Medicaid financing

AHCA would slash Medicaid while giving tax cuts to the rich

lborkowski — Mon, 13 Mar 2017 10:37:57 +0000

AHCA would slash Medicaid while giving tax cuts to the rich

House Republicans have released –and rushed through two committees—the American Health Care Act, which would result in destabilized individual insurance markets and millions of people losing health insurance. The Congressional Budget Office hasn’t yet released its estimate of the likely impacts, but an analysis from authors at the Brookings/USC Schaeffer Initiative calculates it would result in 15 million people losing coverage. The AHCA contains provisions addressing both private and public insurance; I’m most concerned about the impacts on Medicaid, which would shift substantial healthcare risks from the federal governments onto states and low-income families.

The AHCA allows the Affordable Care Act’s Medicaid expansion for adults up to 138% of the federal poverty level to continue until 2020, at which point states would get less federal money for any new enrollees and for former enrollees who experienced temporary increases in income (as hourly and seasonal workers often do). The bill would also undo the financing structure under which the federal government shares the risks of higher healthcare costs with states, and replace it with fixed annual federal contributions that are likely to become increasingly insufficient with each year that goes by. The Center on Budget and Policy Priorities calculates that the states would lose $370 billion in federal Medicaid dollars over the next 10 years. These cuts, plus less-generous subsidies for lower-income individuals buying insurance from state marketplaces, would allow for the what the Committee for a Responsible Federal Budget tallies as nearly $600 billion in tax breaks for wealthy individuals and corporations over the next decade.

For the past five decades, Medicaid has been an essential source of healthcare coverage for low-income infants, children, pregnant women, seniors, and people living with disabilities. It allows infants from low-income families to get a healthy start in life and covers long-term services and supports for those with disabilities. Medicaid covers one-fifth of the US population, and helps boost states’ economies. Yet the members of Congress who drafted the AHCA evidently consider tax cuts to be more important.

Undoing the Medicaid expansion

The ACA’s main goal was to reduce this country’s shameful rate of uninsurance, and it did that: CDC’s National Center for Health Statistics found the percentage of the US population without insurance dropped from 15.4% in early 2010 to 8.6% in early 2016. Lawmakers could have made changes to the ACA to address its shortcomings and allow the uninsurance rate to fall even further, but Republicans had other goals in mind.

One of the main ways the ACA achieved these dramatic gains in insurance coverage was to expand Medicaid coverage to adults with incomes of up to 138% of the federal poverty level. (The limit is technically 133%, but there's a 5% income disregard for an effective limit of 138% FPL.) Medicaid is a federal-state partnership in which the federal government pays for 50-76% of the healthcare expenses for each state’s enrollees; the average federal share is 57%, and states with lower per-capita incomes get a greater share of their enrollees’ costs covered with federal tax dollars. Rather than ask states to pay their usual share of the healthcare costs of millions who’d stand to gain coverage under the ACA, the law specified that the federal government would pay 100% from 2014 through 2016, with the federal share gradually decreasing and ending up at 90% in 2020 and thereafter. The ACA required all states to undertake this expansion as a condition of continuing to participate in the Medicaid program, but the Supreme Court decided it should be optional.

The Republicans’ bill doesn’t undo the Medicaid expansion entirely; it just makes it harder for states to continue it. People with incomes of up to 138% of the federal poverty level could continue to enroll in Medicaid, but for anyone enrolling after the end of 2019, the federal government would only cover healthcare expenses at the percentage they do for traditional Medicaid enrollees – 50-76%, instead of 90%. The pre-2020 pool of enrollees for which the 90% federal match still applies would shrink, because those beneficiaries can’t go more than a month without being covered by Medicaid (if they do, they’ll be part of the pool that gets a smaller federal payment). Because marriage changes household income and because many low-income people have hourly and/or seasonal jobs and their wages can fluctuate from one month to another, temporary loss of Medicaid eligibility is not uncommon. Under the AHCA, states would have perverse incentive to discourage Medicaid recipients from getting married, taking on an additional job around the holidays, or picking up extra hours when they’re offered.

