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June 20, 2017

How the AHCA would fundamentally change Medicaid, which covers 1 in 4 Americans

Daily Briefing

    By Josh Zeitlin, Editor

    Many have described the GOP's health reform effort as a plan to repeal major parts of the Affordable Care Act (ACA).

    But the House-passed American Health Care Act (AHCA) would do much more than that—it also would fundamentally change Medicaid. And reports indicate that Senate Republicans are planning similar changes to the program.

    Here's what you need to know about Medicaid and Republicans' plans to change it (or click here to skip ahead to the key takeaways for hospital strategy).

    What does Medicaid do now?

    Medicaid is currently funded through a federal/state matching program in which the federal government reimburses states at a set rate for every dollar spent on Medicaid. This rate varies from state to state, ranging from 50 to 75 percent based on a state's per-capita income and other criteria.

    This means that as state expenses increase, as a result of greater enrollment (such as when more people become eligible due to a recession or eligibility expansion)  or higher program costs (such as from a public health crisis, costly new medicines, or rate hikes), federal funds automatically rise to match state spending. Under the current model, there is no limit on the total amount of federal dollars available to the states to cover Medicaid expenses.

    About 97 million low-income Americans—or nearly one-third of the U.S. population—were enrolled in Medicaid at some point in fiscal year 2016, according to a recent Congressional Budget Office (CBO) report. In any given month of that year, the program enrolled about one-fourth of all Americans (76 million), comprised of:

    • 6 million seniors (8 percent of beneficiaries);
    • 34 million children (45 percent);
    • 27 million adults (35 percent); and
    • 9 million additional individuals with disabilities/blindness (12 percent).

    More than 11 million of those individuals were newly eligible beneficiaries who had gained coverage through the ACA's Medicaid expansion. Under the ACA, the federal government matches nearly all funding (95 percent in 2017) for those enrolled under Medicaid expansion; that rate is set to decrease until it hits 90 percent in 2020.

    What would happen to Medicaid under the AHCA?

    The House-passed AHCA would eliminate enhanced federal funding for the ACA's Medicaid expansion. And reports indicate the forthcoming Senate GOP plan likely would do the same.

    The Senate plan reportedly also will parallel the House-passed AHCA in instituting a per-beneficiary cap on federal Medicaid funds. That means federal funding would no longer automatically increase with increases to benefits, reimbursement rates, or cost of care.

    In the House-passed AHCA's default option, the federal government would set an initial cap based on states' per-enrollee Medicaid spending in 2016, then alter the cap every year based on changes to the Consumer Price Index for Medical Care (CPI-M). Funding would increase by CPI-M + 1 percentage point for beneficiaries who are elderly or have disabilities and by CPI-M for children and adults without disabilities. (Since CPI-M is a national figure, but per-beneficiary spending growth varies widely by state, the cap would have differential effects on states). Under the House bill, states also would have the option to cover children and adult beneficiaries under a block grant that would increase by CPI-U, a lower rate than CPI-M.

    In practice, the House's changes would amount to a major funding decrease—in 2026, CBO said federal Medicaid funding would be 25 percent lower under the House-passed AHCA than current law. The Hill and Axios reported Monday that the latest draft Senate bill would result in even steeper cuts in federal funding for Medicaid.

    CBO projections for federal Medicaid spending

    How would Medicaid cuts affect beneficiaries and states?

    Ending enhanced funding for the ACA's Medicaid expansion would have an immediate effect on beneficiaries. At least seven states—Arkansas, Illinois, Indiana, Michigan, New Hampshire, New Mexico, and Washington—have passed laws that would require them to end expansion outright if the federal match rate for the expansion population decreases relative to current law.

    According to the Kaiser Family Foundation, some states also might respond to per capita caps by reducing eligibility for populations they are not required to cover by law, such as pregnant women with incomes higher than 133 percent of the federal poverty level.

    In total, CBO estimated that the House-passed AHCA would reduce Medicaid enrollment by about 14 million by 2026, while the CMS actuary projected that enrollment would decrease by about 8 million. Many of those individuals would likely become uninsured. Beyond 2026, the CMS actuary wrote that the House bill's cap "could provide additional pressure on the long-term access to, and quality of, health care for the Medicaid program."

    Medicaid enrollment projections, current law vs. AHCA

    In addition to making eligibility changes, states might also respond to funding cuts by using federal waivers to experiment with consumer-driven insurance design; implementing delivery system reforms; or cutting Medicaid benefits and/or rates.

    Supporters of per capita caps, such as James Capretta of the American Enterprise Institute, have argued they would alleviate budgetary pressures, give more flexibility to states, and incentivize states to reduce costs in innovative ways. HHS Secretary Tom Price in May said, "We believe strongly that the Medicaid population will be cared for in a better way under our program." Opponents of the caps have argued in part that they would reduce access to care and limit the ability of the program to cover new medications, public health disasters, and spikes in enrollment.

    What would all this mean for hospitals?

    Advisory Board's Chas Roades and Yulan Egan recently wrote that hospitals and health systems would need to respond to Medicaid changes by being "much more proactive in developing their safety net strategy."

    Providers, said Roades, the firm's Chief Research Officer, and Egan, a senior consultant, would need to "collaborate with state Medicaid officials to help craft their states' responses, double-down on population health and care management efforts, and invest in navigation resources to help the underinsured and uninsured navigate an increasingly complex insurance landscape."

    And the projected increase in uninsured Americans would mean "health care organizations would have to redouble their efforts to bring their cost structures into line," they wrote. "Specifically, leaders would need to improve revenue cycle performance through a multi-stakeholder, multidisciplinary approach and craft a cost-reduction strategy that includes both near-term savings and higher-upside, longer-term cost restructuring."

    Learn the physician network strategy you'll need (with the AHCA or ACA)

    Join us for a webconference on Monday, June 26, on how to effectively segment physicians across the network and instill a clear sense of individual purpose to help physicians in the network better advance system strategy.

    You'll learn how new imperatives such as rising consumerism and MACRA affect health systems' approach to physician alignment; no-regrets investments for the physician network; and how to take a segmented, rather than monolithic, approach to network deployment.

    Register Now

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