Health Reform WK-EDGE Medicaid payment reform proposals reduce federal spending, put constraints on state plans
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Monday, February 13, 2017

Medicaid payment reform proposals reduce federal spending, put constraints on state plans

By Susan L. Smith, J.D., M.A.

Block grants or per capita caps "could dramatically reduce federal spending" on the Medicaid program, according to research conducted by Avalere Health, an advisory company. Although the research found that over a five-year period, federal spending on Medicaid would result in $150 billion less using block grants and a savings of $110 billion using per capita caps, a further analysis showed that most states would have significant reductions in funding. Caroline Pearson, Avalere Health senior vice president, noted, "States may respond to block grants or per capita caps by cutting enrollment, limiting benefits, or reducing payment rates to providers and plans."

Block grants and per capita cap system. Under the Trump administration, Congress has proposed to replace the Patient Protection and Affordable Care Act (P.L. 111-148) (ACA), including making reforms to Medicaid that would replace the federal government’s current payment method, which provides states with a percentage of their total spending on Medicaid with block grants or a per capita system. Block grants provide states with a fixed amount of money from the federal government. Per capita caps provide a fixed amount of money from the government per beneficiary. According to Dan Mendelson, Avalere Health president, block grants and per capita caps can control federal spending on the Medicaid program while leaving more decision making regarding the program to the states.

Pearson explained that the "Medicaid block grant model is more limiting to states because it constrains both spending growth and enrollment growth. The per capita cap model allows for greater flexibility and better absorbs marketplace fluctuations …; however, it can result in an overall loss of federal funding."

Impact of a funding cap on states. According to Avalere’s analysis, a per capita cap system would have a worse impact on states that spend more per enrollee, while block grants would have a worse impact on states that have a large increase in enrollment. The research analyzed how state Medicaid funding from the federal government would change under each method for the period from 2001 to 2008. The results showed that under the block grant, only one state would have experienced an increase in funding, while the rest would have a reduction ranging from 4 percent to 62 percent. Under the per capita cap system, 24 states would receive an increase, while 29 would have a reduction under 30 percent.

Companies: Avalere Health

IndustryNews: NewsStory MedicaidNews

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