Washington Update: Congress Proposes Overhauling Medicaid

Medicaid is getting an overhaul that is likely to reduce coverage and addcosts for states. The frequently stated reason for capping Medicaid is toprovide states with flexibility. However, given the construct of the budgetpressures states are likely to face if the House Republican proposal — theAmerican Health Care Act (AHCA) to repeal and replace the Affordable CareAct (ACA) — goes through, it is unlikely states will have that flexibility.

Medicaid is the nation’s largest healthcare program, covering 74 millionindividuals. About 60 percent of Medicaid’s spending is for the elderly andthe disabled, many of whom come from middle-class households.

The program is funded jointly by the federal government and the states. Itcurrently is an open-ended commitment, meaning the federal government paysa certain percentage of each state’s costs with no fixed dollar limit. Ifcosts rise, states get more money. Because most states require themselvesto have balanced budgets, the state share of Medicaid is often one of thelargest items in a state budget. Most states have sought “1115 waivers” inorder to structure their program to fit states’ unique characteristics andto hold costs down. If you have seen one Medicaid program — you have seenone Medicaid program. About 11 million individuals have gained coveragethrough Medicaid since 2014.

On March 9, 2017, the House Ways and Means Committee and the House Energyand Commerce Committee “marked up” and reported the proposal. This articlerefers only to the Medicaid portion of the American Health Care Act (AHCA).

Budget Pressure on the States

While no Congressional Budget Office (CBO) score is available for the HouseGOP plan at this writing, the Center for Budget and Policy Priorities(CBPP) estimates that the proposed plan could shift an estimated $370 billion in Medicaid costs to states over the next 10 years.

The Underlying Fundamental Change — Moving the Program to a Per-CapitaCap

Under the House Republican plan, the open-ended commitment for federalfunding changes. Instead, federal funding would be based on what thegovernment spent in the fiscal year that ended Sept. 30. Those amountswould be adjusted annually based on a state’s enrollment and medicalinflation plus 1 percent.

Per-Enrollee Caps

The plan includes per-enrollee caps for five enrollment groups — theelderly, blind and disabled, children, expansion, and other adults based onthe state’s per-beneficiary expenditures in fiscal year 2016. Some costswould be excluded from this cap — administrative costs, disproportionateshare hospital (DSH), Medicare cost-sharing and safety-net provider paymentadjustments in non-expansion states, and costs for certain categories ofindividuals, including those receiving services through the Children’sHealth Insurance Program (CHIP), individuals receiving services through theIndian Health Service, and Breast and Cervical Cancer Services, as well aspartial-benefit enrollees.

For states opting to adopt the Medicaid expansion after 2016, theper-enrollee amount for this group would be the same as the amount for theother adult group under the per-capita cap.

Impact on States

Because Medicaid costs per beneficiary are expected to rise by about 0.2percentage points faster each year than states’ capped amounts,states would get less federal funding than under current law, with the cutsgrowing each year.

This also means that states would be responsible for 100 percent of anycosts in excess of the per-capita cap, regardless of the reason. Sounanticipated healthcare cost growth, or demographic changes for which theper-capita cap did not account, would be the state’s responsibility.

The Expansion Population

Starting in 2020, states would receive only the regular federal Medicaidmatching rate — on average, 57 percent of Medicaid costs, with statescovering the other 43 percent — for any new enrollees under the expansion,instead of the ACA’s matching rate of 90 percent. CBPP estimates that thismeans expansion states would have to pay 2.8 to 5 times more in terms oftheir own costs. People who are covered under the expansion would continueto be funded by the federal government after 2020, but states would nolonger be allowed to enroll anyone under those expanded criteria.

While states could still get the expansion matching rate for beneficiarieswho were enrolled before the end of 2019 and stayed enrolled without abreak in coverage, the large majority of beneficiaries now on Medicaidunder the expansion would likely fall off the program eventually.

As four Republican senators from expansion states noted in a letter toMajority Leader Mitch McConnell on March 6, commenting on a previouslyleaked House draft with a virtually identical Medicaid expansion proposal,“many [Medicaid beneficiaries] cycle on and off Medicaid due to frequentchanges in income, family situations, and living environments.”

