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GAO Medicaid Data Show Per Capita Caps Would Lead to Disparate, Harmful Funding Cuts

We’ve previously warned that proposals to change the formula for federal Medicaid funding for states to a fixed dollar amount per Medicaid beneficiary — known as a “per capita cap” — would mean cuts in federal funding for all states.  The change would hit some states particularly hard due to substantial differences in per-beneficiary spending and how fast such costs grow over time.  A recent Government Accountability Office (GAO) analysis backs up our warning.

GAO’s analysis shows that states vary widely in how much they spend per beneficiary, consistent with our own analysis and that of the Kaiser Family Foundation.  GAO estimated average spending in 2008 for each state for different groups of beneficiaries — a child, a person with a disability, a senior, and a non-disabled, non-elderly adult — using federal expenditure and enrollment data.  As one would expect, overall, on average, Medicaid spending on people with disabilities and on seniors was significantly greater than spending on other adults and on children.

But spending on these enrollment groups varied considerably among states.  For example, Medicaid spending per child beneficiary was $5,877 in Vermont and $1,702 in California.  And average Medicaid spending per senior beneficiary was $28,564 in Montana and $9,882 in Alabama.

House Energy and Commerce Committee Chairman Fred Upton (R-MI) and Senate Finance Committee Ranking Member Orrin Hatch (R-UT), who requested the GAO analysis, responded to the findings by reiterating their proposal to establish a per capita cap, under which the federal government would no longer cover a fixed share of each state’s overall Medicaid costs but instead would limit each state to a fixed dollar amount per beneficiary.

Rep. Upton and Sen. Hatch previously argued that a per capita cap would “normalize” Medicaid spending across states, implying that states with higher-than-average spending per beneficiary have inflated costs.  In reality, states with relatively low Medicaid spending per beneficiary would likely fare disproportionately worse than higher-spending states under such a cap, because they would receive relatively less funding due to federal funding formulas that are typically based on current spending per beneficiary.

GAO tried to identify the factors driving this spending variation.  It concluded that while some factors were within the states’ control, such as optional benefits offered and optional eligibility levels, many significant factors were clearly not, including geographic variation in health care wages, differing enrollee service needs, and demographic differences among states such as the percentage of enrollees who are seniors.  In other words, just as overall health care spending and utilization among the states vary, so does Medicaid spending per beneficiary.  As a result, nothing in GAO’s report indicates that states with higher spending per beneficiary were somehow “overspending” relative to those with lower spending per beneficiary.

GAO’s findings don’t justify proposals to alter Medicaid’s financing structure.  They do, however, emphasize that while all states would face cuts in federal funding under proposals like a per capita cap, some states would disproportionately face larger ones.

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30

07 2014

Medicaid Expansion Decisions Leading States Down Divergent Paths

As a growing number of reports increasingly make clear, a state’s decision whether to expand Medicaid as part of health reform has real-life effects on its residents and its businesses.  In the 26 states and the District of Columbia that have expanded Medicaid (see map), the positive benefits are already playing out.  Here’s some of the latest information:

  • Hospitals are providing less uncompensated care.  In Arizona, hospitals reported that the Medicaid expansion is the chief reason for a 30 percent decline in the amount of uncompensated care they have provided so far this year, compared with a year ago.  The Colorado Hospital Association found a similar decline in charity care through April when it surveyed hospitals in 15 states that have expanded Medicaid and 15 that have not.
  • Medicaid expansion is driving large gains in health coverage.  A survey conducted by the Urban Institute finds that while the uninsurance rate is dropping across the country, states that have expanded Medicaid have seen a drop in the percentage of non-elderly adults who are uninsured by more than one-third — a 37.7 decline — while the uninsured rate fell by only 9 percent among states that haven’t expanded.  A survey from the Commonwealth Fund found a similar trend.

States can opt in to the Medicaid expansion at any time, allowing them to extend coverage to millions with the federal government picking up all of the cost of the expansion through 2016 (and nearly all of the cost in the years after), as we have written.  New Hampshire recently started accepting applications for its expansion, with coverage first available on August 15.

