Health Reform WK-EDGE What will become of Medicaid?
Friday, April 7, 2017

What will become of Medicaid?

By Bryant Storm, J.D.

The future of Medicaid is uncertain. Elected on promises to repeal and replace the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148), President Trump has long shown support for rolling back the ACA and Medicaid expansion. Additionally, recent Congressional efforts to repeal or replace the ACA have proposed systemic modifications to the funding structure for the Medicaid program. Any of these changes could have dramatic impacts on the number of individuals who are able to access care through Medicaid and the ability of states and the federal government to finance that care. This Strategic Perspective considers possible eventualities for the Medicaid program, including some of the most recent proposed changes to eligibility and funding.

The Current Structure

The current funding and eligibility structure for Medicaid is, for the most part, the same structure that was put in place at the program’s inception in 1965. The Medicaid program is premised on a federal and state partnership that serves to balance the costs of the program and maintain a minimum level of coverage across the country. To the degree that states want to exceed the minimum, they are able to do so within parameters set by law and regulation.

Funding. The Medicaid program is funded through a partnership between the federal government and individual states. The federal government covers a set percentage of program expenditures—a percentage known as Federal Medical Assistance Percentage (FMAP). The FMAP varies from state to state based upon criteria including per-capita income. The average FMAP is 57 percent, however, it drops as low as 50 percent in higher per-capita income states (California, Colorado, Illinois, New York, Minnesota) and as high as 75 percent in states with lower per-capita income (Mississippi, West Virginia). By law, the FMAP cannot drop below 50.

The ACA made some exceptions, under its Medicaid expansion provisions, to the general FMAP rules, providing an FMAP of 100 percent for newly eligible low-income adults for the 2014–2016 period, with an FMAP of at least 90 percent thereafter for the cost of covering newly eligible adults. Otherwise, the FMAP structure has remained essentially unaltered since 1965. Temporary deviations from the FMAP structure have occurred, historically resulting in higher FMAP as opposed to FMAP decreases.

Eligibility. Federal law requires states to cover certain groups of individuals under their Medicaid program. These mandatory eligibility groups include "low income families, qualified pregnant women and children, and individuals receiving Supplemental Security Income (SSI)." However, states have the flexibility to go beyond these mandatory requirements to cover other groups, for example, individuals receiving home and community based services and children in foster care. Income eligibility determinations are made based on Modified Adjusted Gross Income (MAGI), the same factor used to determine eligibility for the Children’s Health Insurance Program (CHIP) and premium tax credits and cost sharing reductions available through the ACA exchanges. Eligibility levels for these groups differ widely among the states, for example: 19 states cover children at or above 300 percent FPL through Medicaid and CHIP; 12 states cover pregnant women with family incomes above 250 percent FPL; and, in keeping with ACA expansion, 32 states cover parents and other adults with incomes up to 138 percent through Medicaid.


The current administration has not been quiet in its opposition to traditional Medicaid and, in particular, the ACA’s expansion of the program. In their first joint action, HHS Secretary Price and newly confirmed CMS Administrator Verma sent a letter to state governors discussing potential improvements to the Medicaid program. In that letter Price and Verma wrote that the ACA’s expansion of Medicaid "to non-disabled, working-age adults without dependent children was a clear departure from the core, historical mission of the program" (see Did CMS just sound the death knell for Medicaid expansion?, March 15, 2017). With Medicaid’s federal leadership opposed to the status quo, a question arises: how exactly will Medicaid change under a new administration? There are myriad possible outcomes, including:

  1. the elimination of the ACA’s expansion of the Medicaid program;
  2. a reversion to the pre-ACA FMAP levels;
  3. the replacement of the FMAP funding structure with per capita caps or block grant funding;
  4. more stringent eligibility standards in states, for example, work requirements that function as a condition precedent to eligibility; and
  5. countless modifications yet to be proposed.

Expansion. The elimination of Medicaid expansion represents one of the most impactful ways Medicaid can be changed. Under a plan like the American Health Care Act (AHCA)—a bill designed to use the budget reconciliation process to repeal certain provisions of the ACA, and which was removed from consideration without a vote—state Medicaid eligibility levels would have fallen back to pre-ACA levels, eliminating coverage entirely for individuals who obtained eligibility under the expansion criteria. However, despite Republican attempts to undermine the ACA, state lawmakers—regardless of party allegiance—have not given up on the idea of expanding their Medicaid programs to a greater number of individuals. On March 28, 2017, the Kansas Senate voted to expand KanCare—the state’s Medicaid program. Although the measure was vetoed by the state’s Governor, Sam Brownback (R), the Republican-dominated Senate’s approval marks a significant point of support for Medicaid and the ACA’s expansion. In the immediate aftermath of an unpopular and unsuccessful ACA repeal effort, the Kansas vote maybe pointing towards a new kind of ideology—bipartisan support for Medicaid expansion (Kansas Medicaid expansion is now under the Governor’s pen, March 29, 2017).

Matching rate. Under the proposed AHCA, lawmakers sought to eliminate the ACA’s enhanced FMAP for newly eligible adults. The proposed plan, beginning 2020, would have reduced states’ FMAP to pre ACA levels (see Republican plan saves billions as 24M lose coverage, March 14, 2017). Like the elimination of the ACA’s expansion, the reduction in FMAP rate would generate a scenario where states would either have to finance a greater portion of Medicaid costs or leave previously covered individuals without access to care.

