News Alert: Medicaid Block Grants on the Block?

EDITOR’S NOTE: President Trump’s pick for Secretary of Health and Human Services Rep. Tom Price, (R-Ga.) came under intense scrutiny during Senate confirmation hearings on Tuesday. In the meantime, Republican lawmakers are considering a plan that would give states direct control over healthcare coverage for low income families. 

The potential looming repeal of the Patient Protection and Affordable Care Act (PPACA) has many common issues under consideration. One that is securing some traction is whether the states should have more control over Medicaid, the joint federal-state healthcare program for low-income beneficiaries that is currently funded at the rate of about 60 cents on the dollar by the federal government, with significant oversight by the Centers for Medicare & Medicaid Services (CMS). 

The basic idea of a Medicaid block grant is to give the states maximum flexibility to design the coverage and care arrangements that could improve health outcomes for Medicaid recipients through a variety of care options and benefit structures. The states would in return have to accept a fixed amount of funding each year from the federal government, so the risk is shifted entirely to them. So in essence, Medicaid will no longer be an entitlement program whereby everyone who is eligible is guaranteed a spot for the coverage of healthcare services.

We now ask ourselves, what are the risks associated with such a dramatic change in the funding of Medicaid, and why is the Trump administration considering this option? The initial setting of the fixed allocations will likely be less than the previous years’ entitlement spending levels for most states. This will force states to sharply reduce or possibly eliminate Medicaid coverage for millions of low-income beneficiaries who have gained coverage under the PPACA Medicaid expansion over the past three years. The plan being considered by President Trump (and previously proposed by Secretary of Health and Human Services appointee Tom Price while he was U.S. House of Representatives Budget Committee Chairman) is known as “state flexibility funds.” This plan would repeal the Medicaid expansion under the PPACA and could reduce federal spending by $913 billion over the next 10 years compared to current entitlement spending.  

Under the Price plan, unanticipated cost increases associated with the introduction of new technologies or treatments that improve the health of patients would be borne by the states alone. Currently, the federal government shares in such increases. Speaker of the House Paul Ryan proposed a similar plan previously that was analyzed by the Congressional Budget Office (CBO).

The CBO stated that cutbacks might involve reduced Medicaid eligibility, coverage of fewer healthcare services, lower payments to providers, and increased cost-sharing for beneficiaries. All of these outcomes may reduce access to care for many newly enrolled individuals. Cuts in Medicaid reimbursement to institutional providers, such as hospitals and skilled nursing facilities, could be drastic if states decide to not raise taxes to support funding shortfalls and unanticipated enrollment increases of vulnerable beneficiaries such as children and pregnant women. 

Will both Republican and Democrat governors want the increased financial risk associated with Medicaid block grants? There will definitely be some pushback. The federal government rarely shifts power to the states when vulnerable individuals such as children and pregnant women who meet the modified adjusted gross income (MAGI) levels relative to the federal poverty level are concerned. However, even without help from Congress, Trump’s administration could alter Medicaid using the executive branch’s power to approve requests from several governors to opt out of certain federal rules through a waiver. Republican governors have previously proposed work requirements for Medicaid enrollees as well as monthly premiums and other cost-sharing. These options could be placed on the table in the future. The largest risk for Medicaid beneficiaries comes from the potential repeal of the PPACA, as promised by Trump and Ryan. Thirty-one states and Washington, D.C. added 15.7 million people to the Medicaid roles under the Medicaid expansion since 2014, according to federal government statistics.

The newly appointed CMS Administrator, Seema Verma, has implemented an unconventional approach as a consultant to the Indiana Medicaid program, as well as to other states including Michigan, Tennessee, and Iowa. In return for significant choice in their health coverage and enhanced benefits, the plan she designed, known as the Healthy Indiana Plan 2.0 (HIP), required the state’s lowest-income beneficiaries to contribute a few dollars each month into a health savings account. They could purchase their own insurance with assistance from the state. The goal was to encourage these individuals to take an interest in making their personal healthcare decisions. This framework could be considered on a national level, since it has had success in Indiana based on an evaluation and report prepared by the Lewin Group. This independent consultant was hired by Indiana to evaluate the first year of HIP. The Lewin Group determined that 90 percent of participants in one part of the plan made their contributions to the health savings account, and significant numbers of beneficiaries confirmed that they would be willing to pay a few dollars more to retain the enhanced benefits they received. A majority of the respondents (80 percent) confirmed that they were very satisfied or somewhat satisfied with their experience with the HIP. CMS distributed about $348 billion in Medicaid payments in 2015.

Ms. Verma will be overseeing CMS beginning in 2017, and hopefully the payments to hospitals that provide extraordinary care to Medicaid beneficiaries will continue at this level under whatever new structure she recommends for implementation in the future.