States that have seen positive economic outcomes from the Medicaid expansion might work to find the money to cover this expansion population, but it won’t be easy. The CBPP estimates these Medicaid expansion changes would increase state costs by $253 billion over ten years. Seven states that adopted the Medicaid expansion made their expansions contingent on the federal government continuing to pay the share of expenses specified in the ACA, so their Medicaid expansions would be automatically undone if the AHCA were to become law.

Shifting risk to states

The Republicans’ bill doesn’t just undo the steps the ACA took to increase insurance coverage – it fundamentally changes the federal-state Medicaid model we’ve had for more than 50 years.

Having the federal government pay a portion of the healthcare costs for all eligible Medicaid beneficiaries helps insulate states from cost spikes due to epidemics and high rates of expensive-to-treat health conditions. For instance, if Florida ends up being the home of a large number of Zika-affected babies who require millions of dollars worth of care, the state won’t have to cover all those costs on its own. When thousands of people in Kentucky and West Virginia need treatment for opioid use disorders, the federal government picks up much of the tab.

In the AHCA, House Republicans have proposed a system under which federal per-capita payments are fixed and states bear the risks from epidemics and other forces that cause healthcare costs to grow faster than we’d like. Based on each state’s spending in 2016, the federal government would calculate an amount it would pay annually beginning in fiscal year 2020 for enrollees in each of the Medicaid eligibility groups (children, the elderly, adults, and people with disabilities). Those amounts would grow based on the medical component of the Consumer Price Index. However, CBPP estimates that per-beneficiary costs will rise about 0.2 percentage points faster than the capped amounts do, resulting in $116 billion less in federal Medicaid payments than states would receive under the current system.

In the New York Times, Haeyoun Park maps the potential impacts on different states, and writes:

Under the Republican plan released on Monday, federal funding for every Medicaid beneficiary would essentially freeze, rising only with the medical component of the Consumer Price Index, or the price of medical care. That change would allow funding to grow if more people sign up for Medicaid, but not if the cost of care for Medicaid patients spikes, or states want to offer new benefits or increase payments to doctors.

Some health experts worry that over time, states would be unable to respond to changes in the health care needs of their population unless they use their own money, potentially risking the survival of a program that has been a critical source of health coverage for the poor.

“I think of it as essentially putting states behind bars,” said Sara Rosenbaum, a professor of health law and policy at George Washington University. “Whatever you were doing circa 2016 is what you’re going to do forever.”

Virginia, where the governor has declared its opioid crisis a public health emergency, recently decided to significantly expand the scope of its Medicaid benefits to spend more on drug treatment for patients.

States that can't afford to pay all of the additional amount when costs increase will likely have to cut Medicaid enrollment or benefits.

Former Centers for Medicare and Medicaid Services administrator Andy Slavitt warns in the Washington Post, “If the federal government retreats on its commitment to Medicaid, the repercussions will be felt quickly — by our neighbors and by our care providers and hospitals.”

There are other concerns about the AHCA (see here, here, here, and here, for instance). These massive cuts to federal Medicaid contributions are what I find most striking, though, because they threaten to roll back health gains not only from the ACA but from the past five decades, and because they signal priorities that I don’t think most people in this country share. The AHCA pays for tax cuts by cutting funds for Medicaid, and in doing so shifts risks from those who are wealthiest to those who can least afford it.

lborkowski Mon, 03/13/2017 - 06:37

Proposed Medicaid changes would shift risks to the most vulnerable

lborkowski — Mon, 06 Mar 2017 10:58:12 +0000

Proposed Medicaid changes would shift risks to the most vulnerable

A policy brief about Congressional Republicans’ bill to replace the Affordable Care Act has two Medicaid provisions that could prove seriously detrimental to public health and states’ finances: Gutting the ACA’s Medicaid expansion, and changing the current Medicaid financing structure. A Center on Budget and Policy Priority analysis of these two changes calculates that they would shift hundreds of billions in costs from the federal government to the states over the next 10 years. I’ll explain what these two policies are, but first I want to highlight a few things about the Medicaid program.

(Update, 3/7/17: Republicans released their plan late on March 6th, and it does indeed involve much less Medicaid funding in the coming decades.)

