Medicaid Reform After the American Health Care Act Fails to Pass

Will block grants and per capita limits hurt Medicaid?

Giving Support
Barabasa/istockphoto

Healthcare reform has been the focus of recent political debate. Will the GOP repeal the Affordable Care Act, aka Obamacare, or will Republicans find other ways to pull back on its policies? After the American Health Care Act (ACHA), aka Trumpcare, failed to receive a vote in the House in March 2017, it is hard to know what to expect under the current administration.

The fight is far from over. Speaker of the House Paul Ryan is still looking to take action on health care, although he has not committed to a deadline.

Hopefully, a more thoughtful and comprehensive healthcare plan will be presented on behalf of the American people. What would such a plan include for Medicaid, the healthcare program that treats the poor and disabled?

How the Federal Government Pays for Medicaid

Medicaid is a program managed by both federal and state governments. The federal government sets the standards for who and what must be covered, and each state decides whether or not to add additional services to its program. They cannot offer less. As for funding, federal and state governments jointly contribute to their respective Medicaid programs.

To understand the potential changes coming our way, we need to understand how the federal government funded Medicaid at the start of the Trump administration.

All states receive federal funding through three sources.

  • Disproportionate Share Hospital (DSH) payments: With reimbursements for Medicaid notoriously low, hospitals that care for a disproportionately high number of people on Medicare or for the uninsured could struggle financially. DSH payments are paid to the states for distribution to hospitals in need.
  • Federal Medical Assistance Percentages (FMAP): The federal government matches state spending on Medicaid dollar for dollar and offers higher rates in states that have lower per capita incomes.
  • Enhanced matching rates: The federal government pays above and beyond FMAP rates for certain services including but not limited to breast and cervical cancer treatment, family planning, home health services, and preventive screening for adults.

    The question is whether these methods of federal support will continue under President Trump or if will they be replaced with an alternative funding model.

    Federal Funding for Medicaid Expansion

    Medicare expansion took effect in 2014 and was a major component of the Affordable Care Act. It changed the income limits that would qualify people for Medicaid and allowed single people without children to be eligible if they met those income limits.

    The federal poverty level (FPL), defined ever year, depends on whether you are an individual or in a family, and also on the size of your family. States set Medicaid eligibility based on percentages of the FPL. Obamacare increases the income eligibility criteria for Medicaid to 133 percent of FPL for states that chose to participate, while states that deferred Medicaid expansion could keep eligibility criteria at the previous rate, 44 percent of FPL. Non-participating states could continue to exclude childless adults from coverage.

    Naturally, this affected federal funding for the program. States with Medicaid expansion received additional federal dollars to assist them, up to 100 percent of expansion costs through 2016 and then 90 percent of those costs through 2022.

    Proposed Funding Changes for Medicaid

    The American Health Care Act included many provisions that cut funding for Medicaid. Although the plan grossly undercut Medicaid expansion, it did state it would provide the additional funding to states that had been promised through 2022.

    According to National Health Expenditure Data, Medicaid spending exceeded $545 billion in 2015, accounting for 17 percent of all healthcare costs. With that number on the rise, Republicans are looking for a way to cut down on that spending. The two main proposals for Medicaid reform are a change to per capita limits or block grants.

    Per capita limits are a fixed amount of money that would be paid to a state each year. The value is based on how many people are in the Medicaid program. This would allow the federal dollar amount to increase in subsequent years if more people qualified for and were enrolled in the program. Per capita limits on Medicaid were proposed with the initial draft of the American Health Care Act. 

    Many Republicans, in particular the Freedom Caucus, believed per capita limits did not go far enough to decrease federal spending on Medicaid. The American Health Care Act transitioned from offering per capita limits to making use of block grants for Medicaid. Unlike per capita limits, block grants do not take into account the number of people on Medicaid. Federal payments are dispersed in a fixed amount that would increase marginally each year to account for inflation. The problem is that inflation may rise slower than the cost of medical care.

    An analysis performed by Avalere, a healthcare consulting firm, estimates that over five years the federal government would save as much as $110 billion if they used per capita limits or $150 million if they utilized block grants for Medicaid.

    How Would Medicaid Programs Adapt?

    The question remains if either of these proposals will be included as part of Ryan's future healthcare overhaul. If per capita limits or block grants are enacted, states would lose a significant amount of funding. To counter those losses, they may need to make changes that make their Medicaid programs more efficient.

    States may have to cap their total Medicaid spending, cut what services are covered by Medicaid, or put limits on how many people they can enroll, even if those people meet eligibility criteria. Block grants would be especially limiting to states because they would curtail both spending and enrollment growth.

    Sources:

    H.R.1628 - American Health Care Act of 2017. Congress.gov website.  https://www.congress.gov/bill/115th-congress/house-bill/1628 .  Updated March 24, 2017.

    National Health Expenditure Data Fact Sheet. Centers for Medicare and Medicaid Services website. https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/nhe-fact-sheet.html. Updated December 2, 2016.

    Pearson CF. Capped Funding in Medicaid Could Significantly Reduce Federal Spending. Avalere.com. http://avalere.com/expertise/managed-care/insights/capped-funding-in-medicaid-could-significantly-reduce-federal-spending. Published February 6, 2017.

    Rosenbaum S, Schmucker S, Rothenberg S, Gunsalus R. What Would Block Grants or Limits on Per Capita Spending Mean for Medicaid? Issue Brief (Commonw Fund). 2016 Nov; 39: 1-10. https://www.ncbi.nlm.nih.gov/pubmed/27959479.

    U.S. Federal Poverty Guidelines Used to Determine Financial Eligibility for Certain Federal Programs. Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services website. https://aspe.hhs.gov/poverty-guidelines. Updated January 31, 2017.

    Continue Reading