Eric Lupher (00:00.366)

Hello everyone. I am Eric Lufer, the president of the Citizens Research Council of Michigan, Michigan’s most trusted voice on public policy research and policy analysis. We today published a new report titled, Federal Medicaid Cuts Will Have Big Consequences in Michigan. And we’re here to talk about that with the report author, Carly Abramson and Bob Schneider, who’s done a number of

analyses on how some of the issues coming out of DC related to the health insurance will affect Michigan’s budget. Welcome both of you.

Thank you much.

So Carly, let’s start with the basics. Let’s describe what is Medicaid, just to provide a grounding for the program we’re talking about.

Sure. So Medicaid is essentially a health insurance program. It’s a federal state partnership. And it was originally established, 1965, to provide health insurance for, you know, certain vulnerable individuals and populations. So certain people with disabilities, children, and it was expanded to then include a larger percentage of low income people who didn’t necessarily have

Karley Abramson (01:21.742)

a disability or some other condition that you used to be able to have to qualify for Medicaid coverage. It is a matching program, which basically means that however much the state spends on Medicaid, the federal government will match a certain percentage of it based on a formula that can vary by year and by state. Currently in Michigan, the formula is a 65 % match for the general Medicaid fund and a 90 % match for the expansion.

And basically, it’s just a health insurance program for people who can’t otherwise afford or access health insurance.

Yeah. So the report details who some of those people are and sort of the composition of the Medicaid population. Not in great detail, but let’s give a sense for who those people are.

Sure. So in Michigan, it’s a significant portion of the population. It’s about 21 % of the population nationwide and 23 % in Michigan obtain health insurance through Medicaid. Michigan has the highest Medicaid enrollment rate in the region and the eighth highest nationally. And basically there’s, you know, like I said, there’s various vulnerable populations. Medicaid covers

39 % of Michigan children and 22 % of adults age 19 to 64. Most of those adult enrollees are employed, either full-time or part-time. Covers about 52 % of working adults with disabilities, 65 % of nursing home residents, and additionally about 22 % of all hospital patients are served by Medicaid.

Karley Abramson (03:12.694)

It’s a pretty big proportion of people who rely on Medicaid to access healthcare services.

Yeah, it really strikes me when you dig into the numbers that it’s not, you know, just your poor person unwilling to work or something like that. These are children. These are seniors. These are people unable to work. It really was meant to catch and make sure that we’re taking care of the least among us. Correct. The report details a little bit that the

composition of the population and the services provided are not a one-to-one match, that different populations use the services more than others, you know, in terms of children consume more services than your working adult.

Right, yeah, the proportion of enrollment to spending varies depending on the population. so seniors account for 7 % of the enrollment, but 15 % of the spending. so the particular proportion of individuals with certain conditions can have a big impact on the amount that is actually spent on Medicaid. so.

you know, in Michigan, if you have a larger population of seniors or people with disabilities, that’s going to be a higher amount than the state. And then inevitably the federal government will spend to cover those costs.

Eric Lupher (04:56.108)

And then let’s talk a little bit about the services provided. I think this matches up well, whether you’re private insurance or public insurance, but hospital care is the biggest share of it. So you’re providing the services that people need. Something has happened in their life and they need to consume hospital services. Sort of what’s the composition of that?

So yeah, I mean, it covers both long-term and acute care. Like you said, hospital care is the biggest percentage, 33%, but it also, there’s Medicaid money going to physician services, long-term care, behavioral health services, pharmaceutical. And so, a lot of different areas and aspects of healthcare rely on those Medicaid dollars. But yes, as you said, the hospital care and that being

particularly relevant to emergency room care and how those costs could potentially increase. It’s important to note that 33 % of those dollars are taken up by that hospital care.

All right, so something’s happening. Changes are being discussed in Washington DC that all of a sudden put this on our research agenda. What’s going on and why did we think this is a good time to dig into, try to explain Medicaid and help people to understand how that will affect Michigan?