Who Medicaid Covers

Medicaid is one of the ways the US provides healthcare coverage to our most vulnerable residents: low-income children and their families, seniors with low incomes, and low-income people with disabilities. Medicaid pays for nearly half of all births in the US, and allows low-income pregnant women to receive prenatal care to increase the likelihood those births will be healthy. Children are the largest group of Medicaid enrollees (37 million in 2015), and the comprehensive coverage they receive is associated with "better health outcomes, lower rates of mortality, stronger educational and economic achievements, and a significant return on public investment." Medicaid provides long-term services and supports – including nursing home care, which Medicare doesn't cover – to 70 million seniors and people with disabilities.

Providing coverage to people in these categories not only allows these beneficiaries to live healthier lives; it can also help their families’ finances. A large share of bankruptcies are due to healthcare expenses, and studies have found less healthcare-related financial strain since the ACA was implemented. In Oregon, where prior to the ACA new Medicaid coverage was offered by lottery, researchers found that those who received the coverage experienced less financial hardship and, perhaps relatedly, less depression. These benefits go not only to the beneficiaries themselves, but to family members who might otherwise have to quit their jobs or sacrifice other financial goals in order to meet a loved one’s needs.

The Medicaid program’s costs have risen substantially over the past several decades because healthcare costs overall have risen substantially. Medicaid beneficiaries who require long-term services and supports accounted for 6% of enrollees in 2012, but 45% of the program’s spending. Since the ACA’s implementation, Medicaid costs have also risen because millions of adults became newly eligible for it and signed up. Although not all states accepted the ACA’s Medicaid expansion – which was mandatory in the legislation, but rendered optional by the Supreme Court – it has helped 31 states and the District of Columbia dramatically reduce uninsurance.

Medicaid Economics

Traditional Medicaid – i.e., not the ACA’s Medicaid expansion – is a joint federal-state program under which the federal government assumes a percentage of the healthcare costs for eligible beneficiaries. The federal share (or, technically, the FMAP – federal medical assistance percentage) must be at least 50% but can be substantially higher based on a state’s per-capita income and other criteria. For fiscal year 2018, the federal government will pay 72% of Medicaid costs for beneficiaries in New Mexico and South Carolina, 73% for West Virginia, and 76% for Mississippi. This means federal dollars flow into states and on to healthcare providers.

Some healthcare providers deliver a lot of care for which they’re never compensated, mainly because the people they’re treating don’t have adequate health insurance. Hospital emergency departments are required to treat and stabilize anyone who arrives in labor or experiencing a medical emergency, regardless of whether those people have insurance. Community health centers – specifically, those designated federally qualified health centers, or FQHCs – provide primary care and other services regardless of insurance or ability to pay, and charge sliding-scale fees that rarely come close to covering their actual costs. Federal grants can make up for some of the shortfall, but a more sustainable system is for more of the patients showing up at hospitals and community health centers to have insurance. The Medicaid expansion has benefited hospitals and health centers in the states that adopted it, and many administrators now worry about their financial stability if the expansion is undone.

Medicaid coverage doesn’t just affect uncompensated care. Having health insurance allows beneficiaries to receive more preventive and routine care, as well as care for acute problems. This means more revenue for hospitals, clinics, pharmacies, and other providers – and they in turn can hire more staff and buy more goods and services, which results in more economic activity and more tax revenues.

Another important aspect of Medicaid is that it functions as an “automatic stabilizer” during economic downturns. Programs like Medicaid and SNAP (food stamps) are available without any additional legislative activity when financial conditions worsen. A Brookings Institution report from David Boddy and co-authors explains:

As soon as a recession arrives, participation in these programs expands as incomes fall and unemployment rises—and in some cases, participation increases because of automatically reduced eligibility requirements for participants. The result is that additional funds are automatically disbursed (or taxes reduced), immediately providing fiscal stimulus. The United States makes considerable use of automatic stabilizers, which amounted to about 2 percentage points of GDP during the depths of the Great Recession (Congressional Budget Office [CBO] 2016a).

As job losses mount and workers’ hours are cut, more people become eligible for Medicaid, and more federal money flows to the states. This also requires more money from states for their share of the Medicaid program expenses, but Congress increased the share covered by federal dollars during the Great Recession.

Republican lawmakers proposing cuts to the Medicaid program cite concerns about growing federal spending. But the federal government has a greater ability to deficit spend, and sending more money to the healthcare sector while averting health or financial collapse in Medicaid beneficiaries seems like a worthwhile way to spend it. Such expenditures can reduce recessions’ harmful impacts and help the economy grow – in other words, they're a good investment.

