On Medicaid Money, GOP Has Win-or-Lose Proposition for States

“Per-capita caps” plan comes under fire

States’ policies differ regarding who or what to cover under Medicaid, and those decisions have led to historical variances in how much federal money they receive. House Republicans’ efforts to shrink Medicaid spending would lock in the differences in a way that favors those already spending high amounts per enrollee, according to a report from Kaiser Health News (KHN).

“Republicans are finding out why changing Medicaid is so hard and why the easiest thing to do is to do nothing, given the substantial variation in federal spending across states,” John Holahan, a health policy expert with the nonpartisan Urban Institute, told KHN.

Here’s why.

Medicaid, the national health program for low-income people that covers approximately one in five Americans, is funded 60% by the federal government and 40% by the states. Total spending in 2015 was approximately $532 billion.

Federal funding is open-ended, which means the government guarantees states that it will pay a fixed rate of their Medicaid expenses as spending rises.

Those matching rates are tied to average personal incomes and favor the lowest-income states. Mississippi has the highest Federal Matching Assistance Percentage—76%—whereas 14 wealthy states, including New York and California, receive the minimum 50% from the federal government.

But states’ Medicaid spending varies significantly, too, and that influences how much federal money each receives to fund its program, according to KHN. State policies about how generous benefits should be and how much to pay doctors and hospitals account for those differences.

In its plan to overhaul the Patient Protection and Affordable Care Act, GOP leaders want to give states a set amount of money each year based on the number of Medicaid enrollees they had in 2016––a formula known as per-capita caps.

A per-capita system would benefit high-spending states that are already receiving relatively rich allotments from the government, according to a paper published by the Urban Institute in September 2016.

Per-capita caps would limit the government’s Medicaid spending because it would no longer be on the hook to help cover states’ rising costs. But caps also would shift costs and financial risks to the states and could force them to cut benefits or eligibility to manage their budgets.

Under the GOP bill, federal Medicaid funding to states would be adjusted annually based on a state’s enrollment and medical inflation. But that would not be enough to keep up with rising Medicaid spending per enrollee, which would force states to put up more of their money or scale back the program, the Congressional Budget Office said recently.

Other analyses of the GOP plan have reached the same conclusion.

Republicans argue that overhauling federal Medicaid spending as they propose would hold down federal costs while giving states more leeway to run their programs as they see fit. “This incentive would help encourage efficiencies and accountability with taxpayer funds,” House Speaker Paul Ryan (R-Wisconsin) wrote last June in his white paper, “A Better Way.”

But Adam Fox, a spokesman for the Colorado Consumer Health Initiative, an advocacy group, argued that the opposite would happen under a per-capita system. Instead of gaining more control over their Medicaid programs, states would not be able to meet their needs because they would have fewer dollars to spend, he said.

Source: Kaiser Health News; March 20, 2017.