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Trump Medicaid plan could force service cuts, higher taxes

Republican vice presidential nominee Gov. Mike Pence (R) welcomes presidential nominee Donald Trump to the stage during a campaign event about the Affordable Care Act.
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Republican vice presidential nominee Gov. Mike Pence (R) welcomes presidential nominee Donald Trump to the stage during a campaign event about the Affordable Care Act.

The new Donald Trump administration may soon force states to cut spending on services or raise taxes.

That's because the president-elect wants to overhaul the way the federal government pays for state-provided Medicaid health-care coverage.

Both Trump and House Speaker Paul Ryan have proposed giving states fixed payments called block grants instead of covering a share of the cost of delivering health care to low-income families.

"Trump's proposal to convert Medicaid funding into a block grant program would lead to much lower federal funding to states," according to a statement Thursday from Fitch Ratings, which tracks state finances for investors in municipal bonds.

Trump and congressional Republicans have also vowed to repeal the Affordable Care Act, which expanded the number of people who are covered by Medicaid, a program launched 50 years ago to provide health care for low-income families.

Even without a repeal of the ACA, President-elect Trump could use his executive power to let states opt out of federal guidelines, a choice the Obama administration rejected, according to Kaiser Health News. That could let states cut their costs by imposing work requirements for Medicaid coverage enrollees, charging monthly premiums and shifting other costs to families.

Medicaid spending hit $532 billion in fiscal 2015, with about 62 percent of that funded by the federal government, according to Kaiser Family Foundation data.

Those costs vary widely from one state to another. Alaska spent roughly $10,000 a year for each person enrolled in Medicaid, the highest in the country in 2011, according to the latest data available from the Kaiser Family Foundation. Nevada spent just $3,728, well below the U.S. average of $5,790, according to the data.

Aside from the rising cost per person, states are paying more because they've extended coverage to millions of new people.

Under the ACA, states were offered the chance in 2014 to expand eligibility to more people. Thirty-one states and Washington, D.C., took advantage of the offer and added 15.7 million people to the program, according to government data. That expanded Medicaid rolls to about 73 million people, about half of whom are children.

That expansion of Medicaid coverage, along with the overall rise in health-care costs, put a big strain on state budgets, which rely heavily on federal support to pay for Medicaid services. As of fiscal 2014, federal aid for those Medicaid costs represented about 15 percent of total state spending, according to Fitch.

That impact on individual state budgets varies widely. Alaska and North Dakota spend just 5 percent of their overall revenues on Medicaid spending. New York, Massachusetts, Missouri, Pennsylvania and Rhode Island spend 20 percent or more.

No matter how much states spend on Medicaid, any cuts in federal reimbursements would force them to reduce spending on other programs or raise taxes, or both. The budget pressure could also trickle down to local governments in the form of smaller funding amounts to towns and cities, Fitch said.

That's one reason any changes to federal Medicaid funding will face widespread opposition.

Though President-elect Trump will take office with GOP control of Congress, along with Republican governors in two-thirds of the nation's statehouses, overhauling of Medicaid funding won't be a legislative slam dunk.

Beyond the pressure on state budgets, cuts to Medicaid spending would hurt hospitals, drug companies, medical equipment manufacturers, doctors and other health-care providers.

All of whom still form a powerful lobby on Capitol Hill.