Members of Congress are pushing to end the Medicaid system that currently allows state dollars for mandatory and optional Medicaid services and populations to be matched with federal dollars.

Currently, federal dollars cover about a half of the cost of Colorado Medicaid, and 95 percent of the cost for adults who enrolled through the Medicaid expansion. The current matching system allows states to provide all medically necessary services, confident that those federal matching dollars are available to help them do so.

A recent analysis by CCLP’s Allison Neswood explained why one alternative Congress is considering – block grants – would prevent Health First Colorado, our Medicaid program, from maintaining benefits and services to the current enrolled population, and would negatively affect both Colorado’s economic wellbeing and the health of Colorado’s children, those with disabilities, the low-income elderly and working adults.

Here, we discuss another alternative funding scheme: The use of “per-capita caps” that would give states a set amount of funding per Medicaid enrollee. The concept is being framed by supporters as a “kinder, gentler” approach to reforming the Medicaid program. As with block-granting proposals, however, the proposed structure would result in substantial cuts in federal funding and commensurate reductions in service over time.

This piece addresses common questions and misconceptions about per-capital caps and how the concept might play out in Colorado.

Q. Wouldn’t per-capita caps allow growing states like Colorado to continue offering services to anyone who’s eligible?

A. The short answer is no. The goal of any restructuring would be reductions to federal spending, and that means that the base amount per enrollee and the rate of annual increase selected by the federal government would be set at levels that would guarantee shrinkage in the program.

Because the proposals’ overarching goal is to slash federal spending for Medicaid – to the tune of $1 trillion based on Tom Price’s budget for fiscal year 2017 – Colorado would not see any financial benefit. A recent Avalere study failed to take that premise into account. Either the starting per-capita amount, the rate of increase, or both must be lower than it is now or that overarching goal will not be achieved.

• The newest Republican proposal outlined in the “Obamacare Repeal and Replace Policy Brief” (ORRPB) adjusts the base amount, removing the additional federal moneys that Colorado receives for its expansion population. Those cuts would reduce existing funds for expansion adults by as much as 45 percent, limiting funds for coverage of those already enrolled and also establishing a date to bar any new enrollments in the expansion category. .
• The per-capita amount may be based on past spending, or could exclude some or all of the funding that has been provided to cover Coloradans who received coverage when the Medicaid program was expanded.
• The per capita allotment outlined in ORRPB also excludes any federal support for administrative costs, though federal funds currently pay between 50 percent and 90 percent of Colorado’s administrative costs.
• Basing the per-capita amount on each state’s expenditures could put Colorado in a worse position than other states. Current spending per enrollee in Colorado is at the low end, compared to other states; using Colorado’s numbers would lock in Colorado permanently to this low reimbursement level – effectively disadvantaging Coloradans for having a lower-cost program.

The reductions being sought are enormous, considering that Medicaid already maximizes savings by managing benefits carefully and paying providers less than commercial payers do. Those federal reductions will result in dramatic losses to Colorado’s state budget and its economy.

Q. If Colorado got almost the same amount per enrollee, but also didn’t have to do all the paperwork associated with getting the federal match, wouldn’t that work out fine?

A. No. Congress’s approach is based on the assumption that they can force a reduction in the growth of the Medicaid program by imposing an arbitrary growth rate. ORRPB states that Medicaid spending is unsustainable because it “will continue to grow at a rate faster than the economy,” ignoring the fact that commercial health care costs grow at rates significantly higher than rates in Medicaid. Those touting per-capita caps ignore the 6.7% annual growth in the health care sector, and instead support use of the Consumer Price Index, with increases ranging in recent years from 2.15 percent (2012) to just 0.1 percent (2015). Another suggested index, Gross Domestic Product + 1 percent, would be approximately 3.9 percent, based on 2000-2011 rates.

Use of either index would mean that Medicaid spending would lag farther and farther behind actual health care costs, , year-by-year, and the state program’s would be unable to cover the same services and benefits with the funds available. By tightening the thumb-screws over time, minor reductions in year 2 would lead to catastrophic reductions by year 10.

Second, the rate of increase varies historically among eligibility categories, meaning that costs for children and costs for people with disabilities rise at different rates. As a result, eligible children might fare better, in terms of maintaining their access to services and benefits, while people who need nursing home care might very quickly face wait-lists or have to go without the in-home care that maintains them in their homes and communities.

Third, flexibility to address changes in need would be lacking. In the event of a measles outbreak or an upswing in asthma rates, states would be solely responsible for covering those additional costs. In the event that a new-but-costly treatment became available – and would lead to short-term expense with long-term benefit – states would be solely responsible for covering those additional costs. In the almost-certain event that the over-64 population becomes, over time, older and in greater need of services, the per capita cap would not change with changing needs.

Q. So if federal dollars wouldn’t cover the current level of benefits for eligible Coloradans, who would?

A. Colorado is highly unlikely to cover more of the cost of the Medicaid program, because that would mean either raising taxes, or making corresponding cuts in other programs, such as K-12 education or infrastructure support. Instead, the loss of federal dollars would result in shrinkage to the program, meaning that benefits or services that are now available would be reduced. Doing so would have short-term and long-term health consequences, and even result in unnecessary death and disability as well as long-term widespread economic consequences. If the shortfall were to result in cuts in payments to providers, the likely outcome would be provider drop-out, longer wait-times, and worsening health.

Or the shortfall could result in requirements that Medicaid enrollees pay copays, premiums or deductibles, though doing so would also result in enrollees forgoing care. Indiana’s expansion waiver requires that expansion adults pay premiums, and serves as a case-in-point. In that state, over a third of enrollees did not pay required premiums, and as a result had a more limited benefit package; of enrollees who earned over 100 percent of the federal poverty level, over 4,000 Indianans got locked out of Medicaid entirely. Indiana’s requirement for copays on drugs and office visits – for those who don’t pay the monthly premium — means that people with the greatest health care needs often bear a greater financial burden than their healthier neighbors.

Q. But Medicaid costs are out of control. How can we improve things?

Saying that Medicaid costs are “out of control” doesn’t make it so. In fact, Medicaid costs are not out of control, if one considers the number of people covered and the moderate rate of increase in Medicaid costs.  Medicaid serves almost a quarter of Coloradans at fairly low cost per enrollee. Meanwhile, costs in the private market are much higher and rise more steeply, both because of cost and utilization.

• A study that used 2005 data found that spending would be 26 percent higher for enrolled adults if they instead got their care through private health insurance, and 37 percent higher for children.
• A later study examined the cost of insuring adults through Affordable Care Act (ACA) exchanges, with financial assistance, and found that the cost would be 50 percent higher than coverage through Medicaid.

Dollar-for-dollar, Medicaid provides more value than private insurance. Medicaid would more logically be seen as a model for the private market in its ability to restrain provider costs, require reasonable pharmaceutical prices, and provide preventive care, care coordination and services that keep people out of institutions.

Q. How can we keep Medicaid per-capita caps from becoming a reality?

A. Simply put, you should call or write members of the Colorado delegation or participate in town hall meetings in upcoming weeks. Visit this page for a list of U.S. Senators and Representatives from Colorado and their contact information.

– Bethany Pray