The idea behind the shift to a per capita system for Medicaid is not to reduce federal funding today but rather to flatten the growth curve and to reduce the dramatic variation in expenditure growth among the individual states.
If the American Health Care Act reaches the president’s desk, it will represent the most significant change to the Medicaid program in its 50 plus year history. (As an aside, even if the bill does not pass, we would expect similar goals to be accomplished via HHS’s waiver authority so don’t get too comfortable.)
Under a federal per capita financing system, CMS would set a target spending rate beginning in 2019. If a state exceeds that target, then Federal Medicaid payments in the following year would be reduced by the amount attributable to the Federal government's contribution. There is no specific language that contemplates what happens if a state’s Medicaid expenditures come in below the target. Presumably, the federal portion of the savings would be returned to the U.S. Treasury.
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Establishing the Target Rate for FY 2019. The HHS Secretary is responsible calculating, no later than April 1, 2018, a per capita target for each type of Medicaid enrollee – aged, blind and disabled, children, non-expansion adults and expansion adults in each state.
The FY 2019 target rate will be established by calculating the 2016 base amount which is 2016 adjusted total medical expenditures divided by the number of Medicaid enrollees in each enrollment category. That amount will then be inflated each year by CPI-U, Medical Care component (currently about 3.5 percent) from FY 2016 to FY 2019. The enrollee categories of aged and blind and disabled would inflate at CPI-U, Medical Care + 1 percent.
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Establishing the FY 2019 Average Expenditures Per Capita. The FY 2016 average per capita medical expenditures for FY 2016 is calculated by taking the FY 2016 total adjusted medical expenditures (as reported on CMS-64) divided by the total number of Medicaid enrollees and increased by CPI-U, Medical Care component for each year.
This base amount will include non-DSH supplemental payments like those used to compensate providers who treat a large number of Medicaid patients, additional funding for waivers to improve care and other programs like the Low Income Pool.
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Establishing the Target Rate for FY 2020 and Beyond. The FY 2019 target rate for each enrollee category will be inflated by CPI-U, Medical Care (CPI-U plus 1 percent for aged and blind and disabled).
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Establishing Medical Expenditures for 2020 and Beyond. CMS will use actual medical expenditures less those excluded expenses of DSH payments, Medicare cost sharing and safety net payments to non-expansion states for each enrollee category. These expenditures will be reported in more detail than they are now due to changes mandated by the ACHA.
The difference in the approaches for FY 2019 and for subsequent years is driven by the absence of detailed data on enrollee expenditures that make it difficult to adjust upward on a per enrollee category basis.
In short, each state will probably start out with a per capita amount that is close to what they now get from the federal government. However, the growth curve will be constrained by the CPI-U, Medicare Care inflator, which for some states is considerably below their historical growth rates.
The implications of a per capita system are significant for states whose annual Medicaid expenditures have outpaced inflation. These states often have the benefit of robust fiscal capacity as measured by their median incomes and extensive provider networks they can tax to leverage the federal match. The result, historically has been upward pressure on Medicaid spending.
Initially, That impact of a per capita system will be muted in those states that receive non-DSH supplemental payments like Florida, Texas and California and whose FY 2016 base will be higher than would be the case if those payments were excluded.
States that have constrained their Medicaid expenditure growth, either because their state has its own fiscal issues or they lack the tax and income base to fully exploit the federal match, will have an easier time adjusting. As a former state Medicaid director in one of the less affluent states once told me, “I am not afraid of [per capita} grants.”
Below is the inflation adjusted Medicaid spending growth as calculated by the Pew Charitable Trust for 2000-2012 (thus avoiding the impact of the ACA expansion) for each state and relative to the average CPI-U, Medicare Care for that same period. It is worth noting that the data are derived from the notoriously undependable Medicaid data at CMS. National Association of State Budget Officers often reports higher growth numbers.
Source: Pew Charitable Trust using CMS-64 data
We are taking a closer look at more recent expenditure data in certain states in attempt to more accurate quantify the impact of a per capita system.
Tomorrow we will have a run down on how block grants will work.
Call with questions. We are here, glued to C-SPAN
Emily Evans
Managing Director
Health Policy
@HedgeyeEEvans