The Fate of the Medicaid Expansion

Traditional Medicaid only requires that states extend coverage to people in the categories mentioned above – low-income children, pregnant women, seniors, and individuals with disabilities. Under the ACA’s Medicaid expansion, states can provide coverage to legal residents with incomes up to 133% of the federal poverty level (FPL), and the federal government covers a greater share of the costs (100% in 2014, falling in increments to 90% in 2020 and thereafter) for this population. According to the Congressional Budget Office, 10 million adults were newly enrolled in Medicaid by 2015 thanks to this expansion.

House Speaker Paul Ryan and his colleagues have yet to disclose many specific details about their plans for the ACA’s Medicaid expansion, but the policy brief states that the law’s “Medicaid expansion for able-bodied adults enrollees would be repealed in its current form” after an unspecified date. States could keep covering this population but “would be reimbursed at their traditional match rates for these beneficiaries.”

Here's some useful context for that “able-bodied adult” phrase: In 2015, the Kaiser Family Foundation analyzed the characteristics of uninsured adults who could gain Medicaid coverage if the remaining states accepted the Medicaid expansion, and reported that the majority (57%) were working full- or part-time; most of them were employed by small firms or in industries where few employers offer health insurance. Of those not working, 29% reported being home caring for family; 20% said they were looking for work; 18% were in school; 17% were disabled or ill; and 10% were retired. If there is a problem with uninsured adults being able to work but not wanting to (as Republican lawmakers seem to suggest), it is dwarfed by the problem of people who are working (with or without pay) but can’t get health insurance.

The mention of “traditional match rates” for low-income adults might sound not that bad, but my read is that it means 0% for adults without children. Kelly Whitener of Georgetown University’s Center for Children and Families explains:

[Before ACA implementation], some states covered parents at higher income levels than others, and some states covered childless adults. But they did so using state only dollars or through an 1115 waiver. And in order to get federal approval for such a waiver, states had to show budget neutrality – either by redirecting existing federal Medicaid money or by offsetting additional expenses with cost savings achieved elsewhere. In order to meet these tests, states that wanted to cover more people often limited the benefit package to make it as inexpensive as possible.

In fact, in 2013 – the year before the ACA coverage provisions including the Medicaid expansion went into effect – the median eligibility threshold was 61% of the FPL for working parents, 37% for jobless parents, and 0% for childless adults.

In other words, states could continue to provide Medicaid coverage to adults with incomes up to 133% FPL who aren’t in a traditional eligibility category, but they would have to spend a lot more of their own revenue to do it. Many states probably won’t be able to afford this, and millions could lose coverage as a result – with damaging effects on their states’ economies, as well as their families’ stability.

Changing Medicaid Financing

Currently, the federal government pays its share of all eligible Medicaid costs for as many people as qualify, and this is one of the reasons it serves as a stabilizer during economic downturns. The fact that states are also on the hook for a portion of those costs serves as an incentive to limit the services that are covered and the amounts they pay healthcare providers. On the other side, the public health benefits that come from having a population with access to the healthcare services they need provides an incentive for states to offer more benefits and pay providers more. In addition to these differing incentives, states must consider their budgets as well as the standards that the federal government sets for Medicaid programs.

The Republicans’ policy brief proposes a different system. Instead of paying the federal percentage on all eligible services for all eligible enrollees, they would offer states two options: a “per-capita cap” or a “block grant.” Under a per-capita cap, states would receive a capped amount for each enrollee in each eligibility category (“aged, blind and disabled, children, and adults”). A block grant would give the states a fixed amount each year to spend on Medicaid. In both cases, the amount is almost certain to grow more slowly than healthcare costs do. Republicans also want to give states more flexibility to change benefits and enrollment rules – which, if the federal contribution is growing more slowly than costs, will almost inevitably mean reducing services, covering fewer people, or both.