Yeah, so I think it was really important to have some kind of factual grounding in what is happening since we’re hearing about it all over the place and this has potentially large impacts and I, you know, for us to come in and lay out what is speculation and what is actually likely to happen, I think is really important. And so basically, Congress is considering legislation that is controversial, could potentially

Karley Abramson (07:03.872)

lead to a filibuster and there’s, without getting too technical, there are some avenues for Congress to expedite this process to be able to avoid a filibuster debate. And that is called the reconciliation process. And so they are trying to get this other separate bill, the tax cuts and jobs act through the reconciliation process. And so that they can have this expedited debate. The problem is that

only certain types of legislation can qualify for this reconciliation process. And one of the limitations is that it can’t create a deficit for federal spending. Usually over the time period in the bill, it’s usually about 10 years. The way the bill is now, it would create that deficit. So they have to…

find money from another large pot to make sure that that bill doesn’t lead to that overall deficit. I’m sure Bob can be able to provide a little bit more information on that, in a little more detail. But that’s the gist of it, right? And so there’s certain pots of money and big federal programs that might be able to compensate. Medicaid is one of them. We’ve talked about it being a very large source of federal spending. And so the

quote unquote cuts that are being made are looking at how do we reduce Medicaid spending so that we don’t end up creating a deficit by this other bill. And so that’s the larger picture of what is happening. And so we can get into the details of how they’re actually looking to do that. But that is the goal to reduce Medicaid spending to be able to compensate to not create a deficit from the other bill.

Bob, see you sort of perching your, anything you want to add there?

Bob Schneider (08:59.106)

Yeah, and that other bill is the Tax Cut Jobs Act. So it’s the tax policy bill passed during the first Trump administration that set out a framework of federal income tax rate reductions and was administered through this same reconciliation process. Because of the reconciliation process,

Those tax cuts had to be set to expire and they are due to expire. So the Trump administration now in its second term as a primary goal of extending those tax cuts. And as Carly mentioned then, extending those tax cuts means we’ll have less revenue with the extension that we otherwise would that projects out as a significant driver of higher deficits.

And, you know, so now, in order to get past the filibuster in the, in the Republican controlled Senate, they need to find other places to cut, to cut spending and Medicaid is, one of the primary places, probably the primary place right now, with over $800 billion in, in, in, spending reductions required in order to allow for, the,

the tax cuts extension to go through the reconciliation process.

So Medicaid is an entitlement program. When we talk about spending cuts, it’s easy to think about your own private budget or the company budget and a lot of government services. The federal government could choose to spend less by buying one less boat for the Navy, one less plane for the Army, or many other things. But entitlement doesn’t work that way. If people are entitled, how are they?

Eric Lupher (11:00.738)

Does the reconciliation program propose to cut spending to Medicaid?

So yeah, so there are different potential ways to do it. And there’s certain ones that already that are in the House bill, other ones that are being discussed. But as you said, it’s not like the federal government can just be like, we’re just going to decide to spend less because it’s a matching entitlement program. so instead, they have to make other changes to Medicaid in order to reduce enrollment, which will reduce spending. One of their primary

avenues for this in the House bill is the changing the work requirements, which basically the work requirements that people must be working or must be looking for work for a certain amount of time to qualify. It applies to certain groups. And there are some proposed changes to the work requirements that are intended to make it a little bit harder to either meet those requirements or to administratively prove through the paperwork.

that they do meet those requirements. And so they’re kind of creating a larger burden on individuals to be able to meet or either show that they meet those work requirements with the goal of fewer people will meet them, fewer people will then be enrolled. And so that is one of the primary avenues for reducing enrollment, which will then reduce spending. Another component is this limit on provider taxes. And so essentially,

States could potentially have less revenue to spend on Medicaid. And because it’s a federal match system, if the state spends less, then the federal government spends less. And so those are the two primary ones that are in the bill. There’s also potentially limits on the matching formula and the amount. Right now that doesn’t affect Michigan as it is written in the bill, but this is still up in the air and that…

Karley Abramson (13:03.81)

that could be something that could be brought back in. We don’t know what the final form is going to look like, but essentially that pathway of we need to reduce spending, we need to reduce enrollment, we’re gonna do that through work requirements. We’ll make it harder for people. We’ll mean less people are using Medicaid.

Karley Abramson (13:27.874)

That makes sense.

It does. So people in Michigan should pay attention to this. Not only the low income people that are the

the title you used, the populations covered by Medicaid, but the general population generally. It stands to be affected if these changes come down.

This is.

