s Health Insurance Program.  Repealing this “maintenance-of-effort” provision, however, would almost certainly cause millions of people to lose insurance coverage and also hurt the economy, as our new report explains.

The provision requires states to maintain their current Medicaid and CHIP eligibility standards until 2014, when new nation-wide standards take effect and state-based health insurance exchanges begin operating.  If it’s repealed, states likely will scale back eligibility for low-income children, parents, seniors, and people with serious disabilities — the principal groups that Medicaid covers — adding millions to the ranks of the uninsured.

Ironically, at the same time that these governors claim they can’t afford to maintain their Medicaid and CHIP programs in the face of large budget shortfalls, many of them are proposing big tax cuts.  Such tax cuts have a far lower “bang for the buck” in promoting economic growth and creating jobs in a weak economy than the Medicaid spending that would be cut.  Thus, if governors move in this direction, their states would suffer from weaker economic growth and the loss of thousands of jobs due to the lost Medicaid spending.

In addition, when a state cuts its Medicaid spending, it also loses money from the federal government because Washington pays an average of 57percent of each state’s Medicaid costs.  So, every dollar in state Medicaid cuts would mean an average total reduction of $2.33.  If a state used the dollar it saved in state Medicaid funds elsewhere in its budget — rather than to cut taxes — there still would be a net loss of $1.33 from the economy.  That’s just the opposite of what the weak economy needs.

As we’ve noted repeatedly on this blog, states do face major budget challenges due to the long, deep recession.  But, taking health insurance away from millions of people is the wrong solution — not only because it would hurt children, seniors and people with disabilities, but because it would hurt the economy as well.

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More About Judy Solomon

Judy Solomon

Solomon is Vice President for Health Policy at the Center on Budget and Policy Priorities, where she focuses on Medicaid and the Children’s Health Insurance Program and issues related to the implementation of health reform, particularly policies to make coverage available and affordable for low-income people.

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