Two developments this week highlight the importance of exploring how Medicaid could fare under Republican proposals for reform. First, Seema Verma, President Trump’s nominee to run the Centers for Medicare and Medicaid Services (CMS), sat before the Senate Finance Committee for her confirmation hearing on February 16th. Seema Verma is a healthcare consultant, known for working with states to reform their Medicaid programs in line with Republican principles. She is a champion of “consumer-driven design” in Medicaid, evident in the Healthy Indiana Plan (HIP 2.0) she developed under the leadership of then Indiana Governor Mike Pence. During the hearing, Ms. Verma noted Medicaid’s value in providing a critical safety net, but suggested that the program was in need of reform. While she was non-committal on specifics, she said she would be open to anything that could improve Medicaid, including block grants and per capita caps (also referred to as per capita allotments).
Second, that same day, House Republicans released an outline for a repeal and replace proposal for the Affordable Care Act (ACA). It offers anti-Obamacare talking points for Republicans as they embark on their week-long recess, and also provides a high-level overview of a replacement plan. They propose to “modernize” Medicaid by creating per capita allotments with the option for states to choose block grants.
Block Grants and Per Capita Caps in Medicaid
Block granting would fundamentally change Medicaid in two ways: how federal money flows to states and how much flexibility states have to operate their programs. Let’s take a closer look at what block grants and per capita caps actually mean, and why they leave many analysts and advocates concerned. As the program stands now, for every dollar the state spends on Medicaid, the federal government matches that money based on the state-specific match rate or FMAP (see more details in recent Medicaid expansion blog post). There is no cap on how much money the federal government will put in. Rather, money continues to flow as long as the state activity is within the predetermined federal guidelines and also meets specifications laid out in the State Plan, which varies from state to state.
Block granting Medicaid would effectively create a federal budget for state Medicaid programs. Both block grants and per capita allotments have the same goal in mind – reduce federal Medicaid spending by capping the amount of federal money provided to states – but they do so in slightly different ways. Block grants enable the federal government to set aside a pot of money for the entire program regardless of enrollment, while per capita allotments would base the total allotment on a designated amount for each beneficiary. The latter approach is more responsive to changing economic patterns, as it allows the amount of federal money that states receive to go up or down based on enrollment.
Budgets (e.g., global budgets) are often proposed as a way to create efficiencies and reduce waste in health care. For example, some states are experimenting with multi-payer global budgets as a way to control overall health care spending growth. Importantly, Republicans are not proposing putting all of health care on a budget. Rather mandatory budgets seem to be saved for Medicaid, the program that provides a health care safety net for the most vulnerable among us, despite the fact that Medicaid spending already grows at a slower rate than both Medicare and private insurance.
So, budgets can be an important cost saving tool, but let’s take a minute to illustrate the different implications of Medicaid as it currently operates and Medicaid as a block grant. It is dinner time, and a parent is preparing a meal for a child. In this narrative, let’s imagine the child is the state, and the parent is the federal government.
- Scenario 1, The Kitchen Is Open: In Scenario One (i.e., the current Medicaid program), when the child is hungry, the parent gives her food. She is hungry again, the parent gives her more food. This continues until the child’s hunger needs are met. However, this is not a free-for-all buffet. Instead, there is a predetermined menu where the overall guidelines are provided by the parent, and the child has had the opportunity to select from that menu and provide further details on how they would like that menu served.
- Scenario 2, Fill Your Bowl: In Scenario Two (i.e., block grants), the parent tells the child, here is a bowl for food. All the food you can have must fit inside this bowl. However, since you, the child, know best what your body wants to eat, you get to choose how you fill that bowl. Maybe the parent will offer some broad, high-level guidelines, but mostly it is up to the child. The important rule is the food cannot go beyond the top of the bowl.
At the heart of the debate over which scenario is better, is whether the child is going to starve, receive adequate nutrition, or overeat. To my nutrition colleagues, bear with me while we take these analogies a bit further.
- In Scenario One, it is unlikely that the child is going to starve. Rather, if the general menu guidelines provided by the parent are relatively reasonable, the child will likely get adequate nutrition, and perhaps in some cases, overeat.
- However, in Scenario Two, whether the child’s nutritional needs are met depends a lot on the size of the bowl and how the child chooses to fill the bowl. If the bowl is teeny tiny, and the child loves marshmallows, the child might be at risk of starving. If the bowl is reasonably apportioned, and the child has a pretty good sense of an appropriate diet, perhaps the child may eat a bit less than in Scenario One, but still get their nutritional needs met, and maybe the parent will save a little money on groceries in the process.
What’s the Matter with Budgets?
At this point, the fill your bowl scenario might not sound so bad. It provides a clear budget, and budgets can be useful for planning and controlling spending. The ability of either block grants or per capita caps to adequately meet beneficiaries’ needs depends on how the initial allotment is determined and how that allotment changes over time. Remember, the whole point of block grants is to reduce spending. So, let’s revisit Scenario Two. Suppose the first time they sit down for dinner, the size of the bowl is pretty much the average size of the amount of food that the child had been eating under Scenario One. But now, the parent, in an effort to cut back on rising grocery costs, decides to make that bowl a little smaller, and then a little smaller, and still a little smaller. Maybe it is possible that the child could “innovate” and be more efficient with nutritional content, and fill up on tiny superfoods, while still getting their needs met. However, at what point does the size of the bowl become too small to meet their needs? And what will the child need to do to compensate? Will the child drastically cut back on food, or will the child have to come up with her own money to buy an adequate meal?
You get the comparison, right? Whether the child starves or not is analogous to whether the state is able to cover the costs to help poor people get their health care needs met. The recent House Republican proposal says, “The per capita allotments for each beneficiary group will be determined by each state’s average Medicaid spending in a base year, grown by an inflationary index.” So, how much do you trust the folks allocating the federal money to set that “inflationary index” in a way that does not let the kid starve?
Now, advocates of block granting and per capita caps suggest that this approach will allow states to have more flexibility to innovate, reducing federal guidelines, since states know best what their residents need. In their own words:
governors and state legislatures are closer to patients in their states and know better than Washington bureaucrats where there are unmet needs and opportunities to cut down on waste, fraud, and abuse…. Instead of simply expanding a broken program, Republicans instead want to put states in charge of their Medicaid programs and give them the tools, resources, and flexibility to address their unique needs
In this way, they suggest there will be fewer federal guidelines for states to follow. Given the pressure for lower spending, states will have to figure out how to use this flexibility in ways that will save money. Usually, when you think about reducing spending in Medicaid, there are four buckets you can target: reduce benefits, reduce the number of enrollees, reduce payments to providers, or increase out-of-pocket costs for beneficiaries. Well, innovation by any other name may not smell so sweet. To go back to our analogy, what if the child wants to starve? If Indiana’s Medicaid expansion program under the helm of Verma and Pence is any indication of what is to come, it will mean more cost-sharing for the poorest among us, and when beneficiaries fail to pay their monthly contributions, their penalty is access to fewer benefits. All in all, this sounds like a pretty good strategy for eroding the healthcare safety net.