But states that refuse to expand leave a coverage gap, where people below the federal poverty line have income too high for Medicaid under prior eligibility rules but too low to qualify for federal subsidies to purchase coverage through the marketplaces.  This means we’re likely to see more stories as in Tennessee where, due to the coverage gap, a couple separated so the wife’s income would be low enough to maintain her Medicaid coverage.

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16

07 2014

Lower Recidivism: Yet Another Good Reason for States to Expand Medicaid

Some opponents of health reform’s Medicaid expansion have cited an estimate that 35 percent of adults newly eligible for Medicaid have been involved in the criminal justice system in the past year.  This figure is highly inflated.

In reality, only about 17 percent of newly eligible adults who enroll in Medicaid will have been in jail or prison.  But even though they will make up about one-sixth rather than one-third of new Medicaid enrollees, their number is significant — and connecting these low-income adults to the health care system can help them avoid returning to jail or prison, as we explain in a new paper.

On any given day, about 750,000 people are in jail; about 75 percent of them for nonviolent offenses.  As many as 90 percent of people in jail are uninsured.  This figure isn’t surprising; until health reform’s coverage expansions took effect this year, there was no pathway to health coverage for poor and low-income adults who weren’t parents living with their minor children, pregnant women, seniors, or people with disabilities.  Not many people with prison or jail stays fall into these categories.

Health reform opened up Medicaid eligibility for all adults with incomes below 138 percent of the poverty line.  So far, 26 states and the District of Columbia have decided to expand coverage.  In addition, adults who aren’t eligible for Medicaid or employer coverage and have incomes between 100 and 400 percent of the poverty line can qualify for premium tax credits to help them afford private coverage through the new health insurance marketplaces.  Roughly half of people leaving jail can qualify for coverage through Medicaid or the marketplaces.  (This figure takes into account that about half of the states have adopted the Medicaid expansion and half have not.)

A number of states and counties are working to connect people released from jail to health coverage for the first time, with a particular focus on people with mental illness and substance-use disorders, given the prevalence of these conditions in this population and the role of these conditions in increasing criminal activity.

States considering whether to expand Medicaid should consider the growing evidence that connecting the jail-involved population to treatment for mental illness and substance abuse can lower the rate at which they return to jail or prison.

For example, a study of a Michigan program to help recently released prisoners obtain community-based health care and social services found that it cut recidivism by more than half, from 46 percent to 21.8 percent.  Similarly, a study that the Justice Department funded in Florida and Washington found that “in both states, 16 percent fewer jail detainees with serious mental illnesses who had Medicaid benefits at the time of their release returned to jail the following year, compared to similar detainees who did not have Medicaid.”

Click here to read the full paper.

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25

06 2014

Medicaid Primary Care Payment Rate Bump Is Worth Extending

An increase in Medicaid primary care payment rates that was included in health reform is scheduled to expire at the end of this year.  But with the need for cost-effective Medicaid primary care rising across the country, the current physician rates should be maintained — and expanded to additional providers — as the Obama Administration and a group of hospitals and doctors have recommended.

Medicaid enrollment has risen by 6 million since October, according to the Centers for Medicare and Medicaid Services, and total enrollment now tops 65 million.  With increased enrollment comes increased need for providers, particularly those providing primary care.  Connecting patients to primary care makes it more likely that they will receive the preventive care and other services to remain healthy and makes it less likely that they will later have to visit the emergency room.

Health reform required states to pay for primary care services at the Medicare rate, which is typically higher than the Medicaid rate, for 2013 and 2014; the federal government picked up 100 percent of the cost of the increase over the state’s regular Medicaid rate for those years.  In boosting physicians’ rates, policymakers intended to increase the number of primary care providers participating in Medicaid in order to ensure access to primary care for Medicaid beneficiaries — both those newly eligible and those who were eligible before 2014.  In Connecticut, the number of primary care providers enrolled in Medicaid has more than doubled since January 2012 and state officials are pushing for an extension of the temporary increase.

