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Analysis Shows States Losses Under House Medicaid Cap

A new study by the Center for Health Policy at the Brookings Institution shows states would be losing more than $17 billion in Medicaid spending through the per capita cap if the American Health Care Act (AHCA) had been in effect.

The analysis, Effects of the Medicaid Per Capita Cap Included in the House-Passed American Health Care Act, examined Medicaid data and calculated the effects had the cap been in place starting in 2004.  State losses would have ranged from half the states not losing (or gaining funds) to the remaining states required to spend 75 percent to 25 percent more in Medicaid spending.  If per enrollee costs had been just 1 percent higher in the period studied then losses would reach nearly $34 billion.

Under the AHCA, the per capita cap would calculate health care costs in 2016 for each of five groups:  children, the elderly, disabled, adults on Medicaid due to the ACA, and all other adults.  This 2016 base would be adjusted by an inflation factor each year times the number of people in each category.  That formula would result in each state eligible for a maximum amount of federal Medicaid dollars.  If any state reached that federal amount in a year the state would have to pay for anything above that cap.

Currently Medicaid matches state health care spending by a low of 50 percent to a high of more than 75 percent based on an economic formula adjusted annually.  A state like New York or California gets a 50 percent match while a state like Mississippi gets a 75 percent match.  One Medicaid dollar in New York means the federal government is picking up 50 cents on the dollar.  In Mississippi one Medicaid dollar means the federal government is picking up 75 cents on the dollar.  That match structure would remain under a per capita cap until a state reached their annual cap.  After that a New York or a Mississippi would pay the entire cost above that cap.  If a state stays under the cap there is no benefit to the state.

The research also highlights the fact that despite an annual medical inflation adjustment, that adjustment does not consider many factors that influence health care spending.  Forces such as demographic changes, public health emergencies and new medical technologies would not be calculated into the cap adjustment.   States that exceed their caps or are concerned about hitting that cap would likely try to restrict access to Medicaid by eliminating coverage, categories of services or they may try and restrict or reduce reimbursement rates for services.

The bottom line is that the per capita cap is designed to limit what the federal government will pay out to states under Medicaid with future health care costs shifting to states.  Medicaid is historically one of the bigger or the biggest cost in a state budget. A factor that will only intensify as the baby-boom generation ages into long term care needs.

Defenders of the cap will likely attempt an old Washington argument that Medicaid is not being “cut” and is increasing annually ignoring the fact that rate of increase is being shift away from the federal government.  Some of the same people have used the same “reduction in the rate of growth” as cutting federal spending and deficit reduction when it fits the political argument.  The original CBO score of the AHCA showed Medicaid being cut by $880 billion over ten years.

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