Seniors, disabled could find services impacted by per capita caps

The implementation of per capita caps on Medicaid funding would not account for the disproportionate amount of program spending on certain groups of Medicaid enrollees. The Kaiser Family Foundation’s (KFF) issue brief on state variation in spending, issued in light of the American Health Care Act’s (AHCA) (H.R. 1628) proposed spending limits, notes that although seniors and the disabled make up 23 percent of Medicaid enrollment, 64 percent of program funds are spent on these groups.

Populations

Children and nonelderly adults with disabilities account for spending three times greater than their enrollment share, and spending on seniors is slightly more than double their enrollment share. These groups have greater health needs and use more acute care and long-term care services as opposed to those who are enrolled based only on income. Children without disabilities cost an average of $2,463 in 2011, while disabled children cost $16,802. Per enrollee spending on nonelderly adults with disabilities was $3,247, while spending for nonelderly disabled adults was $16,613 and spending for seniors was $13,249.

State programs

Spending also varied widely by state: Tennessee spent $6,945 per disabled child while New Hampshire spent $53,557. Some states spend less than $15,000 on disabled adults and seniors, while others pay $25,000 or more. This disparity stems from various coverage pathways offered to seniors and the disabled either at higher income levels or for some significantly disabled children regardless of parental income, provided at a state’s discretion. Variation in spending levels also depends on how many receive community care versus institutional care, with some states targeting home- and community-based services to those who are at risk of needing institutional care in the future. Other states offer personal care or attendant care services.

The brief pointed out that changing the federal Medicaid payment structure from guaranteed payments to states to a per capita cap could bind states to their current coverage provision, locking in these differences between states. In addition, these caps would not account for spending on newly discovered drugs or treatments, and could hamper state responses to emergency situations such as natural disasters like Hurricane Katrina or issues like the opioid epidemic and the Flint water crisis. States may be forced to cut some services they have chosen to provide under their Medicaid programs due to limit federal funding, such as long-term care services, which could especially impact seniors and the disabled.

AHCA’s Patient and Stability Fund would benefit large states, study finds

Large states and states with fewer insurers offering coverage in the individual and small group markets could receive the most money under the American Health Care Act’s (AHCA) Patient and State Stability Fund, according to a study by Avalere. The AHCA, which consists of two bills that came out of the House Ways and Means and Energy and Commerce Committees, is touted as an effort to repeal and replace the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148).

Bill

Section 132 of the Ways and Means bill would add title XXII to the Social Security Act to create the Patient and State Stability Fund. The Fund would provide funding for the states and District of Columbia from 2018 through 2026 for eligible states to do any of the following:

  • provide financial assistance to high-risk individuals who do not have employer health insurance to enroll in health insurance coverage in the state’s individual market;
  • provide incentives for entities to enter into agreements with the state to help stabilize health insurance premiums in the health insurance market;
  • reduce the cost for providing coverage in the individual and small group markets;
  • promote participation in the individual and small group markets and increase available insurance options;
  • promote access to preventive services, dental care, and certain services for individuals with mental or substance abuse disorders;
  • provide payments to providers for the provision of health care services as specified by the Administrator; and
  • provide assistance to reduce out-of-pocket costs for individuals enrolled in health insurance coverage in the state.

Funding

The bill would appropriate $100 billion over 10 years to provide allocations to states. According to Avalere, the first 85 percent of the funds would be distributed based on the share of the state’s insurance claims as a percentage of the nation, so states that have more people with insurance and higher medical costs could receive more funding that states lower overall enrollment and spending.

The remaining 15 percent would be distributed to states that have seen an increase in the number of low-income uninsured from 2013 to 2015 or have fewer than three insurers offering coverage in their exchange in 2017.

Distribution among states

According to Avalere, the allocation methodology could result in states like California, Florida, and New York receiving the most money North Carolina, Arizona, Alabama, Oklahoma, and South Carolina could receive disproportionately high amounts of money due to the lack of health insurance participation on their markets in 2017.

The funding levels “vary widely” on a per capita basis compared to the state’s individual market enrollment in 2015, Avalere concluded. They range from $1,830 in the District of Columbia to $220 in Montana.

Highlight on Puerto Rico: Just how bad will Puerto Rico’s Medicaid funding crisis be?

