Federal proposal for cutting safety-net money supports Louisiana decision to decline Medicaid expansion, state says

Small cuts for Louisiana mean care for uninsured will not be affected.

A top Louisiana health agency official on Monday said a proposed federal rule cutting the money that funds the state's safety-net hospitals supports Gov. Bobby Jindal's decision to decline to expand the Medicaid program for the poor.

The U.S. Department of Health and Human Services released a proposal for how the agency would cut "disproportionate share hospital" payments that finance hospital care for the uninsured. In Louisiana, this money is largely funneled to the LSU public hospitals that provide the bulk of the care for uninsured people.The Jindal administration and LSU are currently working on proposals to privatize operations of the public hospitals.

The cuts are part of the Affordable Care Act, the federal health law that kicks into high gear next year. The law envisioned that states would expand the Medicaid program, providing insurance coverage to millions of low-income people who lack insurance. To help pay for this expansion, lawmakers decided to halve the so-called DSH payments over time under the theory that there would be far fewer uninsured people seeking care in hospital emergency rooms when they get sick.

But the U.S. Supreme Court decision last summer upholding the law made expanding the Medicaid program optional. Jindal and other Republican governors have since argued against adding more people to Medicaid, saying the program is outdated and in need of reform.

For many states leaders, the Medicaid expansion is still a good deal. The federal government pays the entire cost for all new enrollees for the first three years. The state share eventually increases to 10 percent, less than Louisiana pays to draw down the DSH dollars. The expansion could cover 290,000 uninsured Louisianans, a recent legislative analysis found.

However, the way the DSH cuts are laid out in the federal law turned out to be in the favor of anti-expansion politicians. For example, the law requires that states with the highest number of uninsured people will get the smallest cuts. States that expand Medicaid are likely to have proportionally fewer uninsured residents than states that don't, a fact noted in the proposed rule.

Jindal administration officials have argued that the state doesn't need the Medicaid expansion to keep providing adequate care for the uninsured. They specifically have noted that Louisiana receives a large share of the DSH money compared to other states, providing a buffer against future cuts.

The cuts for Louisiana in 2014 are relatively small, only about 3.5 percent.

"This level of reduction will have no impact on our ability to make payments at current levels," state Department of Health and Hospitals Undersecretary Jerry Phillips said in a statement, which noted that the agency is still reviewing the proposal. "This proposed rule only strengthens our belief that expanding Medicaid is not in the best long-term interest of our state, and we will continue to focus on strengthening our safety-net system through LSU's public-private partnerships."

Phillips acknowledged that the rule mentions that the federal agency could eventually take into account a state's decision about whether to expand Medicaid.

The federal health agency's proposal deals only with 2014 and 2015, when $1.1 billion is slated to be cut from the disproportionate share funds. President Barack Obama's administration has proposed to do away with the initial cuts for next year, but it is unclear if Congress will embrace this concept in next year's budget.

While the cuts are relatively minor in the initial years, they eventually become much steeper. By 2017, the federal health law would reduce the hospital funding program by $1.8 billion, which grows to annual cuts of $5 billion in 2018 and 2019.