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Mar 10, 2017

Washington Update: Congress Proposes Overhauling Medicaid

Medicaid is getting an overhaul that is likely to reduce coverage and add costs for states. The frequently stated reason for capping Medicaid is to provide states with flexibility. However, given the construct of the budget pressures states are likely to face if the House Republican proposal — the American Health Care Act (AHCA) to repeal and replace the Affordable Care Act (ACA) — goes through, it is unlikely states will have that flexibility.

Medicaid is the nation’s largest healthcare program, covering 74 million individuals. About 60 percent of Medicaid’s spending is for the elderly and the disabled, many of whom come from middle-class households.

The program is funded jointly by the federal government and the states. It currently is an open-ended commitment, meaning the federal government pays a certain percentage of each state’s costs with no fixed dollar limit. If costs rise, states get more money. Because most states require themselves to have balanced budgets, the state share of Medicaid is often one of the largest items in a state budget. Most states have sought “1115 waivers” in order to structure their program to fit states’ unique characteristics and to hold costs down. If you have seen one Medicaid program — you have seen one Medicaid program. About 11 million individuals have gained coverage through Medicaid since 2014.

On March 9, 2017, the House Ways and Means Committee and the House Energy and Commerce Committee “marked up” and reported the proposal. This article refers only to the Medicaid portion of the American Health Care Act (AHCA).

Budget Pressure on the States

While no Congressional Budget Office (CBO) score is available for the House GOP plan at this writing, the Center for Budget and Policy Priorities (CBPP) estimates that the proposed plan could shift an estimated $370 billion in Medicaid costs to states over the next 10 years.

The Underlying Fundamental Change — Moving the Program to a Per-Capita Cap

Under the House Republican plan, the open-ended commitment for federal funding changes. Instead, federal funding would be based on what the government spent in the fiscal year that ended Sept. 30. Those amounts would be adjusted annually based on a state’s enrollment and medical inflation plus 1 percent.

Per-Enrollee Caps

The plan includes per-enrollee caps for five enrollment groups — the elderly, blind and disabled, children, expansion, and other adults based on the state’s per-beneficiary expenditures in fiscal year 2016. Some costs would be excluded from this cap — administrative costs, disproportionate share hospital (DSH), Medicare cost-sharing and safety-net provider payment adjustments in non-expansion states, and costs for certain categories of individuals, including those receiving services through the Children's Health Insurance Program (CHIP), individuals receiving services through the Indian Health Service, and Breast and Cervical Cancer Services, as well as partial-benefit enrollees.

For states opting to adopt the Medicaid expansion after 2016, the per-enrollee amount for this group would be the same as the amount for the other adult group under the per-capita cap.

Impact on States

Because Medicaid costs per beneficiary are expected to rise by about 0.2 percentage points faster each year than states’ capped amounts, states would get less federal funding than under current law, with the cuts growing each year.

This also means that states would be responsible for 100 percent of any costs in excess of the per-capita cap, regardless of the reason. So unanticipated healthcare cost growth, or demographic changes for which the per-capita cap did not account, would be the state’s responsibility.

The Expansion Population

Starting in 2020, states would receive only the regular federal Medicaid matching rate — on average, 57 percent of Medicaid costs, with states covering the other 43 percent — for any new enrollees under the expansion, instead of the ACA’s matching rate of 90 percent. CBPP estimates that this means expansion states would have to pay 2.8 to 5 times more in terms of their own costs. People who are covered under the expansion would continue to be funded by the federal government after 2020, but states would no longer be allowed to enroll anyone under those expanded criteria.

While states could still get the expansion matching rate for beneficiaries who were enrolled before the end of 2019 and stayed enrolled without a break in coverage, the large majority of beneficiaries now on Medicaid under the expansion would likely fall off the program eventually.

As four Republican senators from expansion states noted in a letter to Majority Leader Mitch McConnell on March 6, commenting on a previously leaked House draft with a virtually identical Medicaid expansion proposal, “many [Medicaid beneficiaries] cycle on and off Medicaid due to frequent changes in income, family situations, and living environments.”

Thus, within just a few years, it is likely that the overwhelming share of Medicaid expansion spending would eventually be subject to the regular matching rate.

