Medicaid Per Capita Caps: What Do They Mean for Me? Barbara Eyman June 22, 2017

Agenda Background on Per Capita Caps How Would Per Capita Caps Work? State Level Impact of Per Capita Caps What About Block Grants?

Background on Per Capita Caps

Per Capita Caps Proposal in context AHCA Provision Related to ACA? Repeal Cost Sharing Subsidies  Repeal Premium Tax Credit Repeal Individual & Employer Mandates Repeal ACA Taxes Repeal and Replace Insurance Regulations Repeal Prevention and Public Health Fund Repeal Medicaid Expansion Repeal DSH Cuts Establish Medicaid Per Capita Caps/Block Grant  AHCA Provision Related to ACA? Repeal Cost Sharing Subsidies  Repeal Premium Tax Credit Repeal Individual & Employer Mandates Repeal ACA Taxes Repeal and Replace Insurance Regulations Repeal Prevention and Public Health Fund Repeal Medicaid Expansion Repeal DSH Cuts Establish Medicaid Per Capita Caps/Block Grants  AHCA Provision Related to ACA? Repeal Cost Sharing Subsidies  Repeal Premium Tax Credit Repeal Individual & Employer Mandates Repeal ACA Taxes Repeal and Replace Insurance Regulations Repeal Prevention and Public Health Fund Repeal Medicaid Expansion Repeal DSH Cuts Establish Medicaid Per Capita Caps/Block Grant 

MACPAC, June 2016 report to congress “Medicaid’s rate of growth in spending per enrollee has been comparable to or lower than that of Medicare and private insurance since the early 1990s, and it is projected to be lower than that of Medicare and private insurance in the future.”

Significant Savings (AKA Deep Cuts) from AHCA Medicaid Proposals Savings from Per Capita Caps proposal at least $65 billion/10 years Medicaid’s rate of growth in spending per enrollee has been comparable to or lower than that of Medicare and private insurance since the early 1990s, and it is projected to be lower than that of Medicare and private insurance in the future. [MACPAC] All amounts in billions

Per capita caps are a limit on federal match Since 1965, Medicaid has guaranteed open-ended federal matching funds for all eligible state Medicaid expenditures Per capita caps limit that guarantee All other Medicaid requirements remain in place State options for remaining within the caps Increase state-only spending Reduce optional benefits Cut reimbursement (including supplemental payments) Delivery system changes (eg expand managed care)

How Would Per Capita Caps Work?

How would the Per capita caps work? Medical CPI +1 Medical CPI Expenditures allocated across 5 eligibility groups Per capita amount for each is determined Base amount inflates each year

What’s in and out of the per capita cap? INCLUDED EXCLUDED Base Payments for Services (Acute + Long Term Care) DSH (But Subject to Allotment Cap) Non-DSH Supplemental Payments Excluded Populations Waiver Expenditures New Safety Net Adjustment Medicare Cost Sharing State Administrative Costs

How Would per capita caps work? Per Capita Amounts $10 $3 $5 $4 $8

Potential for states to owe money back Excess spending determined after the year ends States could find themselves owing significant amounts back to CMS Quarterly repayment of excess amount Potential for double cuts as states fund prior year excess and attempt to control current year spending Incentives to spend less than the cap to avoid disallowance No ability to roll over unused cap room to subsequent years Difference between per capita cap and capitation payment

Impact of Per Capita Caps

What does this all mean? Spending limit fluctuates with enrollment Higher than anticipated enrollment = higher limit Spending limit DOES NOT fluctuate with health care costs State at risk for all aspects of health care spending except enrollment High priced specialty drugs Technology Public health crises Changing acuity within eligibility groups Or…providers (especially essential providers) at risk for rising costs

Spending limit serves to freeze in place 2016 policy choices Or, more accurately, prohibit policy choices that require more spending Optional benefits Only 3 states have not added an optional benefit at some point in the last decade (AL, ME, NJ)) Amount, duration and scope of benefits E.g. day limits, dollar limits, restricted scope Reimbursement rates Prior authorization policies Enrollment strategies to capture hard-to-reach (and higher-than-average-cost) beneficiaries Incentives to cherry-pick? Long term investments in higher value care E.g. patient centered medical homes, home and community based services Data on optional benefits from State Health Facts

Differential state-by-state impact More difficult for states with lower tax base to make up the difference when per capita caps bite. States have less flexibility to reduce reimbursement rates in markets with low provider participation.

Per Capita Spending Trends 1991-2014 Variation not only in per capita amount but in growth in per capita amount. Source: CMS Health Expenditure by State of Residence Data

variation among states by enrollee category

Impact of per capita caps in out years Brookings report Huge variation in impact across states No winner states, only loser and break-even states Just under half of states would have had no impact “Low cost” states hardest hit Brookings study modeled per capita cap impact in 2011 if it had been implemented in 2004 based on 2000 expenditures (i.e. 8th year of implementation). State with largest impact would have had to cut (or increase expenditures) by 77%. Just under half of states would have had no impact.

Impact of base year Choice of base year is necessarily random What happened in your state in 2016? Comparison to 2015 and 2017 State budget pressures? New state policies implemented/retracted? CMS policy disputes? New waiver spending? Reduction in waiver spending? New supplemental payments? Reduction in supplemental payments? Unusual spike or dip health care costs/needs? Etc. etc.

What about waiver states? Per capita caps supersede waiver budget neutrality limits Although budget neutrality limits still apply Waivers require budget neutrality over a 5 year period Permits higher spending (investments) in early years, balanced out by savings in out years No longer permissible Impact on innovation in Medicaid May be advantageous if 2016 is an early year of your state’s waiver May be disadvantageous if in later years or if CMS imposed new restrictive policies (e.g. uncompensated care pool policy)

What About Block Grants?

The AHCA also gives states a block grant option Like per capita caps except limit is a flat dollar amount State at risk for all health care spending including enrollment Growth rate is medical CPI Funds may be rolled over from year to year Only for children and/or non-disabled, non-expansion adults Block grant option is for 10-year periods States given significant flexibility: Eligibility requirements Benefits & cost-sharing Delivery system CMS approval of State Block Grant Plan required Enhanced FMAP available Fast growing state? Economic downturn? CMS may only disapprove if incomplete or actuarially unsound

Block Grant Vs. per capita cap State Savings

Washington Counsel to America’s Essential Hospitals QUESTIONS?? Barbara Eyman Washington Counsel to America’s Essential Hospitals Eyman Associates beyman@eymanlaw.com 202-567-6203