The House health care plan confronts what are two overarching Medicaid issues but the second one may be the most significant.  The first issue is how to deal with the Medicaid expansion enacted under the ACA.  Thirty-one states have expanded their Medicaid programs to all adults up to 138 percent of poverty. The second issue is how the House plan will cap Medicaid spending fundamentally changing its entitlement structure creating a complex block grant that would shift future costs to state budgets.

The ACA expansion to 138 percent of poverty taken by 31 states provides approximately 11 million people with health insurance.  Conservatives want to cut this off and the sooner the better.  The bill will continue this until 2020.  At that point states would lose this coverage as people rotate or churn-off Medicaid.  The 19 states that chose to not expand Medicaid and receive the higher 90 percent Medicaid match are critical of any deal that doesn’t give them some extra money.  They feel their states should receive some benefit so the bill would provide these states with $10 billion to pay hospitals that get a larger share of uninsured patients coming through their emergency room doors.  These payments, called “dish payments” or Disproportionate Share Hospitals (DSH), were being eliminated as health insurance coverage increases.  The issues of the 2020 date and the money for the 19 states will be in play as they move forward.

The second piece of Medicaid changes may be far more significant.  The House creates a “per capita cap payment” system that is a complex form of a block grant.  The bill would create groups of people such as elderly and children.  It would calculate a base payment based on 2016 and then annually calculate a cap or ceiling for states.  This would be adjusted annually and if any state exceeds their annual caped amount the state budget would be on the hook for the costs above the cap.  The per capita cap:

  • “elderly” 2016 average costs multiplied by an inflation factor, times the number of elderly +
  • “blind and disabled” 2016 average costs multiplied by an inflation factor, times the number of blind and disabled +
  • “child” 2016 average costs multiplied by an inflation factor, times the number of children +
  • “Medicaid expansion enrollee (as they phase out) based 2016 average costs multiplied by an inflation factor, times the number of Medicaid expansion enrollees +
  • “adults” (not an expansion enrollee) 2016 average costs multiplied by an inflation factor, times the number of adults =

All groups added together = Medicaid annual cap per each state

Once the annual cap is set, a state would draw down funding based on the FMAP or Medicaid matching rate (states get a federal match from 50% to 80%) but if a state reached that cap on federal funding, any additional Medicaid costs above the cap would be paid for by the state.

This would in effect end the entitlement structure.  Currently state Medicaid must cover certain groups such as pregnant women under a certain poverty level or women with children under 6 with at a certain poverty level, for example.  Other groups must be covered such as IV-E foster care children and youth, for example.  States also can select coverage for certain optional groups.  Regardless every individual covered by Medicaid is reimbursed by the federal government at a federal match referred to as the FMAP.  The match ranges from a low of 50 percent meaning one dollar of Medicaid cost is shared 50 cents by the states and 50 cents by the federal government.  Some states may receive close to 80 percent.  The FMAP is adjusted each year by an economic formula favoring “poor” states.  These FMAP rates will remain but only until that state’s cap is reached.  This would eventually shift costs to the states as the inflation adjustment fails to keep pace with actual health care costs.  States might start to create wait lists, eligibility restrictions, and if states can get the option in the health care package, work requirements.

The goal like any block grant proposal is that the further out you get from passage date, the less the federal government would cover and that results in budget savings. In budget lingo, it is called “reducing the rate of growth” a term some use to avoid calling it a cut.  Note TANF has lost more than 32 percent of its value since 1996 despite low inflation rates over twenty years.  That is why block grants of entitlement programs are appealing to some in Washington because they cut the rate of growth without an immediate reduction. Of note a House passed child welfare block grant adopted in 1995 would have provided states with a little more than $5 billion in child welfare funds last year compared to the approximate $8 billion they drew last year from Title IV-E and IV-B.