What to expect from Medicaid block grant waivers

• The Trump administration unveiled a plan [January 30] that would dramatically revamp Medicaid by allowing states to opt out of part of the current federal funding program and instead seek a fixed payment each year for the expansion population, according to a Kaiser Health News article.
• The impact of the program likely wouldn’t be felt before 2021, when some states might get a waiver, and the likelihood of litigation over the plan also poses a threat, according to KHN.
• HFMA’s Chad Mulvany predicts the country will end up with some type of block grant or per capita capped financing model for Medicaid in the next 10 years because the long-term fiscal outlook for the federal budget continues to deteriorate.

Kaiser Health News is reporting, “The Trump administration unveiled a plan [January 30] that would dramatically revamp Medicaid by allowing states to opt out of part of the current federal funding program for the expansion population and instead seek a fixed payment each year in exchange for gaining unprecedented flexibility over the program. States could either elect to receive a block grant based on historical enrollment costs or a per capita amount based on the prior year’s enrollments.”

The KHN article went on to name the five things people should know about this block grant plan:

1.  Although millions of low-income adults without children who obtained coverage under the ACA’s Medicaid expansion could be included under a block grant, tens of millions of people currently enrolled in Medicaid would not be included in a potential state block-grant project, including children, people who qualify for the program based on disability, people needing long-term care and those 65 and over.
2.  States seeking the new authority would be able to make new cuts to benefits, including which prescription drugs are covered, and impose new out-of-pocket costs on enrollees.  
3.  As part of the program, cost sharing would increase due to fewer restrictions on copays, so it is likely they would become more widespread and enrollees would be charged higher amounts for them. And other Medicaid benefits, such as nonemergency medical transportation and a comprehensive series of preventive, diagnostic and treatment services that are a pillar of the program, would be eliminated.
4.  All states could technically apply for a block grant, but most are unlikely to, according to Matt Salo, executive director of the National Association of Medicaid Directors. Initially, only a few states would likely apply for the block grant and those would almost certainly be some of the 14 states that have not expanded Medicaid, said Salo.
5.  The impact of the program likely wouldn’t be felts before 2021 when some states might get a waiver because of the slow pace of the federal government in approving new state projects, and the fact that there is likely to be litigation, which would also threaten the new controversial program.

Takeaway

First, this only applies to the expansion population. And so for those states with existing expansion populations this is only a risk for providers in red and maybe some purple states that have already expanded. Alaska and Arkansas are the ones that frequently come up as states that have expanded coverage and indicated an interest. One might imagine Utah and Montana could join that list as well. Most of the coverage has focused on the downside of the block grant. However, for providers in states that haven’t expanded yet, the “Healthy Adult Opportunity,” like the work requirements before it, might  be a pathway to sell expansion to conservative legislators in hold-out states. Oklahoma and Missouri are mentioned given they’re moving towards coverage expansion. And I would throw Wisconsin in as my dark horse, given its prior creative coverage efforts with the Medicaid program.

For providers in any state that adopt this model, the macro design choice that matters most will be whether the state chooses the true block grant financing option, or if it selects a per capita cap where the total amount floats with enrollment. While both will put downward pressure on payment rates from the state and states will restrict what’s covered as much as possible, a block-grant approach will encourage the state to tightly manage/reduce the number of enrollees in order to generate savings. To encourage states to select the block grant financing option and also account for the greater risk involved, CMS will set the trend factor to account for inflation at the consumer price index for medical services (CPI-M) plus .5%. States that select the per capita model will only receive CPI-M. While .5% doesn’t seem like a lot, on hundreds of millions of dollars, it’s a significant amount of money for states.

Second, while this didn’t get a lot of, or any, coverage last week, the Congressional Budget Office (CBO) released its updated deficit projections. And yet again, the long-term fiscal outlook has deteriorated. In CBO’s projections, the federal budget deficit is $1.0 trillion in 2020 and averages $1.3 trillion between 2021 and 2030. Projected deficits rise from 4.6% of gross domestic product (GDP) in 2020 to 5.4% in 2030. While accumulating deficits will eventually pose the risk of a significant economic shock, CBO Director Phillip Swagel doesn’t see an imminent crisis. But to avoid that crisis, we will eventually need to reign in federal healthcare spending. So I think we’re going to end up with some type of block grant or per capita capped financing model for Medicaid in the next 10 years.