Twenty-one organizations representing physicians and hospitals recently wrote to Senate and House leaders to promote a two-year extension of the current payment rate.  The group also asked that policymakers extend the enhanced Medicaid rate to physicians practicing obstetrics and gynecology if their practices provide significant amounts of primary care.  The President’s budget included a one-year extension of the primary care rate increase that would also extend the enhanced rate to include physician assistants and nurse practitioners who provide primary care services.  Both the expansions of the payment increase to additional providers and an extension of the rate increase for at least another year deserve support.

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19

06 2014

Virginia Should Be Wary of New Medicaid Poll

There’s a big reason to question the accuracy of a new poll of Virginians from Christopher Newport University, which the Washington Post and other news outlets have highlighted, that purports to find significantly less enthusiasm for expanding Medicaid as part of health reform.  Here’s what policymakers and media should keep in mind.

The pollsters say they found that Virginians’ support for expansion dropped from 56 percent on February 3 to 41 percent now.  What the pollsters do not fully acknowledge, however, is that they asked the question in two markedly different ways, making this a highly misleading, apples-to-oranges finding that doesn’t necessarily show a shift in public opinion:

  • On February 3 the question was asked:  Medicaid is a health care program for families and individuals with low income that is funded by both federal and state tax dollars. Currently, Virginia is faced with a decision about whether to expand the Medicaid program to cover an additional 400,000 mostly working poor Virginians who are uninsured. In general, do you support Medicaid expansion or oppose it?
  • But on April 24 poll the question was asked:  In [the Medicaid expansion] debate, the Democrats propose to subsidize private insurance for 400,000 uninsured and low income Virginians by using federal Medicaid money that would otherwise not come to Virginia. Republicans oppose this expansion because they fear the federal Medicaid money will not come as promised, and also say the current Medicaid program has too much waste and abuse and needs reformed before it is expanded.

Thus, unlike in February, Virginians in the most recent poll were asked whether the state should expand Medicaid only after they were read the straw man argument that the federal government will renege on its commitment to fund nearly all the costs of the expansion.  As we have explained, the history of Medicaid’s financing shows that federal funding has remained remarkably steady for decades.

Virginia policymakers should not be swayed by a misleading poll when deciding whether to expand Medicaid.  They should instead keep in mind that the state’s own analysis found that expanding will save the state more than $1 billion through 2022.  For the state, and the 400,000 uninsured Virginians who stand to gain health coverage from the expansion, the expansion remains an incredibly good deal.

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25

04 2014

Scare Tactics Shouldn’t Dissuade States From Expanding Medicaid

The Foundation for Government Accountability (FGA), a Florida-based conservative think tank, is using scare tactics in its campaign against Medicaid expansion.  It claims that Arkansas taxpayers will have to pay tens of millions of dollars to the federal government in 2014 cost overruns in the state’s “private option” Medicaid expansion.  But that claim doesn’t hold up, and it shouldn’t keep other states from pursuing the private option to expand Medicaid.

The federal government approved Arkansas’ Medicaid expansion through a demonstration project, under which the state will use Medicaid funds to buy private health insurance plans for newly eligible adults through its Marketplace.  The per-person cost of covering these new Medicaid beneficiaries for the first four months of the demonstration project was slightly above projections incorporated in the terms and conditions to which the state agreed with the federal government, prompting FGA’s claim.