Thus, within just a few years, it is likely that the overwhelming share ofMedicaid expansion spending would eventually be subject to the regularmatching rate.

In seven states, expansion coverage would automatically end because statelaw requires their expansion to end if the federal Medicaid matching ratefalls or requires the state to take steps to prevent its Medicaid costsfrom rising. For the other 24 states and the District of Columbia, it meansan actual cut in federal Medicaid spending. This means that theoverwhelming majority of 11 million low-income adults in 31 states and theDistrict of Columbia who gained coverage are likely to lose it and mostlikely be uninsured over a few years after enactment. Some of the stateactions that have been predicted include the following:

• Arkansas will likely end its expansion program within 120 days of a reduction in the enhanced federal match.
• Arizona’s first law introducing expansion mandated elimination of the program if Congress brings the federal match lower than 80 percent. The state then set up an 1115 waiver to cover the expansion population in case of a reduction in the federal match.
• Illinois is likely to eliminate its expansion program no later than three months after the federal match drops below 90 percent.
• Michigan is likely to stop its program once the match drops below 100 percent and all state and non-federal savings garnered through Medicaid expansion no longer covers the difference.
• New Hampshire is likely to end its programs within 180 days if the federal match drops below 95 percent in 2017 and 94 percent in 2018.
• New Mexico is likely to “reduce or rescind eligibility” for the expansion population if the federal match drops.
• Washington law mandates the Washington State Healthcare Authority raise premiums, reduce benefits or cut the program in other ways so the state does not lose money by keeping the expansion once the federal match is lowered.
• California has a provision to stop expansion if the federal match is not available. However, it does not explicitly say expansion will end with the enhanced federal match.
• Montana ’s legislature gave the state authority to submit a waiver request for its expansion program, which includes premiums and cost-sharing. CMS approved this waiver through December 2020, but the state’s authority to renew it expires June 30, 2019.
• North Dakota will not automatically end its expansion if Congress reduces the federal match, but the state must inform new enrollees that “benefits may be reduced or eliminated if federal participation is reduced.”

Other Changes

• Repeal Medicaid DSH cuts for FY2020 – FY2025; exempt non-expansion states from DSH cuts for FY2018 – FY 2019.
• Provide $10 billion over five years (CY2018 – CY 2022) to non-expansion states for safety-net funding (which applies to states not adopting the expansion by July 1 of the previous year). Allotments will be based on the number of individuals in the state with income below 138 percent of the federal poverty level (FPL) in 2015, relative to the total number of individuals with income below 138 percent of FPL for all the non-expansion states in 2015. Payments will be 100 percent funded by the federal government in CY 2018-2021 and 95 percent in CY 2022. Payments to providers may not exceed providers’ costs in providing healthcare services to Medicaid and uninsured patients. States receiving these funds in a year in which they also adopt expansion shall no longer be eligible to receive these funds in any subsequent year.
• States would be required to determine Medicaid eligibility every six months, starting Oct. 1. The requirement is limited to beneficiaries whose eligibility is determined under their modified adjusted gross income (MAGI), and the legislation would help fund the new renewal requirement by providing states a 5 percent increase in federal matching funds.
• Increased funding for community health centers.

Conclusion

Converting Medicaid to a per-capita cap would also make the program highlyvulnerable to more cuts in the future. If Medicaid funding is delinked fromthe actual cost of providing healthcare to the Medicaid population, in thefuture Congress could come back and ratchet down the per-beneficiary caps —by, for example, lowering the annual growth rate for the cap amounts — topay for other priorities.

In response, states would have to contribute much more of their own fundingor, far likelier, substantially cut eligibility, benefits and providerpayments, with the likelihood that those cuts could grow more severe overtime. Along with those who gained coverage under the Medicaid expansion whoare now likely to lose coverage overtime, the remaining 63 million childrenand families, seniors, and people with disabilities who rely on Medicaidtoday would face a risk of ending up uninsured or losing access to neededcare.

While the proposal may pass the House, its future in the Senate is unclear.The Senate leadership has made it clear they want to have the legislationon the floor of the Senate before the Senate recesses in April and severalRepublican senators have expressed concern over the Medicaid expansionpopulation funding.

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