Hospitals are concerned a move to block grants will not keep up with future medical inflation.

Jan. 23—The question of whether to continue expanded federal funding for Medicaid is emerging as an early flashpoint in various Republican proposals to replace the Affordable Care Act (ACA).

New Republican legislation unveiled Jan. 23, the Patient Freedom Act, would maintain funding for the 31 states that expanded Medicaid eligibility under the ACA and provide new funding to the 19 non-expansion states equal to what their residents would have received under an expansion. Expansion states could choose to maintain the expansion, and alternatively both expansion and non-expansion states would have the option of using federal Medicaid funds to help residents purchase private health insurance, according to a summary.

“If they did not expand Medicaid, they could still get the money as if they had,” Sen. Bill Cassidy (R-La.) said during a press conference held to introduce the measure.   

But other leading Republicans have questioned the continuation of ACA-level federal funding for Medicaid.

Rep. Michael Burgess (R-Texas), chairman of the Energy and Commerce Committee’s Health Subcommittee, which will help write any ACA replacement, described the current difference in federal Medicaid funding for expansion and non-expansion states as a “key question” during a Jan. 13 briefing. The ACA provided a much higher federal match (initially 100 percent before tapering to 90 percent) than states traditionally receive (between 50 percent and nearly 75 percent).

Burgess noted that House Speaker Paul Ryan’s “A Better Way” outline for replacing the ACA would lower the federal match over time. Additionally, he expects Congress will need to reduce the 90 percent ACA matching rate to help reduce overall federal spending amid a looming need to increase the federal borrowing limit.

Those cuts would come as part of a transition from an open-ended entitlement to a block-grant or per-capita allotment.

President Donald Trump’s pick to lead the U.S. Department of Health and Human Services, Rep. Tom Price (R-Ga.), previously proposed an ACA replacement plan that would eliminate the Medicaid expansion.

Overall Medicaid spending in 2015 was about $532 billion, according to a Kaiser Family Foundation tracker, with the federal government spending about 63 percent of that amount.

Hospital Concerns

The early discussions of Medicaid cuts and switching from an open-ended entitlement have drawn opposition from some hospital advocates.

Bruce Siegel, MD, president and CEO of America's Essential Hospitals, noted previous block-granting proposals included “dramatic cuts” in federal spending, with recent proposals reducing federal spending by up to $1 trillion over 10 years.

“States cannot sustain cuts this large without reducing the number of people eligible for Medicaid, narrowing coverage for those who remain, and lowering provider payments that already fall short of costs,” Siegel said in a written statement. “Access to care would suffer and state and local economies would buckle under these new financial pressures.”

Under such cuts, Siegel noted that safety net hospitals, which on average operate with no margin, would have to cut services dramatically or close.

Among research on the financial benefits accruing to hospitals from the Medicaid expansion was an October study in JAMA. Researchers found that in states that initially expanded Medicaid in 2014, mean annual Medicaid revenue increased by $3.2 million per hospital compared with hospitals in non-expansion states. Additionally, mean annual uncompensated care costs declined by $2.8 million per hospital, compared with non-expansion states.

Hospital advocates noted that even if the total block-grant Medicaid funding is set at the current higher level, the financial impact on hospitals could worsen in future years if the annual spending increase is set far below medical inflation—as is the case in many such proposals, according to market analysts.

States’ View

The positive impact of the Medicaid expansion on hospitals was echoed by some Democratic governors in letters to congressional leaders.

“One of the most satisfying stories is from a hospital administrator who told us that in November, his hospital did not treat any uninsured patients,” Louisiana Gov. John Bel Edwards, a Democrat, wrote in a letter responding to a call by congressional leaders for state input. “For a hospital in a rural Louisiana community, this is an incredible change that is fully attributable to the Medicaid expansion.”

Other state leaders have responded to proposed Medicaid funding changes differently.

Gov. John Kasich, a Republican who expanded Medicaid eligibility to about 700,000 state residents under the ACA, urged Congress in a recent letter to maintain the ACA’s Medicaid funding as part of a replacement plan.

However, Kasich said he could support changes—including a move to block grants, depending on the details.

“For example, it is important for states to know how current funding commitments are going to be allocated differently among the states, how financial support will grow in later years, and what level of current federal guarantees and minimum standards for Medicaid will continue to apply,” Kasich and Lt. Gov. Mary Taylor wrote.

Governors of non-expansion states have expressed much greater interest in taking advantage of the operational flexibility that the block-granting approach promises. For example, Tennessee Gov. Bill Haslam, a Republican, outlined a range of areas in which the state wants flexibility, such as the populations and benefits that federal law requires Medicaid programs to cover.

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

Publication Date: Tuesday, January 24, 2017