Medicaid reform/federal cuts long overdue

Gov. MLG recently went on the TV show Face the Nation to decry potential cuts to Medicaid. She even claimed the reforms would ““destroy health care as we know it.” Pretty much every elected Democrat in New Mexico supports Medicaid as it currently exists because they view it as an “economic development” program. That’s largely due to the fact that the federal government picks up 72% of the bill while New Mexico pays “only” 28%.

That may sound like a great deal for New Mexicans until you realize that Medicaid spending is expected to grow by a mind-blowing 27% next year and spend an astonishing $15.5 billion. That’s 1/3rd larger than the State’s fast-growing general fund budget which pays for education and public safety (to name just two priorities). In other words, even with “just” 28% of that coming from New Mexicans, that’s STILL $4.34 billion state tax dollars (setting aside the federal tax burden placed on New Mexicans).

As part of their efforts to find savings to make way for the Trump tax cuts Republicans in Washington have put forth a few ideas that would constrain Medicaid spending a bit.

As The Hill notes, “Provider taxes have been a lucrative loophole for states to get more federal Medicaid funding by taxing providers and then returning the money to them in the form of higher reimbursements for treatment. The proposal would freeze all state taxes at their current rates and prevent states from imposing additional taxes.” New Mexico has been doing this for years and in 2024 the Legislature passed a provider tax that helped the State fleece taxpayers in the other 49 states of $1.5 billion. This is abuse of the Medicaid system. Unfortunately, the Republicans’ plan only prohibits future such schemes, not existing ones.

It’s worth mentioning that New Mexico could easily afford to replace federal Medicaid dollars with its own money. The State is sitting on $61 billion in “savings.” In the recently-completed legislative session the State has set up a mechanism to accumulate another $2 billion for the explicit purpose of “replacing” federal Medicaid dollars if indeed cuts happen.

Another initiative of Congressional Republicans’ (again from The Hill) is “work requirements.” Under the proposal, states must enforce “community engagement” requirements on Medicaid enrollees beginning in 2029.  Community engagement is defined as 80 hours of work, community service or a work program each month. Other options include at least half-time enrollment in an educational program or a combination of the available options.

We’d love to see that moved up (why wait until 2029), but with New Mexico’s abysmal workforce participation rate remains depressed by any historical metric. It is lower than it was before COVID and it is lower than it was going back to 1976. Adding work requirements to Medicaid is just common sense.

While Lujan Grisham and Democrats will undoubtedly claim that the sky is falling on New Mexico and other states, Medicaid needs to be reformed dramatically and that really needs to come from the federal level. We’d like to see the federal government block grant (and then shrink over time) Medicaid dollars. That would both remove the incentive for New Mexico and other states to “game” the system as they clearly have been doing AND it would place the federal government on more sound budgetary footing.