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What Medicaid reform would mean for you: Answers to 4 key questions

March 9, 2017

    Medicaid reform occupies a critical place in the continuing debate over the repeal and replacement of the Affordable Care Act (ACA). GOP lawmakers must decide the fate of the roughly 11 million individuals who have gained health coverage through the Medicaid expansion, and they're also hoping to use momentum behind ACA repeal to drive deeper, permanent reforms to how the federal government funds the Medicaid program.

    The most recent Republican bill would use per capita spending caps as a mechanism to limit federal spending, but the final details are far from settled. With more than 70 million Americans receiving coverage through Medicaid, hospital finance leaders are understandably concerned about how funding reform would affect their organizations.

    Here are answers to several key questions about Medicaid funding reform.

    1. How is a per capita spending cap different from a block grant?

    A per capita spending cap, such as the one proposed in the latest House GOP bill, would determine the size of the federal contribution to Medicaid based on the number of enrollees multiplied by a fixed per capita amount. A block grant, on the other hand, would allocate a fixed sum of dollars to each state based on that state's Medicaid spending, regardless of enrollment. Should enrollment increase, a per capita spending cap would provide states proportionately more funding, whereas block grants would not.

    2. Republicans say their reform would provide "greater flexibility for the states." What would that mean in practice?

    Reform proposals would grant states greater freedom in spending Medicaid dollars. States would be allowed to change eligibility requirements, such as by making income thresholds more restrictive or adding work requirements. States could also choose to charge premiums and introduce or increase cost sharing. In addition, increased flexibility would allow states to lower reimbursement rates further than they can under current law, which could reduce beneficiaries' access to care.

    3. How would Medicaid funding reform save money for the federal government?

    Under either per capita spending caps or block grants, federal funding for Medicaid would increase in absolute dollar amounts in future years, following an inflation-based formula. But reform would likely save the federal government money by increasing payments at a slower rate than expected under current law. Although the most recent GOP bill has yet to receive a score from the Congressional Budget Office, the Kaiser Family Foundation found that earlier proposals would have cut federal Medicaid spending by up to 41% over the 2017-2026 period.

    4. What would Medicaid reform mean for my bottom line?

    The impact of Medicaid reform on hospital finances would vary widely depending on states' response. States may choose to preserve eligibility and coverage standards by contributing more of their own dollars. But in the long run, providers should expect that state Medicaid rolls would shrink considerably and that payment rates would drop even further. If Medicaid reform is passed, providers should prepare for higher levels of bad debt and even lower Medicaid margins. The  current bill would offset some of the impact to providers' bottom lines by restoring disproportionate share funding that was cut by the ACA. But it likely wouldn't be enough to fully offset other losses.

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