The White House and the House Leadership are hoping to bring a bill to “repeal and replace” the Affordable Care Act (ACA) to the House floor for a vote this week. The bill contains a new section allowing states to waive ACA consumer protections relating to health insurance. It also contains the same cap on federal Medicaid spending that appeared in the prior version, which was pulled from the House floor without a vote on March 24. That cap, along with the repeal of the ACA Medicaid expansion, would have cut federal Medicaid spending by $839 billion over the next 10 years, offsetting most of the $999 billion revenue loss from the repeal of taxes used to pay for the ACA coverage expansions.
Although the cap represents the most radical change in the Medicaid program in over 50 years, it has received very little attention. The House committee that developed it has not actually explained how it would work or held a hearing on it so that Members of Congress and the people they represent have an opportunity to understand it. (The State Health Reform Assistance Network has a terrific set of slides that walk though the cap step-by-step (see slides 14-27).
The lack of public education or discussion about the cap has allowed “alternative facts” about the cap to persist. Here are the five most common.
Myth #1: A per capita cap is better than a block grant. You know that the case for a proposed change is weak when the lead-off argument is: “it’s better than an even worse and politically unpopular change.” A block grant and a per capita cap have two basic characteristics in common: they both would impose a limit on federal Medicaid spending in each state each year, and they both are platforms for cuts in federal spending that could be dialed down over time to achieve federal deficit reduction targets or offset federal revenue losses from tax cuts by shifting costs to states. It is true that a block grant does not take enrollment into account while a per capita cap does. But as explained in a previous blog, the effect of the per capital cap on state decision-making is just as damaging to beneficiaries and providers, if not more so.
Myth #2: A per capita cap is just like managed care. Not really. In fact, not at all. In risk-based managed care, the state Medicaid agency pays a private plan a fixed amount per enrollee each month; in exchange, the plan agrees to arrange for the provision of covered services. The per capita amounts paid would vary depending on whether the enrollee was a child, an adult with disabilities, a senior, etc. Under a per capita cap, the federal government limits the total amount of Medicaid matching funds it will pay to a state each year. States can claim federal matching funds up to that number; above that number, states are at risk for all costs. The single number is based on per capita spending for each of five groups – children, the elderly, the disabled, ACA expansion adults, and other adults – in 2016, but what states spend on each of these groups under the cap in 2020 and beyond is up to each state. The federal government does not pay a per capita amount for each child or each senior or each person with disabilities. Instead, it limits its total spending for all these groups and leaves the decision as to what to spend on services for each group to the state.
Myth #3: A per capita cap will give states much more flexibility. It is a truth universally acknowledged that if you’ve seen one Medicaid program, you’ve seen one Medicaid program. The reason is that, under current law, states have broad discretion to set eligibility, benefits, provider payment, and administrative policy in their Medicaid programs, and they have used that discretion. Could Congress amend the Medicaid statute to give states even more discretion? Yes. Does Congress need to cap federal Medicaid spending in order to do so? No. In fact, the Administration has already told the Governors that it is anxious to give them more flexibility via section 1115 demonstration waivers. A per capita cap won’t give states more flexibility; it will give them less federal funds to pay for health and long-term care services needed by their low-income citizens.
Myth #4: A per capita cap will make states more disciplined and more efficient. Look! It’s the Flexibility Fairy, “waiving” her magic wand to lower Medicaid spending. To set her free, all we need to do is cap the amount the federal government will spend on Medicaid in every state each year. Come on. States do not look for ways to spend more of their own funds in order to bring in more federal Medicaid matching dollars. Anyone who has watched a state legislature reduce services or cut provider payments in order to limit its own spending knows that states already have more than enough fiscal discipline. A cap on federal funding won’t increase state fiscal discipline beyond what a state balanced budget requirement already does. And let’s be clear about the cost savings that can realistically be achieved through program management. It will take a truly magical wand to lower the prices health care providers and drug companies charge, reverse the aging of our population, or eliminate public health epidemics like Zika and opioids.
Myth#5: A per capita cap can be ‘fixed’ to make it less harmful. The per capita cap has lots of moving pieces, so it’s tempting to think than tinkering with the formula can reduce the harm it produces. The fact is that any “fix” is reversible at a later date; the cap itself is not. Once the cap is in place, it will be used by federal policymakers to dial for dollars. The initial growth factor—the medical care component of the Consumer Price Index (CPI-M) plus one percentage point—will become CPI-M, then CPI-M minus one, etc. Similarly, populations that might initially have been exempted will eventually be included in order to wring out more “savings.” Of course, this dialing down will not help states curb health care prices or respond to public health epidemics, much less to innovate. Instead, it will simply shift more and more costs of providing health and long-term care services for low-income Americans—a projected 87 million individuals in 2027, including 36 million children—from the federal government to states.