Harold Pollack, a professor at the University of Chicago, is an eloquent defenders of Medicaid. He has some personal experience with the program, because he and his wife are responsible for his wife’s brother, Vincent, who has a serious intellectual disability as well as other substantial healthcare needs. As he notes in this YouTube video, the fact that Medicaid and Medicare cover Vincent’s care meant he and his wife were able to use their money to send their two daughters to college. Back in January, he wrote an important post for HealthInsurance.org called “Could Republicans Wreck Medicaid?”, in which he explains the likely outcomes of the these two proposed changes:

[A block grant] approach also provides the clearest incentives for states to cut and limit services. A state can do this openly, or it can follow many quieter paths to reach the same goal. One can require Medicaid applicants to show up to state oﬃces in inconvenient places at limited hours. One can impose ostensibly reasonable paperwork requirements that scare away poor people. One can impose long waits. And so on.

… [The per-capita cap approach] provides greater protection to states that experience economic downturns. It can be designed to provide less brutal incentives to chase recipients away. This approach still provides strong incentives to impose service cuts.

These aren’t accidental features. Proponents want to enact block grants because they want to cut programs. They want to shift financial risk from the federal government onto patients, families, states, and local governments. Medicaid block grants would encourage states to enroll fewer people, and to do less for those who actually sign up.

Republicans aren’t wrong to be concerned about the risk to the federal budget from mounting Medicaid expenses. But the federal government, which collects revenue from across the country and has substantial borrowing power, is in a better position to shoulder the risks of economic downturns. When some states are benefiting from a tech boom while others are suffering from a loss of manufacturing jobs, the federal government can spread the wealth to those facing the harsher circumstances.

By shifting risk from the federal to the state governments and thereby making Medicaid cuts extremely likely, this Republican plan would also force more risks onto families. When low-income families lose or can’t get Medicaid coverage, they’re vulnerable to financial ruin when a serious health need arises.

Erasing Past Guarantees?

Sara Rosenbaum, a professor at the George Washington University Milken Institute School of Health (where I also work), puts some numbers on the shifted risk in a post for the Commonwealth Fund’s To the Point. She cites CBO figures to warn that per-capita caps could result in a loss of as much as $600 billion in federal funding over 10 years, and the block grant up to $700 billion. She also warns that the guarantee of Medicaid coverage looks much weaker under either scenario:

Where Medicaid’s guarantee of coverage is concerned, nowhere does the [per-capita cap] proposal guarantee that states would receive as many per capita allotments as there are people entitled to coverage. Indeed, it appears to suggest the contrary: state allotments would be subject to a “total,” which conceivably could function as an aggregate cap divorced from the actual number of eligible individuals. Few if any states would be able to make up the lost funds needed to not only reach an appropriate level of coverage but also cover all eligible people.

The second option would allow states to receive a “Medicaid block grant” or “global waiver” (an undefined term). As with past Medicaid block grant proposals, this option likely would eliminate virtually all current Medicaid requirements that reflect its status as insurance. Indeed, the proposal’s only obligation is that states taking this option would have to “provide required services to the most vulnerable elderly and disabled individuals who are mandatory populations under current law.” This option offers no insight as to what might be a “required” service. Furthermore, under current law, the only elderly and disabled people for whom Medicaid coverage is mandatory are those who receive Supplemental Security Income (SSI) benefits, which are restricted to the very poorest disabled people. In short, it is conceivable that under the block grant option, a state could offer no services—much less no guarantee of coverage—to anyone other than SSI recipients, who number around 10 million nationally.

Before they pass legislation that would threaten or erase these guarantees, I hope Republicans will revisit the words of President Johnson when he signed into law the Social Security Amendment Act that created Medicare and Medicaid:

No longer will older Americans be denied the healing miracle of modern medicine. No longer will illness crush and destroy the savings that they have so carefully put away over a lifetime so that they might enjoy dignity in their later years. No longer will young families see their own incomes, and their own hopes, eaten away simply because they are carrying out their deep moral obligations to their parents, and to their uncles, and their aunts.

… there is another tradition that we share today. It calls upon us never to be indifferent toward despair. It commands us never to turn away from helplessness. It directs us never to ignore or to spurn those who suffer untended in a land that is bursting with abundance.

Do we really want to return to the kind of conditions our predecessors worked so hard to fix? Are we really ready to spurn those who suffer, and do so in order to allow for military buildup and tax cuts?

lborkowski Mon, 03/06/2017 - 05:58