Demonstration projects (which are usually called “waivers”), like Arkansas’ private option, must not cost the federal government more than it would have otherwise spent.  If the project is not budget neutral over its entire duration, a state could have to repay excess federal spending.  This is extremely unlikely to happen in Arkansas, for several reasons:

  • Budget neutrality is determined over the entire term of the demonstration project —three years in this case — not what happens in 2014, as FGA claims.  Arkansas would only have to repay the federal government if total three-year spending on the private option exceeds the three-year limit.
  • The terms of the waiver recognize that the budget neutrality limit is a forecast, and like all estimates, it could be off in either direction.  Arkansas can ask for an upward adjustment if the limits underestimate the actual costs of covering the new beneficiaries.  At the same time, the state won’t share in any federal “savings” if costs are lower than projected.
  • Arkansas is taking steps that will likely keep spending within the three-year limit.  In 2014, some health plans offered extra benefits that increased premiums and hence per-beneficiary costs under the waiver.  Starting in 2015, insurers will have to offer plans without these extra benefits to private option participants, which should bring down premiums and per-person costs to stay below the budget neutrality limits.  Other states that pursue the private option model can prevent health plans from offering these more expensive plans to begin with, thus avoiding this problem altogether.

More than 150,000 low-income adults have gained Medicaid coverage in Arkansas in 2014, and enrollment continues to grow.  That’s the lesson that the 24 states that have not expanded — where 4.8 million uninsured adults fall into the coverage gap that results from not taking the Medicaid expansion — should take away from Arkansas.

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23

04 2014

States’ Very Good Deal on Expanding Medicaid Gets Even Better

In a little-noticed finding in last week’s Congressional Budget Office (CBO) report on health reform, CBO sharply lowered its estimates of how much the Medicaid expansion will cost states.  We’ve noted repeatedly that the federal government will cover the large bulk of the expansion’s cost.  As our new report explains, these new figures make it even clearer that the expansion is a great deal for states.

  • CBO now estimates that the federal government will, on average, pick up more than 95 percent of the total cost of the Medicaid expansion and other health reform-related costs in Medicaid and the Children’s Health Insurance Program (CHIP) over the next ten years (2015-2024).
  • States will spend only 1.6 percent more on Medicaid and CHIP due to health reform than they would have spent without health reform (see chart).  That’s about one-third less than CBO projected in February.

Moreover, the 1.6 percent figure doesn’t reflect states’ savings in providing health care for the uninsured, many of whom will now have Medicaid coverage.  The Urban Institute has estimated that if all states took the Medicaid expansion, states would save between $26 billion and $52 billion from 2014 through 2019 in reduced spending on hospital care and other services provided to the uninsured.

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Ryan Budget Again Proposes a Medicaid Block Grant, Adding Millions to the Ranks of the Uninsured and Underinsured

House Budget Committee Chairman Paul Ryan’s new budget again proposes to radically restructure Medicaid by converting it into a block grant, and it would cut federal Medicaid funding steeply, by $732 billion over the next decade.  It would also repeal health reform’s Medicaid expansion.  The combined total cut to Medicaid would exceed more than $1.5 trillion over ten years, relative to current law.  All told, it would add tens of millions of Americans to the ranks of the uninsured and underinsured.

Repealing the Affordable Care Act’s Medicaid expansion means that 13 million people would lose their new coverage or no longer gain coverage in the future; 13 million is the Congressional Budget Office’s (CBO) current estimate of the number of people who would eventually gain coverage under the Medicaid expansion, though the number could rise as high as 17 million if all states adopt the expansion.  In addition, the large and growing cut in federal Medicaid funding from the block grant would almost certainly force states to sharply scale back or eliminate Medicaid coverage for millions of low-income people who rely on it today.  (More than 40 million people would likely become uninsured as a result of the Ryan budget overall after also taking into account the repeal of health reform’s exchange subsidies.)

Under the Ryan plan, the federal government would no longer pay a fixed share of states’ Medicaid costs starting in 2016.  Instead, states would get a fixed dollar amount that would rise annually only with inflation and population growth.

