A lack of state flexibility is one way the bill differed from previous GOP Medicaid overhauls, according to one policymaker.

Feb. 27—A leaked draft of a Republican bill to repeal and replace the 2010 healthcare reform law includes far-reaching Medicaid provisions, among them a shift to per capita capped funding.

Much of the leaked bill obtained by Politico focuses on changes to the Medicaid program, Tim Jost, a supporter of and expert on the Affordable Care (ACA), wrote in a Health Affairs post.

Those provisions include terminating by the end of 2019 the ACA’s expansion of Medicaid eligibility to those with income of up to 138 percent of the federal poverty level, as well as requirements for essential health benefits. The bill would drop the ACA’s presumptive-eligibility Medicaid provisions and deep cuts to Medicaid disproportionate share hospital (DSH) payments.

In FY19, the bill would shift Medicaid from an open entitlement funded as needed by a federal match to per capita capped funding.

The left-leaning Center for American Progress calculated that a precursor outline previously released by Speaker Paul Ryan (R-Wis.) would cut funding for the Medicaid expansion by $277 billion over 10 years. The bill also was expected to cut an additional $370 billion in federal Medicaid funding over 10 years to finance new tax credits for health insurance. Those calculations followed previous estimates by Avalere that a shift to per capita caps would save the federal government $110 billion over five years.

The GOP plan also would include a new federal-funding source for hospitals with a large share of poor and uninsured patients, according to other news reports. Such funding may come through greater DSH payments, according to a Washington Post report.

The new DSH funding was seen by some as significant for hospitals.

“It could definitely help some, depending on how much the caps were increased and whether it was permanent or temporary,” Kip Piper, a consultant who advises states on Medicaid, wrote in an email. “The current federal DSH caps vary widely by states and have no connection to number of uninsured or Medicaid eligibility or state hospital payment levels. So to make a real difference for the non-expansion states, a new formula would be needed to sufficiently boost each respective state’s DSH allotment sufficiently and equitably.”

The proposed changes in federal Medicaid spending come as the federal government is projected to spend more than $5 trillion on Medicaid—including about $950 billion on the ACA expansion population—over the next 10 years, according to Congressional Budget Office estimates.

Governors’ Approach

The congressional bill echoes in many ways the ACA replacement plan of Republican governors, whose preferred approach would require states to accept a per capita cap or a block grant in place of current federal funding for the ACA Medicaid expansion, as described in a leaked draft. Additionally, the approach would allow states to opt for a per capita cap or block grant for other groups that Medicaid covers.

Medicaid experts note that the 31 expansion states do not want to lose the associated federal funding, while the 19 non-expansion states don’t want to be punished for not expanding. The federal matching rate for the Medicaid expansion population (currently 95 percent) is expected to return to the pre-ACA match (ranging from 50 percent to 75 percent) under the congressional bill.

Despite the major federal-funding reduction, Ari Gottlieb, director at the PwC network, expected many expansion states to find enough money to allow for continued coverage of 15 to 16 million of the 20 million who have been newly covered since mid-2013.

Although some observers expected enrollments to drop if more costs were shifted to states, some states may control costs in ways other than by restricting eligibility, such as by limiting new enrollments.

“They might change some of their enrollment/disenrollment administrative practices, which can be pretty important in terms of volume—and those kinds of things can be pretty important in terms of how caseloads grow,” Katherine Hempstead, a senior adviser for the Robert Wood Johnson Foundation, said in an interview.

A key provision of the governors’ plan and other GOP reform proposals missing from the leaked legislation is expanded state flexibility in the operation of Medicaid programs.

“There is none,” Piper said of state Medicaid flexibility. “The 52 years of restrictions, limitations, and mandates on states, providers, and plans—tens of thousands of pages of statutes, regulations, and guidance—would remain and states would have no new options for eligibility, benefits, payments, care delivery, managed care, long-term services and supports, dual eligibles, prescription drugs, or day-to-day administration.”

Piper blamed the lack of state flexibility on congressional leaders’ effort to pass the measure using reconciliation, which prevents a filibuster but disallows such provisions. 

Savings Effort

Previous examples of states’ appetite for greater Medicaid flexibility include a waiver application from Florida, which was rejected by the Obama administration in 2016, to use existing DSH and supplemental funding to create an uncompensated-care pool for the uninsured. The approach partially echoed that of Massachusetts in 2006.

“They were taking the money that was going to the hospitals and they were reprogramming it into buying these people insurance,” Ed Haislmaier, a senior research fellow at the Heritage Foundation who is helping congressional Republicans craft an ACA replacement, said in an interview.

An estimated $50 billion in state and federal funding made annually through such supplemental payments may be available to be reprogrammed through waivers, he said.

“The Obama administration was hostile to this sort of approach and wouldn’t approve these waivers, while the Trump administration presumably would,” Haislmaier said.

But even some supporters of repealing and replacing the ACA advised against putting too much stock in greater state Medicaid flexibility.

“Let the states have more flexibility, but let’s not believe that overnight that can produce gigantic savings,” said former Mississippi Gov. Haley Barbour, a Republican.

Others compared the situation with successful state-led efforts to move Medicaid enrollees off welfare rolls and into employer-sponsored health insurance.

“So I trust the governors and the states to do an awful lot of the bending of the cost curve by finding better ways to control those costs locally,” former Nebraska Gov. Ben Nelson, a Democrat, said at the governors’ event.

One complication to the per capita cap is the fate of financing for dual-eligible beneficiaries—generally chronically ill, low-income seniors—whose care consumes 40 to 50 percent of Medicaid spending. The draft bill would not provide any new funding or any new flexibility regarding dual eligible beneficiaries, Piper noted.

“Per capita caps are more complex to design for the high-cost populations,” Piper said.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Publication Date: Monday, February 27, 2017