Advocates: GOP Medicaid Proposal Will Shortchange States

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By Victoria Pelham

Medicaid payments would be locked in to often-incomplete figures under the latest GOP health-care proposals and create more headaches than solutions for states, advocates and analysts warn.

The Republican health-care plan to replace the Affordable Care Act, dubbed the American Health Care Act, would implement per-enrollee caps on Medicaid spending allotments, based on a benchmark year. The Center on Budget and Policy Priorities, in its analysis ahead of a House panel markup March 8, estimated the bill would shortchange states $370 billion in the safety-net funds. CBPP is a group that evaluates how policy affects low-income Americans.

The threat of still-hazy future epidemics, like what has been seen with opioid abuse or the H1N1 flu, as well as the cost of future medications, aren’t taken into account with financing changes like this, opponents of the GOP’s plan said. Nor are changing demographics such as the aging of baby boomers accounted for, they say.

President Donald Trump’s administration is endorsing the House Republicans’ newest pitch, which is taking shape while party discord still simmers. And though the proposal likely won’t make it through the reconciliation process completely intact, it signals cuts to the $334 billion federal Medicaid wallet.

“[States] are losing their entitlement,” Michael Miller, strategic policy director at Community Catalyst, said on a Families USA conference call. Both groups are supportive of the ACA.

Funding Formula

Medicaid as it stands offers unrestricted coverage of both mandatory and optional benefits to 74 million people, largely the poor, seniors and disabled, with a federal match of state funds. In return for that guarantee, states must abide by certain parameters for the entitlement.

In a reversal from the past eight years focused on insuring more people, congressional Republicans, aligned with a GOP administration, have been exploring ways to essentially put a lid on the dollars through either lump-sum grants to states or the per capita caps in the newest House bill (while promising states more freedom to run their programs with the money as they see fit).

Territories like Puerto Rico already run their Medicaid systems under similar ceilings.

The American Health Care Act, a joint effort from the House Energy and Commerce Committee and House Ways and Means Committee, sets the base year for determining state rates as 2016 while delaying implementing the caps until 2020. That amount would grow each year alongside the M-CPI (medical care component of the consumer price index).

“Congress is pushing forward target per capita caps versus actual,” Jeff Myers, president of Medicaid Health Plans of America, told Bloomberg BNA. "[This] is an interesting model because it’s designed to not penalize states that have already moved forward with full managed care capitated programs like California, Arizona, Tennessee and others—while not rewarding states that haven’t made hard decisions like New York and Connecticut.”

On Track?

The CBPP estimates, though, that federal funding would still likely not stay on track with Medicaid costs per enrollee, CBPP estimates. Instead, those costs could outpace caps by 0.2 percentage points annually and increase quicker than current Congressional Budget Office projections as states swallow any additional costs (from unforeseen circumstances) above their ceilings.

CBPP pegs the impact of the cuts to Medicaid at $116 billion over 10 years.

Different Republican proposals have used different capita allotments such as the M-CPI rate plus a percentage point.

Where the rate ultimately ends up will determine the Medicaid cost it will carry over to states, especially given varying medical inflation rates in different states and steps different states have already taken to reduce expenses (like prioritizing community-based support instead of institutionalized care).

The legal and consulting firm Manatt Health said that by design, “capped funding proposals shift the risks of any Medicaid costs above the federal caps to states. States will seek to ensure that any capped funding program that is considered by Congress protects them to the greatest extent possible.” The February report from the firm added, “And each state will have different priorities; accommodating all of them would be complicated and not likely given Congress’s interest in reducing federal Medicaid expenditures.”


Reduced spending is precisely the point, supporters assert, on the path to a more “sustainable” program.

House Energy and Commerce Committee Chairman Greg Walden (R-Ore.) in a statement lauded the proposed law’s move to bring “power back to the states—strengthening Medicaid and prioritizing our nation’s most vulnerable.”

“Using a per capita allotment, our legislation ensures a fair funding formula for states while creating a viable financial future for the program,” the committee’s March 7 statement said.

Medicaid spending grew by 9.7 percent in fiscal 2015, according to the Centers for Medicare & Medicaid Services, compared with 4.5 percent for Medicare. Medicaid could cost $1 trillion in federal and state money annually by 2026, according to CBO projections.

This year, Medicaid’s hospital spending likely will grow 5.3 percent; by 6.6 percent for doctors and clinical care; 3.2 percent for nursing and retirement facilities; 4 percent for home health and 3.5 percent for prescription drugs, the Medicaid and CHIP Payment and Access Commission estimates. MACPAC advises Congress on on Medicaid policy.

Medicaid is also deemed a high-risk program—due to risk of waste, fraud and abuse—by the Government Accountability Office and has been for 14 years—a fact its critics are quick to point out in efforts to trim what they see as a broken system.

The GAO said the “continued growth in the overall estimated improper payment rate—105 percent in 2016 compared with 9.8 percent in 2015—underscores the need for additional federal action.” The office did note the CMS has partially met steps for the program to be removed from the list. However, “until additional actions are taken, gaps in oversight remain that will challenge CMS’s ability to reduce improper payments.”

Myers, whose organization represents health plans, said most people in the Medicaid sphere know its financing can’t continue on its current path over the long term.

“It’s eating state budgets alive” and makes up the first or second budget item in every state, he said, while also growing “dramatically” federally “in large part because of the Affordable Care Act.”

“The financing of Medicaid is not sustainable.”

And though Myers’s organization believes there should be longer windows of adjustment time for the policy changes, the latest proposal, he said, offers a better alternative than some other ideas floated lately such as block grants, which aren’t designed in tune with the program.

Recently confirmed Health and Human Services Secretary Tom Price called the committees’ legislative proposal “consistent with the President’s commitment to repeal the Affordable Care Act” and said it would “put Medicaid on a sustainable path and remove burdensome requirements in the program to better target resources to those most in need.”

Value Judgment

But those opposed say it would actually hurt beneficiaries as states would react to decreased federal support by shrinking their eligibility pools, benefits and provider payments.

In a strong move, the American Medical Association—representing doctors—is decrying the House bill and has sent a letter to committee leaders.

AMA CEO and Executive Vice President James Madara said “the underlying structure of Medicaid financing ensures that states are able to react to economically driven changes in enrollment and increased health care needs driven by external factors.”

That means Medicaid has played a key role in dealing with mental health and substance abuse treatment in light of the opioid epidemic, for example.

“Changes to the program, therefore, that limit the ability of states to respond to changes in demand for services threaten to force states to limit coverage and increase the number of uninsured,” he wrote.

America’s Essential Hospitals, made up of 275 safety-net hospitals, said March 8 it opposes the GOP plan, citing cuts to disproportionate share hospital payments, ACA Medicaid expansion changes and the effect the funding changes would likely have on the ground for vulnerable populations through reducing state Medicaid eligibility and benefits.

To contact the reporter on this story: Victoria Pelham in Washington at

To contact the editor responsible for this story: Brian Broderick at

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