  • The block grant funding would fall further and further behind state needs each year.  The annual increase in the block grant would average about 3.5 percentage points less than Medicaid’s currently projected growth rate over the next ten years, which accounts for factors like rising health care costs and the aging of the population.  Federal Medicaid and Children’s Health Insurance Program (CHIP) spending in 2024 would be $124 billion less — or 26 percent less — than what states would receive under current law, according to the Ryan budget (see chart).  And the cuts would keep growing after that.
  • Altogether, the block grant would cut federal Medicaid spending by $732 billion from 2015-2024, according to the Ryan budget plan.  (It is conceivable that a small share of these cuts could come from CHIP, which the Ryan budget would merge into its new Medicaid block grant.)  This would be an estimated cut to federal Medicaid and CHIP funding of more than 19 percent over the ten years as a whole, compared to current law — and doesn’t count the loss of the large additional funding that states would receive to expand Medicaid under health reform.
  • The loss of federal funding would be even greater in years when enrollment or per-beneficiary health care costs rose faster than expected, such as during a recession or after the introduction of a new, breakthrough health care technology or treatment that improved patients’ health but increased cost.  Currently, the federal government and the states share in those unanticipated costs; under the Ryan plan, states alone would bear them.

As CBO concluded when analyzing the similar Medicaid block grant proposal from the Ryan budget plan from two years ago, “the magnitude of the reduction in spending . . . means that states would need to increase their spending on these programs, make considerable cutbacks in them, or both.  Cutbacks might involve reduced eligibility . . . coverage of fewer services, lower payments to providers, or increased cost-sharing by beneficiaries — all of which would reduce access to care.”

In making these cuts, states would likely use the expansive additional flexibility that the Ryan plan would give them.  For example, the plan would likely let states cap Medicaid enrollment and turn eligible people away from the program; under current law, states must accept all eligible individuals who apply.  It also would likely let states drop certain benefits that people with disabilities or other special health problems need.

The Urban Institute estimated that Chairman Ryan’s similar block grant proposal in 2012 would lead states to drop between 14.3 million and 20.5 million people from Medicaid by the tenth year (outside of the effects of repealing health reform’s Medicaid expansion).  That would result in a reduction in enrollment of between 25 percent and 35 percent.  The Urban Institute also estimated that the block grant likely would have resulted in cuts in reimbursements to health care providers of more than 30 percent by the tenth year.  This year’s proposal likely would result in cuts that are similarly draconian.

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Two Takeaways From New Hampshire and Michigan’s Medicaid Expansions

New Hampshire’s legislature has passed and Governor Maggie Hassan has signed into law legislation that will expand Medicaid as part of health reform effective July 1.  This means that combined with Michigan, where expansion takes effect tomorrow, an additional 600,000 uninsured people will be newly eligible for Medicaid coverage.  It also means a majority of states have taken health reform’s Medicaid expansion, as our map shows.

For policymakers in Maine, Missouri, Utah, Virginia, and other states currently debating whether to expand, the news from New Hampshire and Michigan offers important lessons:

  • Federal officials are willing to work with states to craft reasonable expansion plans.  The legislation passed in New Hampshire directs state officials to pursue a demonstration project — often called a “waiver” — that would use Medicaid dollars to buy coverage for newly eligible beneficiaries through the marketplace.  If approved, this approach would be similar to those in place in Arkansas and Iowa.

    New Hampshire likely will gain federal approval for its demonstration project because it steered clear of onerous provisions being discussed in other states that would make it difficult, if not impossible, for people to gain and maintain coverage.  For example, policymakers in Pennsylvania and Missouri have discussed tying people’s Medicaid eligibility and premium obligations to whether they are working or actively looking for work.  Such provisions have no relation to the purpose of Medicaid, which is to provide health coverage to people with low incomes.