In seven states, expansion coverage would automatically end because state law requires their expansion to end if the federal Medicaid matching rate falls or requires the state to take steps to prevent its Medicaid costs from rising. For the other 24 states and the District of Columbia, it means an actual cut in federal Medicaid spending. This means that the overwhelming majority of 11 million low-income adults in 31 states and the District of Columbia who gained coverage are likely to lose it and most likely be uninsured over a few years after enactment. Some of the state actions that have been predicted include the following:

  • Arkansas will likely end its expansion program within 120 days of a reduction in the enhanced federal match.
  • Arizona’s first law introducing expansion mandated elimination of the program if Congress brings the federal match lower than 80 percent. The state then set up an 1115 waiver to cover the expansion population in case of a reduction in the federal match.
  • Illinois is likely to eliminate its expansion program no later than three months after the federal match drops below 90 percent.
  • Michigan is likely to stop its program once the match drops below 100 percent and all state and non-federal savings garnered through Medicaid expansion no longer covers the difference.
  • New Hampshire is likely to end its programs within 180 days if the federal match drops below 95 percent in 2017 and 94 percent in 2018.
  • New Mexico is likely to “reduce or rescind eligibility” for the expansion population if the federal match drops.
  • Washington law mandates the Washington State Healthcare Authority raise premiums, reduce benefits or cut the program in other ways so the state does not lose money by keeping the expansion once the federal match is lowered.
  • California has a provision to stop expansion if the federal match is not available. However, it does not explicitly say expansion will end with the enhanced federal match.
  • Montana ’s legislature gave the state authority to submit a waiver request for its expansion program, which includes premiums and cost-sharing. CMS approved this waiver through December 2020, but the state’s authority to renew it expires June 30, 2019.
  • North Dakota will not automatically end its expansion if Congress reduces the federal match, but the state must inform new enrollees that “benefits may be reduced or eliminated if federal participation is reduced.”

Other Changes

  • Repeal Medicaid DSH cuts for FY2020 - FY2025; exempt non-expansion states from DSH cuts for FY2018 - FY 2019.
  • Provide $10 billion over five years (CY2018 – CY 2022) to non-expansion states for safety-net funding (which applies to states not adopting the expansion by July 1 of the previous year). Allotments will be based on the number of individuals in the state with income below 138 percent of the federal poverty level (FPL) in 2015, relative to the total number of individuals with income below 138 percent of FPL for all the non-expansion states in 2015. Payments will be 100 percent funded by the federal government in CY 2018-2021 and 95 percent in CY 2022. Payments to providers may not exceed providers’ costs in providing healthcare services to Medicaid and uninsured patients. States receiving these funds in a year in which they also adopt expansion shall no longer be eligible to receive these funds in any subsequent year.
  • States would be required to determine Medicaid eligibility every six months, starting Oct. 1. The requirement is limited to beneficiaries whose eligibility is determined under their modified adjusted gross income (MAGI), and the legislation would help fund the new renewal requirement by providing states a 5 percent increase in federal matching funds.
  • Increased funding for community health centers.


Converting Medicaid to a per-capita cap would also make the program highly vulnerable to more cuts in the future. If Medicaid funding is delinked from the actual cost of providing healthcare to the Medicaid population, in the future Congress could come back and ratchet down the per-beneficiary caps — by, for example, lowering the annual growth rate for the cap amounts — to pay for other priorities.

In response, states would have to contribute much more of their own funding or, far likelier, substantially cut eligibility, benefits and provider payments, with the likelihood that those cuts could grow more severe over time. Along with those who gained coverage under the Medicaid expansion who are now likely to lose coverage overtime, the remaining 63 million children and families, seniors, and people with disabilities who rely on Medicaid today would face a risk of ending up uninsured or losing access to needed care.

While the proposal may pass the House, its future in the Senate is unclear. The Senate leadership has made it clear they want to have the legislation on the floor of the Senate before the Senate recesses in April and several Republican senators have expressed concern over the Medicaid expansion population funding.

If you have any questions, contact the following individuals at McGuireWoods Consulting:

Stephanie Kennan, Senior Vice President
Charlie Iovino, Vice President
Caroline Perrin, Research Assistant

Founded in 1998, McGuireWoods Consulting LLC (MWC) is a full-service public affairs firm offering infrastructure and economic development, strategic communications & grassroots, and government relations services. McGuireWoods Consulting is a subsidiary of the McGuireWoods LLP law firm and has been named in The National Law Journal's special annual report, "The Influence 50," for the past several years. In the most recent report, McGuireWoods Consulting was ranked 15th of the 1,900 government relations firms in Washington, D.C.

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