Proposed Medicaid Spending Caps Rely on Data Points That Don’t Exist Yet

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There were few details in the recent CBO score on the American Health Care Act (AHCA) as to how the $880 billion in cuts to Medicaid were calculated and where the pain will be felt. That’s because the folks at CBO, like the rest of us, are scratching their heads over where to access the data needed to precisely estimate the impact of capped federal funding on Medicaid, particularly at the state level.

Don’t be fooled into believing that the cap formula is straightforward just because it depends on three primary data points: 1) adjusted medical assistance expenditures; 2) enrollment for specific groups (referred to as “1903A enrollees”); and 3) the medical component of the consumer price index (CPI-M).

In reality, the cap formula has its own language. It involves a complex series of calculations, adjustments, and conversions, to which various ratios and the growth factor are applied to determine enrollment group per capita target caps. The per capita caps are then multiplied by enrollment, trended and summed together to establish the aggregate federal cap for each state. Confused? Don’t worry; you’re not alone! In attempting to decipher the formula and follow the data path, four major data challenges surface:

States don’t currently report data as required in the cap formula, yet the base cap is anchored to FY 2016 data. While most medical expenditures for most enrollees in Medicaid are subject to the cap, there are a number of exclusions. The legislation defines new data terms and requires states to report “adjusted medical assistance expenditures” separately for the“1903A enrollee groups” beginning in FY 2019.

While medical assistance expenditures are currently reported by various service categories on a quarterly basis to CMS, the data are not reported for specific enrollment groups. Yet the formula starts with establishing an overall FY 2016 per capita spending level for all 1903A enrollee groups combined.

What’s not clear is how the Secretary will calculate the percentage of expenditures attributable to 1903A enrollee groups. But if HHS uses estimates or makes assumptions that are not accurate, states could already be shortchanged because the FY 2016 base cap is locked into the formula in perpetuity.

Collecting and reporting the needed data will be a heavy lift for states. For each quarter beginning on or after October 1, 2018, states will be required to report the necessary detailed enrollment and expenditure data. But this will be a heavy lift as evidenced by the fact that states are still struggling to report all the Medicaid and CHIP performance indicators nearly four years after they were published by CMS.

Even though additional funding is provided for systems changes, states will have to rely on the same resources, both internal and external, that have been unable to fully deliver the data-reporting functionality currently required. Additionally, the federal repository for the data is the decades-old Medicaid Budget and Expenditure System (MBES). Like the antiquated legacy-based eligibility systems that long hampered states efficiency and flexibility in determining eligibility, experts wonder if MBES can withstand the stress of additional changes.

States will suffer a hefty penalty if they are unable to report the data. If a state fails to report the required data for any quarter beginning on or after October 1, 2018, HHS will decrease the state’s cap growth factor (CPI-M) for the applicable fiscal year by 1-percentage point. It appears that this penalty will apply for the fiscal year even if reporting for only a single quarter is missed.

With the CBO score based on an estimated CPI-M of 3.7%, a 1-percentage point reduction is a 27 percent decrease. This would reduce the growth factor down to 2.7%, resulting in even deeper cuts to Medicaid. Notably, there is no provision authorizing the Secretary to waive the penalty for good cause or otherwise. In these circumstances, the cap formula will be applied as if all 1903A enrollee categories were a single group. It’s difficult to predict how that would impact state funding and state residents who rely on Medicaid coverage to meet their health needs.

Data for determining the final cap is not available until after the end of a fiscal year, so states are at risk for having the federal share of excess expenditures clawed back. While each state will know its target cap, the actual cap for a given year is based on the current year CPI-M and enrollment. These numbers are not known until after the end of the fiscal year. This will certainly impact how states administer Medicaid in order to avoid the claw back.

No longer will states take on the risk of investing in long-term innovative strategies to reduce costs, advance quality, and improve outcomes as they focus on sure bets to trim benefits, cut provider reimbursement, or put up red tape barriers to enrollment and retention.

No doubt that the proposed radical restructuring of Medicaid and reneging on the half-century partnership between the federal and state governments will harm our country’s poorest and most vulnerable children, parents, pregnant women, seniors and people with disabilities. Moreover, the complexity of the cap formula and these data challenges call in question whether the cap can be feasibly operationalized without even more severe impacts.

Tricia Brooks
Tricia Brooks is a Senior Fellow at the Center for Children and Families