Washington, D.C.

Medicaid expansion, reversed by House, back on table in Senate

States could face tough choices
Senate Majority Leader Mitch McConnell (R-Ky.) during a hearing on Capitol Hill in Washington on April 26, 2017.
Senate Majority Leader Mitch McConnell (R-Ky.) during a hearing on Capitol Hill in Washington on April 26, 2017.

WASHINGTON — Senate negotiators, meeting stiff resistance to the House’s plans to sharply reduce the scope and reach of Medicaid, are discussing a compromise that would maintain the program’s expansion under the Affordable Care Act but subject that larger version of Medicaid to new spending limits.

With 62 senators, including 20 Republicans, coming from states that have expanded Medicaid under the Affordable Care Act, the House’s American Health Care Act almost certainly cannot pass the Senate. The House bill could leave millions of Medicaid beneficiaries without health coverage, but in a House debate focused more on pre-existing medical conditions and tax cuts, the sweeping Medicaid changes received little attention.

Those changes would, for the first time, put Medicaid on a budget, limiting federal payments to states for care provided to tens of millions of low-income people — not just those who gained Medicaid coverage as a result of the Affordable Care Act, but also children, people with disabilities and nursing home residents who have been eligible for decades under the law that created Medicaid in 1965. The House bill would cut expected Medicaid spending by more than $800 billion over 10 years, according to the most recent estimate from the Congressional Budget Office.

A bill to repeal the Affordable Care Act has been “leveraged, by a sleight of hand, into reform of the entire Medicaid program,” said Greg Moody, director of the Office of Health Transformation in Ohio, run by the state’s Republican governor, John R. Kasich.

States could face tough choices because Medicaid spending per beneficiary is expected to increase faster than the limits in the House bill, according to the Congressional Budget Office and an independent commission that advises Congress on Medicaid policy. State governments could cut services, limit beneficiaries or take on more of the funding responsibility.

“We have a hard time seeing this as anything more than a budget fix for the federal government,” said Leslie M. Clement, director of health policy and analytics at the Oregon Health Authority, which runs the state Medicaid program. “It’s a cost shift to Oregon and other states.”

As senators begin what is likely to be weeks of negotiations, Republican leaders have made it clear that the legislation that ultimately emerges will look very different from the bill that narrowly cleared the House. Controversial House provisions relaxing the Affordable Care Act’s health coverage requirements and rules on pre-existing conditions are likely to be changed, as are the size and distribution of tax credits to help people purchase health insurance plans.

Senators may wish to provide more assistance to low-income people and older Americans. But talks cannot gain real momentum until the Congressional Budget Office delivers its final analysis of the House bill next week. And Senate leaders will face the same difficult dynamic that House leaders confronted: Any move to ease the concerns of moderate Republicans or senators from Medicaid-expansion states runs the risk of alienating conservative hard-liners, especially Sens. Rand Paul of Kentucky, Ted Cruz of Texas and Mike Lee of Utah.

On Medicaid, senators have discussed possible trade-offs. One idea is to preserve the expansion of Medicaid eligibility but impose new limits on Medicaid spending. Senators could modify the House bill to change how the caps are computed, but they are far from any final decisions.

Speaker Paul Ryan has described the proposed changes in Medicaid as “the most historic entitlement reform we have ever had.”

But Bruce Lesley, president of First Focus, a child advocacy group, said the per capita limits would prompt states to curtail eligibility, cut lifesaving health benefits or reduce payments to providers.

The American Medical Association weighed in Monday, urging the Senate to prevent any loss of insurance. “Changes to the financing of Medicaid must also guarantee that the safety net remains strong and is able to respond quickly,” Dr. James L. Madara, chief executive of the association, said in a letter to Senate leaders.

Under current law, the federal government and states share the costs of Medicaid, with the federal government reimbursing states for a percentage of their spending. The federal commitment is open-ended: If more people enroll in Medicaid because of a recession, or if costs per person go up because of a disease outbreak or the development of an expensive new medicine, the federal government automatically provides additional money.

By contrast, under the bill passed this month by the House, the federal government would set an annual limit on payments to each state, starting in 2020. In the bill, the limit is called a “per capita cap on payments for medical assistance,” but that is somewhat misleading. The bill does not limit how much Medicaid can spend on any particular individual. Rather, it limits how much the federal government will pay a state in the aggregate for all its Medicaid beneficiaries.

The limit would be set by calculating the average per-person cost of care for five specified groups of Medicaid beneficiaries (people 65 and older, people with disabilities, children younger than 19, newly eligible adults and other nondisabled adults younger than 65). These numbers would be increased each year to reflect growth in medical costs and would be multiplied by the number of Medicaid beneficiaries in each category to determine the overall limit on federal payments to each state.

The formula would automatically increase payments when enrollment increased. But state Medicaid officials say it would not provide an adequate allowance for increases in medical costs or for changes in the needs of beneficiaries in each enrollment group. If a state spent more than its target, as defined by Congress, the federal government would not provide additional funds to match that spending.

Medicaid spending varies greatly among the five groups, averaging $3,500 a year for children, $14,500 for beneficiaries older than 65 and $20,000 for people with disabilities.

Under the bill, the limits for most Medicaid beneficiaries would rise with one measure of the cost of care: the medical component within the “basket of goods and services” that the government uses to calculate the Consumer Price Index, a government measure of inflation. The caps for older and disabled Medicaid beneficiaries would be allowed to rise by an additional percentage point.

Vernon K. Smith, a former Medicaid director in Michigan who is now a consultant to many states, said increases in Medicaid costs were not always captured in that national measure of inflation. Hepatitis C, for example, is more common among Medicaid beneficiaries than in the general population, so when effective but expensive new hepatitis drugs became available several years ago, Medicaid costs were affected much more than national health spending.

Moody of the Ohio Office of Health Transformation said that Kasich and some other Republican governors could live with per capita limits on Medicaid spending if they had more freedom to manage the program and keep costs under the cap. For example, he said, Medicaid spending on prescription drugs is growing much faster than spending on other items, and state officials could better control pharmacy costs if they had more freedom to decide which drugs to cover.

Although Democrats now oppose per capita allotments in Medicaid, they once supported the idea. “A per capita cap would limit the amount of federal spending per eligible person while retaining current eligibility and benefit guidelines,” President Bill Clinton said in a 1996 message to Congress proposing ways to balance the budget.

Bruce C. Vladeck, then head of the agency that runs Medicaid and Medicare, defended the proposal at a congressional hearing. Per capita limits, he said, would put Medicaid spending on a sustainable course while protecting coverage for beneficiaries.

Republicans say it is hypocritical of Democrats to resist the caps now.

But in an interview, Vladeck said the situation was different today. In 1995 and 1996, he said, the Clinton administration embraced per capita caps as a “negotiating position” to counter Republican efforts to convert Medicaid into a block grant, a fixed amount of money that would not respond to population growth or an economic downturn.

In the current fight over the future of the Affordable Care Act, Vladeck said, Democrats should not even discuss per capita limits while Republicans are “trying to end coverage for 12 million people” by phasing out the expansion of Medicaid.

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