Karley Abramson (14:01.432)

So first of all, obviously the people who might directly lose their health insurance coverage, right? But also there’s a much larger impact on the healthcare system. And there’s a lot of talk about rural populations and kind of what happens in those communities. So to explain, if you have fewer people on Medicaid, that doesn’t necessarily mean a decrease in the amount of care that they need. And so if we have people…

who don’t have access to health insurance but are still showing up to the emergency room or to hospitals who need that acute care in the moment, that burden then shifts on the hospitals to provide that care and to try to make up those costs. And so in those situations in hospitals, in a lot of rural counties where a large share of their population does rely on Medicaid, that’s an even larger shift in that burden and a larger cost that they’re going to have to figure out how to make up.

The potential impact of this is that rural hospitals function to run or they can’t operate as well. Some have to close, which then means that anyone in those communities with private health insurance who relied on accessing those hospitals now has limitations on how much care that they can receive, even though they have health insurance. It’s not just an individual impact. The entire system is at risk because of these costs.

These cost burdens are shifting. And so they’re either going to go to the hospital or onto private insurers who have to increase their costs. And so this is very likely to be felt by not just those who end up uninsured. It’s likely to be felt across the board, but particularly in those rural communities where the likelihood of closure or disruption is much higher because of how much they rely on Medicaid.

Now, in other places, we’ve heard the idea of uncompensated care, that the hospitals still have some requirement to treat people. But if they don’t have Medicaid or private insurance, they either have to come up with it out of their own pocket, or the hospital eats those costs. So how is that cost-defraided? You’ve talked about the

Eric Lupher (16:26.028)

like the viability of the hospital, but we as consumers of health insurance with private insurance, there’s some cost sharing that might flow to us as well.

Right, yeah, mean, because also it’s not just that the current ER usage might stay the same. It might actually go up because fewer people will have access to preventative care. Preventative care is shown to reduce the amount of ER visits, make people healthier. We can have more people arriving in the ER who are sicker.

And so where it’s not just about maintaining the current costs of how much we currently spend on the ER, we’re potentially seeing even larger costs. And so that burden shifts onto private insurers, that kind of logical train of how somebody has to take up these costs and either hospitals have to close.

private insurers have to take it on and increase their premiums or change. So this is very, very likely to trickle down all the way to individuals, whether or not they have insurance and create barriers to accessing care.

So Bob, we’ve talked about the individuals covered by Medicaid, the health providers, the hospitals and clinics, and general citizens receiving health care through private insurance. How’s the state government going to be affected if these changes come down?

Bob Schneider (18:06.894)

So the impacts could be pretty substantial depending on what elements of this survive and end up in a final bill. I think one thing that isn’t talked about a lot is the work requirements, there’s some new provisions regarding redetermining eligibility more often than is required now.

which also I think is expected to reduce Medicaid enrollment. Those things cost money for one, so the state would bear greater costs for monitoring requirements for more caseworkers to make sure that we can handle accelerated redeterminations that are proposed in I think both the House and Senate version as of the moment. And then more significantly,

The provider tax proposals in particular have the potential to really increase state contributions to Medicaid in a way as it was designed to reduce the federal contribution. Well, if we want to maintain our current program, the state needs to kick in costs there.

There’s a couple avenues where the state is going to incur, I’ll talk about a few, where the state’s likely to incur greater costs. One is unique to Michigan and a handful of other states that have provider taxes that, Michigan has an insurance provider tax. It’s a tax on all health insurers. It’s based on a per member per month rate that they pay.

and that the revenues help support the Medicaid program. Both the reconciliation bill and a separate rule that seems very likely to go through would require Michigan to suspend that tax and probably as it’s written now, suspend it really soon, like in the next year, maybe even the next six months once that rule is in place.

Bob Schneider (20:26.798)

That’s probably a half in order to maintain the loss of that revenue from that unique tax. It’s probably a half a half billion dollars in new state revenue that Michigan will need to contribute. And then, you know, so that’s a big, that’s a big amount in the state budget, even as big as the state budget is our, our general fund, our, our truly discretionary revenues in the 15 to $16 billion range.

It’s a large chunk. And then just in general, Michigan also, like most other states, have provider taxes on hospitals, provider taxes on nursing homes. And the Senate version of the bill right now pulls back on those. says that effectively the rate that you can charge needs to go down. And if you look at the numbers there, that’s gonna be one of two things has to happen in Michigan.

