John Locke Update / Research Brief

Making Medicaid Great Again?

posted on in Health Care, Health Care & Human Services
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Next week, U.S. Senate Majority Leader Mitch McConnell wants to hold a full vote on his chamber’s revised health reform bill, the Better Care Reconciliation Act (BCRA). Thanks to Texas Senator Ted Cruz’s proposed amendment, insurance companies could end up escaping community rating – one of Obamacare’s costliest insurance regulations that has led to a mass exodus of carriers from selling products in the individual market here in North Carolina and nationwide. It remains up in the air whether this change could be the answer for BCRA to secure the 50 Senate votes it needs to make its way through the budget reconciliation process.

(For an overview of a few other insurance regulatory changes proposed by the Senate, see my last Health Care Update here.)

As the Congressional GOP is trying to put states back in charge over their private health insurance markets (for the most part), members also have a vision to grant states more flexibility and responsibility over Medicaid, the state-federal program that offers medical assistance to low-income children, parents, pregnant women, elderly, and disabled patients.

A behemoth of a program, Medicaid covers 70 million people nationwide, costing state and federal taxpayers more than half a trillion dollars. In North Carolina alone, one in five people is eligible. Medicaid is a critical safety net. However, numerous studies, including multiple published by MIT economists, indicate that the program’s value it brings to patients doesn’t add up to its nominal price tag.

Below is an assessment on some of the Medicaid transformations that are being discussed within the Senate GOP:

Medicaid Per-capita Caps

  • Medicaid’s current financial design, the federal medical assistance percentage match rate (FMAP), is why the program has led to unsustainable spending levels since its inception. Because the match rate has the federal government pay for a larger share of states’ Medicaid programs, this has incentivized state officials to expand their program’s optional benefits, services, and eligibility levels. Medicaid’s match rate also serves as a disincentive for states to scale back on optional benefits, services, and eligibility levels because a majority of the savings revert to the federal government.
  • BCRA puts forth a responsible proposal to slow the growth of our nation’s Medicaid program by changing the way taxpayer’s finance it. Effective in 2020, per-capita funding for medical benefits will be allotted to five categories of patients: low-income children, expansion enrollees, low-income adults, and the elderly and disabled. States will assist the federal government in establishing their baseline funding by submitting Medicaid expenditure data over a period of eight consecutive fiscal quarters between FY 2014 and FY 2018. Until 2025, federal funding will annually adjust for enrollment and medical inflation for non-disabled and non-elderly patients and medical inflation plus one percent for disabled and elderly populations, given that they make up over 60 percent of total Medicaid spending. Beginning in 2025, the per capita formula will grow based on consumer inflation, which will place even greater pressure on states to take more ownership on the value their Medicaid programs deliver to beneficiaries.
  • BCRA does not appear to apply per capita funding for certain medical assistance beneficiaries. For example, women diagnosed with breast and cervical cancer, partial-benefit enrollees, blind and disabled children under age 19, and dual-eligibles are listed as not being subject to federal funding limits for necessary care.
  • It should also be noted that the federal per capita calculation excludes BCRA’s Disproportionate Share Hospital (DSH) payments that are to be distributed to states that have not expanded their Medicaid programs and is neither representative of BCRA’s temporary safety net provider payments. DSH payments are funds that are allocated to hospitals that treat an overwhelming percentage of patients covered by Medicaid and Medicare. Safety net provider payments is another enhanced revenue stream ($10 billion total) that will supposedly be funneled to Medicaid providers in states that have NOT expanded Medicaid between FY 2018-22.

Work Requirements/Eligibility Checks

BCRA offers states the option to link work requirements with Medicaid benefits. This is an important step for Washington to redefine Medicaid as a temporary (for able-bodied enrollees) welfare safety net, not as dependent and ever-expanding health insurance program. This, combined with more frequent eligibility checks, is a necessary reform to ensure that those who truly need medical assistance have better access to care. BCRA even offers monetary incentives (a temporary 5 percent FMAP increase in covering administrative costs) to states that decide to enforce work requirements and more frequent eligibility checks. States such as Illinois, Arkansas, and Nebraska are examples of successful case studies for administering tighter eligibility standards.

Provider Assessments

Instead of slowly phasing out Medicaid provider assessments, they should be eliminated immediately. Provider assessments are a product of Medicaid’s perverse FMAP design – you can read more about that mess here.

Medicaid Expansion

Unlike the House’s version of health reform, the American Health Care Act (AHCA), BCRA prohibits the 19 non-expansion states from extending medical assistance eligibility to adults below 138 percent of the Federal Poverty Level (FPL) in exchange for an enhanced FMAP as outlined under Obamacare. This is sound policy because AHCA’s delayed repeal of Medicaid expansion would only entice non-expansion states to extend their eligibility levels before 2020. However, BCRA’s slow phase-out of the ACA’s enhanced FMAP rate for expansion state enrollees (starting in 2021) might not become a reality, depending on future power shifts in Congress. BCRA even specifies that if the state’s regular FMAP rate is higher than the phase-down rate, the traditional FMAP rate will apply for that fiscal year. This is politically dangerous to the Medicaid program’s sustainability and a disservice to traditional Medicaid patients.

Implications for North Carolina

With the aforementioned Medicaid provisions embedded in BCRA, there are so many avenues North Carolina can take to improve Medicaid’s product design, as well. For example, why not require the North Carolina’s Department of Health and Human Services to offer a Medicaid wraparound health plan (one that excludes preventative health care benefits)? This could work in tandem with the state’s community and rural health centers, many of which operate on limited state funds. For example, free and charitable clinics receive only 13 percent of funding from the state’s General Fund, with remaining revenue coming from hospital investments and private donations from businesses and individuals.

If more Medicaid patients could access basic primary care needs at one of these clinics and use their Medicaid benefits for specialty and hospital services elsewhere, this approach to care could accrue more savings for the Medicaid program and improve access to patient care. No claims submissions at the primary care level allow providers to spend more time treating patients and managing their chronic diseases – similar to the direct primary care model.

It’s been long overdue for states to share more fiscal responsibility for the programs they administer for our nation’s most vulnerable patients. After all, states are closer to the people, not Washington.

Katherine Restrepo is the Director of Health Care Policy at the John Locke Foundation. Before joining the John Locke Foundation, she interned at the Cato Institute under the direction of Michael Cannon, Director of Health Policy Studies. Katherine’s… ...

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