Puerto Rico is in danger of a serious Medicaid funding crisis beginning late 2017, according to a data point report by the Office of the Assistant Secretary for Planning and Evaluation (ASPE) under the HHS Secretary from January 12, 2017. Under the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), territories like Puerto Rico receive not only an increased funding rate, but a temporary additional Medicaid funding amount for spending above their statutory caps for use between July 2, 2011 and September 30, 2019 (ACA sec. 2005), and another sum provided in lieu of funding for individuals enrolling in health insurance exchanges to be used by December 31, 2019 (ACA sec. 1323). (States only would only receive the sec. 1323 funding when the sec. 2005 funding is exhausted.) Amounting to $6.4 billion, these funds will not reach 2019 but instead will be depleted as early as the first quarter of fiscal year 2018 (or the fall of 2017). The route that Puerto Rico takes in responding to this funding crisis could take this situation from bad to worse.

Background and ACA

Both states and the federal government pitch in to jointly fund the Medicaid program. The amount that comes from the federal government is called the federal medical assistance percentage (FMAP). How much FMAP a state receives is based on its per capita income, with the average being 57 percent (50 percent for wealthier states, 75 percent for the poorest), adjusted on a three-year cycle. U.S territories, like Puerto Rico, however, receive an FMAP amount that varies greatly from that of states because their rates are capped by statute.

Puerto Rico faces immense poverty, with individuals being eligible for Medicaid with an annual income of only $6,600 (compared to $15,800 for the continental U.S.) and families with an income of $10,200 ($32,319). Over one million people are enrolled in Medicaid in Puerto Rico. Under the per capita income formula used to calculate the FMAP of states, and still considering the statutory maximum that is in place, Puerto Rico would receive 83 percent (93 percent absent the statutory maximum). Instead, Puerto Rico’s Medicaid expenditures are matched at 55 percent. This is an increase from the 50 percent that was in effect prior to passage of the ACA.

 Possible scenarios

Two scenarios are provided in the report as options for Puerto Rico to approach the exhaustion of funds. First, Puerto Rico could continue to spend the same amount of its own funds in fiscal year (FY) 2018 as in 2017, adjusting for inflation on a per-enrollee basis, which would result in a decrease in spending to 44 percent less than that required to maintain current enrollment of over one million today. Around 500,000 people would lose coverage. Although this scenario is similar to the funding that was in place prior to the ACA, considering that officials may choose to prioritize infrastructure and debt payments over Medicaid, they may decide on scenario two.

The second option is that Puerto Rico spends none of its own unmatched funds over those necessary to get the maximum federal funding, but that would result in spending being 80 percent less than that required to maintain the current enrollment, and nearly 900,000 individuals would lose Medicaid coverage.

In either case, it is assumed the Puerto Rico will reduce coverage (lowering income eligibility levels or capping enrollment) rather than reduce benefits for those covered by Medicaid.

Analysts say block grants, per capita caps an ineffective, problematic strategy

Block grants and per capita caps that have been proposed to replace the current Medicaid funding model have sparked concerns about states’ inability to effectively manage their programs by limiting enrollment and reducing benefits. An Urban Institute publication focuses on a slightly different issue, pointing out that the amount of federal funding each state receives varies significantly, and that basing allotments on historical spending would lock states in to these relative amounts. This strategy could limit states’ ability to expand benefits and coverage.

How they work

States currently receive federal matching based on a certain percentage of expenditures. If Medicaid were to be financed through block grants, states would receive a fixed payment based on historical spending levels, adjusted for growth. Per capita caps would similarly set allotments for specific group based on historical rates of spending per enrollee, adjusted for growth. Per capita income affects the percentage of federal match, favoring low-income states, and state benefit design (which populations are covered and which additional benefits are provided) impacts spending levels.

Block grants would essentially base allocation on the current level of expenditures, which is intended to give state programs a fixed budget leading to additional efficiency and federal savings. Per capita caps would impact spending per enrollee instead of overall, and would provide additional funding if the number of Medicaid enrollees increases. However, the predetermined cap may not be sufficient to provide current services, and in such a case the burdens would be passed on to the state government, patients, and providers.

Data

The Urban Institute assessed current spending levels in the aggregate, per low-income resident, and for subgroups. The results emphasized the differences in spending and federal funding. In the District of Columbia, almost $12,000 is spent per low-income resident, and the federal spending comes out to $2.4 million. In New York, spending per low-income resident was about $5600, while federal spending was almost $38 million. Ultimately, spending per low-income person varied by a factor of almost 10 to 1 (cut roughly in half by excluding the District of Columbia).

Analysis

Freezing aggregate payments and growing them at the same rate would make such stark federal spending differences permanent. Although applying different growth rates to states based on different spending levels could help, analysts believe that this approach would not have a significant impact for some time. Similarly, applying per capita caps would vary significantly by state. The Urban Institute believes that applying either of these approaches to Medicaid programs would be problematic, and noted that Medicaid spending is not a significant issue when compared to other types of spending.