If we don’t have that revenue that we currently get from hospitals to help boost their reimbursement and from nursing homes to help boost their reimbursement, one of two things has to happen. One, they lose that reimbursement. So hospitals now have much less Medicaid-based revenue coming in. And for hospitals, there’s some estimates that suggest that could be.

a billion and a half to $2 billion annually in Michigan from some numbers offered by the Michigan Department of Health and Human Services and a little bit more for nursing homes as well. So either we lose that reimbursement and it would be substantial for hospitals or the state having lost the ability to charge what it is now for these provider taxes

would need to plow in some more funding there to help do what the provider taxes are doing now to leverage that federal revenue. And that’s probably more than a half billion, 600, $700 million that Michigan would have to come up with from its existing revenues to maintain what we’re providing now to hospitals and nursing homes. So altogether,

Bob Schneider (22:52.066)

You know, that’s significantly over a billion dollars in potential budget hits if the Senate provider tax provision goes in and then if the very likely we lose the insurance provider assessment that we currently have access to. So I would say for Michigan and the vast majority of states who have provider taxes, that will be the main challenge.

on the Medicaid side and there’s other things going on with food assistance and things that will also be significant for states.

podcast. So two questions. The first one, it seems from what I saw that Michigan and a few other states, the way they structured that assessment provider assessment tax, you’re kind of recycling the money and the target. Is it possible to reform that tax or restructure in a way that’s more in compliance or

is the federal government really trying to push so if you’re going to fund it as general fund you can’t use any of these mechanisms.

So for the insurance provider assessment, I think it’s done. And there won’t be the state found in a convoluted story, which we talk about in a blog that folks can reference. Michigan basically and other states have kind of taken advantage of a bad federal statistical test that’s meant to

Bob Schneider (24:35.65)

rein in kind of how these taxes are administered. And that’s, think, I don’t think there’s any way that the insurance provider assessment survives. The only option for Michigan would be to raise revenue in some other way. We used to have a health insurance claims assessment that the business community hated. To go back to something like that would help a little bit, but I think that

that revenue is probably gone. On the general, hospital and nursing home provider taxes, again, there would, this is like here, we currently allow you under the law to charge this much and we’re reining it in. And again, there’s not a lot of options for Michigan other than to give up some of that revenue. And importantly, that provision of the

of the reconciliation bill, both in the House and in the Senate, say you can’t, no more new insurance, no more new provider taxes and no increases in your current levels of provider taxes. So it starts to limit what states can do with what has been a very important revenue source for Michigan and many other states that have leaned heavily on.

provider taxes and Michigan has. Michigan is I think out front in terms of taking advantage of what federal law used to, know, allows and would not, would in a more limited form under the reconciliation bill, any version that we’ve seen so far.

So the second question I think both of you can weigh in on. Medicaid requires states to provide certain services or certain services have to be funded through Medicaid. But there are some optional that states choose whether to put onto the menu or not. Is there some savings by scaling back what the state is offering through Medicaid, what services it agrees to fund through Medicaid?

Eric Lupher (26:49.76)

And in the big picture that hospital care is a third of the services and long-term care, another 15%, is there any real savings there, or is that just at the margin?

I don’t know exactly. My guess is that you have to consider the short-term cost savings and the long-term cost savings here anytime you’re talking about healthcare and those kinds of changes because if you scale that costs at first, sometimes it creates larger costs down the road. Like we were talking about with preventative care leading to more expensive care later down the road.

there are potentially cost savings, but whether or not they would be worth the long-term potential expenses from making those cuts. don’t have that analysis and I don’t have a lot of that information, that’s the kind of analysis that I think you would have to do to kind of weigh those short-term.

things that could potentially be pulled back, but based on the research about what we have about the importance and significance of those aspects of care, how much is that going to cost the state in the long run? And that’s just a larger analysis that would have to be done to know if that would be worthwhile.

Yeah. And I’d say, so, I mean, there’s, you know, we can think about the cost in two ways, right, for this is if, as, as a structure now, it seems like work requirements are, are, are going to be a component of, intended at least for now to be a component of, of the reconciliation bills. And there it’s not as much the states, the states do have administrative costs they’ll need to meet.

Bob Schneider (28:44.514)

I don’t think those will be massive, but that’s the human cost now, People who have healthcare coverage don’t have coverage. They get less healthy. And then down the road, you can have higher costs, whether they’re met by Medicaid or private insurers or uncompensated care. That’s mostly human costs in the short to medium term, at least.