  • States can expand at any time, but the sooner, the better for states and the uninsured.  The Medicaid expansion is a great deal for states, but especially so from now through the end of 2016 while the federal government pays the entire cost of covering the newly eligible.  (The federal government will pay no less than 90 percent of the cost in the years thereafter.)  While New Hampshire’s proposed waiver will not take effect until January 1, 2016, newly eligible beneficiaries will be able to enroll in the state’s existing program on July 1 of this year.  This is a win for both the Granite State’s finances and for the uninsured.
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31

03 2014

President’s Budget Reaffirms Federal Commitment to Pay for Nearly All of Medicaid Expansion

As policymakers in a number of states debate whether to adopt health reform’s Medicaid expansion, opponents continue to claim that the federal government, in the name of deficit reduction, will inevitably renege on its commitment to fund nearly all of the cost and instead shift large costs to states.  As Florida state senator Jeff Brandes put it recently, “Why in the world would we take the federal government’s . . . promise that they’ll pay for [the] Medicaid expansion when we know that they will be unable to keep that promise in the long run?”

But, there’s no evidence to support that argument, as we’ve pointed out (see here and here).

The Obama Administration has repeatedly said that it will oppose any cost-shifts that would make states less likely to take up the Medicaid expansion.  And, the President’s new budget reaffirms yet again that the federal government will pick up nearly all of the expansion’s costs:  100 percent for the first three years (2014-2016) and no less than 90 percent on a permanent basis.

Like last year’s budget, the President’s budget has no Medicaid proposals that produce federal savings by shifting costs to states.  It instead proposes to achieve some Medicaid savings by lowering the program’s prescription drug costs.

Moreover, as we’ve pointed out, pressures to cut Medicaid and shift costs to states in order to reduce the federal deficit have dissipated.  In fact, the only federal lawmakers now pushing to shift Medicaid costs to states are not health reform proponents but instead those who oppose health reform and who would convert Medicaid to a block grant or set a per capita cap on federal Medicaid funding.

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13

03 2014

Failing to Expand Medicaid Costs Individuals, Too

We’ve written about the growing cost to states of not expanding Medicaid as part of health reform.  But let’s not forget that state policymakers’ decisions not to expand have a severe human cost, too, as an article in today’s Wall Street Journal makes clear.

The Journal details the plight of uninsured low-income workers in Alabama — one of the states that hasn’t expanded Medicaid — who are struggling to afford medications for chronic health conditions, or are forgoing needed care entirely because they lack health coverage.  These are some of the nearly 5 million individuals in 25 states caught in a “coverage gap” — with income too low to qualify for help buying private coverage through the new marketplaces and too high to qualify for Medicaid — that exists because their state has not expanded Medicaid (see chart).

While Alabama Governor Robert Bentley opposes the expansion, a growing number of policymakers in non-expansion states are realizing that it doesn’t have to be this way.  Utah Governor Gary Herbert has announced he will push to expand this year because “doing nothing is not an option.”  And lawmakers in Nebraska, New Hampshire, and a handful of other states are charting their own paths toward expansion.

The Medicaid expansion is a good financial deal for states, and they can expand with the knowledge that the federal financial commitment to the expansion is solid, as we’ve previously explained.  Today’s Journal makes it clear how much individuals stand to gain from expanding as well.

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10

02 2014

History Rebuts Claim That Federal Medicaid Matching Rates Are Unstable

As I explained last week, there’s no evidence to support claims that the federal government will renege on its commitment to finance nearly all of the costs of health reform’s Medicaid expansion.  Some critics also assert that Congress frequently changes the formula that determines what share of states’ Medicaid costs the federal government will cover (also known as the FMAP).  But a look at Medicaid’s history shows the exact opposite.

The federal government picks up about 57 percent of state Medicaid costs on average, and that average has remained remarkably steady for decades.  (Federal matching rates for individual states can vary from year to year, but that’s because the formula takes into account changes in states’ per capita income.)

In fact, the federal government has only modified the overall FMAP formula three times in the last 35 years.  And the past two times, it raised matching rates temporarily (for fiscal years 2003-2004 and 2008-2011) to provide state fiscal relief in response to economic downturns.

The only time the federal government cut Medicaid matching rates was in 1981, when President Reagan and Congress enacted a temporary reduction for 1982-1984.  The rates, however, returned to their previous levels in 1985.

That’s hardly a pattern of arbitrary cuts in federal Medicaid funding.

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03

02 2014