House Bill Would Cut Federal Medicaid Payments for Prisoners, Shift Costs to States

Legislation that the House Energy and Commerce Committee has approved would cut federal payments for inpatient hospital care to certain prisoners under Medicaid, shifting $2 billion in Medicaid costs to states over the next decade and setting a precedent that could undermine health reform’s Medicaid expansion.  

Medicaid doesn’t cover health care services for people in public institutions, including jails and prisons, leaving them for state and local governments to pay.  But under a longstanding, pre-health reform rule, Medicaid does cover hospital care that Medicaid-eligible inmates receive for at least 24 hours outside the jail or prison.

Under health reform, more adults are eligible for Medicaid in states that have expanded Medicaid, so the program can cover a greater share of the hospital care for prisoners.  Like any other service under Medicaid, hospital care for prisoners is financed at the applicable federal matching rate (FMAP) — the federal share of federal-state financing in each state.  That means that under health reform, the federal government pays 100 percent of the costs of hospital services for adults who are newly eligible for Medicaid under the expansion through 2016, phasing down starting in 2017 to a permanent 90 percent by 2020.

The legislation would undo that element of health reform for this group by cutting the federal funds that states receive for care for these newly eligible adults to the state’s regular federal matching rate — which ranges from 50 to 75 percent depending on the state.  That would shift more of the costs of inpatient care for prisoners back to states, which would have to boost their own spending or, more likely, cut Medicaid or other state programs to make up the difference.  Overall the legislation would cut federal spending for care for prisoners by $2 billion from 2016 to 2026.

This proposal would set a dangerous precedent and fuel the opponents of health reform’s Medicaid expansion in the 19 states that still haven’t adopted it, who continue to argue that the federal government will renege on its commitment to permanently pick up nearly all of the cost.  History suggests otherwise — the President and Congress have only cut the FMAP once, in the 1980s, and then only temporarily.  But opponents would almost certainly use this proposed cut in the FMAP for prisoner hospital services to justify states’ inaction in expanding Medicaid, leaving poor adults uninsured.

Moreover, the legislation includes two other provisions that would shift substantial costs to states — eliminating the temporary increase in the federal matching rate for the Children’s Health Insurance Program and restricting state use of provider taxes.  Together, the provisions led Matt Salo, the National Association of State Medicaid Directors’ executive director, to describe the legislation as “a clear and present danger to states.  Undeniably a multi-billion cost shift to states.  Very problematic.”