On the other side, where we talked about the state costs, is kind of driven by some of the provider assessment, provider tax limitations. There, the state has the potential. If something like the Senate bill goes through and gets enacted into law, that’s big number, that’s big dollar costs for the state. And then the state’s going to have the dilemma of, do we

make hospitals and nursing homes eat this lower reimbursement and then the health impacts and the coverage impacts that come to Medicaid and as we said, privately covered persons in Michigan? Or do we try to preserve the funding to hospitals and

and dig into our own state revenues. And it’s then, I think, where the state will need to look at some of the things you’re talking about, Eric, which is we have mandated populations. need to cover mandated services. But we do have optional services. We have optional populations. And so then, do we preserve some of the hospital revenue by making up for the loss of our provider tax? But then, do we need to look at cutting

dental care, adult dental care, something like that. What do we do? Would any state, I don’t think Michigan, but do states reconsider their expansion or the extent of the Medicaid expansion? Those types of challenges to states come to mind because you’re gonna have a hole and you’re gonna need to decide how to resolve the budget.

Bob Schneider (31:08.098)

dilemma that you would be in without the provider tax.

Eric Lupher (31:13.676)

Are there any other policy options that the state or the counties, anybody could be considering as this moves forward? How do we make sure that there’s healthcare in rural areas?

What’s the…

be putting on the radar for the policymakers in Lansing.

Yeah. I mean, I know on the federal level, I know there’s some talk about trying to create funds for these rural populations. But that’s, you know, first of all, relying on the Fed on those federal funds. And as of now, as they’re being discussed, they’re not significant enough to really compensate for the potential hit that these rural communities are going to have. So don’t know how fruitful that, you know, that is going to be. But I do think.

Whatever the policy options are, know, everyone will be affected, but there are going to be certain disparities about which areas are going to face it more. so state and, you know, local policy trying to pinpoint in on the, you the areas that are going to be hit the hardest. But I don’t, know, as Bob said, there’s a lot of choices. There’s a lot of things to move around. It’s about what do we move around and why and who and.

Karley Abramson (32:32.492)

you know, there’s a lot of different levers you could pull, you know, higher decisions above my pay grade.

So any concluding thoughts? This is a big issue, huge consequences for the state at the same time. It’s trying to deal with tariffs and changing economic activity and maybe a few less dollars flowing in than it was projecting three, four months ago, six months ago. What are the concluding thoughts for our listeners?

We’ve done some recent analyses just talking about the challenge. We have multiple challenges with our state budget process right now that’s going through for fiscal year 26. And that fiscal year starts in just a few months. October is coming quick with road funding, but the road funding plans require the state to find new revenue from within.

These, the provider taxes and the costs of administering Medicaid, new Medicaid requirements would require us to look from finding from within. The lost revenue you just talked about, and that wasn’t major, but a slight downgrade in revenue projections mean you’ve got to find from within. this, the fiscal year 26 budget, as we talked about recently, is going to be a difficult one to.

to conclude with lots of question marks. And this is just one more big question mark that has the potential to have a significant impact.

Eric Lupher (34:24.398)

Well, let’s wrap it up with that. For anybody interested, you can find our new paper, Federal Medicaid Cuts Will Have Big Consequences in Michigan, on our website. You can find a link to it on the home page, and you can also click on the Research tab and find it there. Bob, a couple of times, has mentioned a, we call it a blog. We recognize it’s not really a blog. It’s a short form essay that we put on. If you click on the blogs,

have and it should be third or fourth in line right now. And you’ll find a whole lot of other research as we try to keep up to date on what’s going on in DC and within Michigan and how that’s affecting state government, local government budgets, school finance and so on. Thank you for listening to us. As always, we hope that you will support our work.

We are a 501C not-for-profit organization and rely on contributions from businesses, foundations, and individuals in Michigan that value the work that we do. So please consider supporting us in any way that you can. Until next time, thank you. I’m Eric Lufer from the Citizens Research Council.

The Citizens Research Council of Michigan has been providing lawmakers, academics, the media, philanthropists, business leaders, all Michigan leaders with factual, unbiased, independent information on significant issues concerning state and local government organization and finance for over a century. Our research is available to you.

Voters on gander.

Karley Abramson (36:10.796)

Go online at CRCmich.org and on all the social platforms, Twitter, Blue Sky, Facebook, Instagram, LinkedIn, and download our research. Check out our numerous papers and blogs and listen to our podcasts. And while you’re there, please consider supporting our research with a donation. This has been a Facts Matter podcast, a presentation

media play.

Bob Schneider (36:26.862)

you

Karley Abramson (36:38.326)

of the Citizens Research Council of Michigan.