Section 1115. One of the primary ways that states can make their Medicaid programs unique is through Sec. 1115 of the Social Security Act. Under Sec. 1115, states can seek approval for experimental, pilot, or demonstration projects, through the use of waivers. Sec. 1115 waivers give the HHS Secretary the authority to waive certain Medicaid requirements, allowing states to use Medicaid funds in ways that would not otherwise be permitted under federal rules. States could, theoretically, use the authority of a Sec. 1115 demonstration to impose a work requirement on Medicaid beneficiaries. Historically, the HHS Secretary has denied Sec. 1115 applications attempting to establish Medicaid work requirements. For example, prior to serving as CMS Administrator, Verma worked on an Indiana Medicaid plan which sought to impose work requirement on beneficiaries (see Amendment of Healthy Indiana Plan implements Medicaid expansion, February 11, 2015). At the time, CMS denied the work requirement because it was directly linked to Medicaid eligibility, noting that Medicaid participation should not be conditioned on employment. However, the tenor of the Price/Verma letter suggests CMS may make a turn with respect to such applications and begin to approve work requirement waiver requests. The letter notes that HHS and CMS plan to use "Section 1115 demonstration authority to review and approve meritorious innovations that build on the human dignity that comes with training, employment and independence."

Work requirement. Conditioning Medicaid eligibility on a work requirement, however, could adversely affect beneficiaries from accessing needed health coverage. A Kaiser Family Foundation (KFF) issue brief examined the policy arguments related to Medicaid work requirements. KFF noted that work requirements turn the program into a cash welfare program instead of a program focused on health care coverage. Opponents of the work requirement note that good health is a precondition of work and often an inability to access care can serve, itself, as a barrier to obtaining work. Proponents of the work requirement argue that the expansion of the Medicaid program to able-bodied adults provides a disincentive for those adults to work. Some states have advocated the inclusion of work requirements to ensure that beneficiaries have "skin in the game." In either case, proponents of work requirements are often fueled by a false perception regarding Medicaid beneficiaries and work status—simply that Medicaid beneficiaries do not work. The vast majority (80 percent) of Medicaid adults, however, live in working families. Additionally, more than half (59 percent) of Medicaid adults are working themselves. Thus, KFF estimated that work requirements would have a narrow reach, impacting primarily those who are already at a disadvantage and not working due to disability or caregiver responsibilities (see Does Medicaid work with a work requirement?, March 29, 2017).

Block grant. Another means by which the Medicaid program could be substantially altered is through block grants. The idea of a block grant is simple: the federal government would give each state a block (defined sum) of money. The state would then be, to some degree, free to spend the block on its Medicaid program in line with its own wishes. Calculation methods for such grants differ from an analysis of states’ past needs to per-capita caps, which allocate funds for the block based upon the number of beneficiaries in a state. Other per-capita funding methodologies would continue paying Medicaid in the current fashion but would place a per-capita limit on what a state could receive, or, in other words, establish a payment ceiling. In its analysis of the AHCA, the CBO analyzed the budgetary impacts of its proposed per-capita funding structure (see CBO: Republican plan saves billions as 24M lose coverage, March 14, 2017). The CBO identified that between 2017 and 2026, costs would exceed resources. Thus, the CBO reasoned, "to account for this discrepancy, states will be forced to either commit additional state resources to the program, or reduce spending by cutting payments to providers and plans, eliminating optional services, restricting eligibility for enrollment, developing more efficient methods for delivering services, or a combination thereof." In a presentation regarding the relationship between legislative policy and Medicaid delivered at the Health Care Compliance Association (HCCA) Compliance Institute, Kimberly Brandt, Chief Oversight Counsel for the U.S. Senate Committee on Finance, noted that governors tend to favor per-capita financing methodologies over block grants because "states receive more money as enrollment grows and less as it falls," and because per-capita funding allows for recognition of differences between different patient populations.

Spending cap historical analysis. Similarly, a KFF report found that a majority of states would have received less Medicaid funding, in the pre-ACA market, between 2001 and 2011, if Medicaid funding had utilized a per-capita spending cap. The study, which evaluated what impact a limitation on per-enrollee spending growth would have over a particular period, determined that spending reductions differed by eligibility group (aged, children, adults without disability, people with disabilities) and state. KFF determined that most states (38) would experience a decline in federal Medicaid funding. Additionally, more than half of the states (26) would see a reduction in Medicaid funds of 10 percent or more (see Pre-ACA per capita limit would have decreased Medicaid spending, March 29, 2017).

Providers. Changes in policy do not have to be systemic to have dramatic changes on the ground. For example, many Republicans in Congress, including House Speaker Paul Ryan (Wis) have expressed a desire to cut off funding to the health care provider Planned Parenthood. The CBO analysis of the AHCA included an estimate of the bill’s impact on Planned Parenthood because the bill sought to eliminate the provider’s funding. The CBO determined that defunding Planned Parenthood for a single year would increase Medicaid spending $21 million a year in the first year and $77 million by 2026. The cause of the increased spending: reductions in access to birth control and thousands of added Medicaid births.


The structure of Medicaid has been largely static since the program’s creation in 1965. When changes have occurred through Congressional or state action, they have been designed to expand health coverage to a greater number of individuals. The ACA significantly pushed forward that tradition by permitting states to expand income eligibility for their Medicaid populations.

Donald Trump was elected, in part, on a promise to undo the ACA and, with it, Medicaid expansion. As a result, lawmakers in Congress have begun to propose new structures and requirements for the Medicaid program, including ideas as diverse as work requirements, lowered FMAP rates, block grants, per-capita caps, and defunding particular providers. To date, Congress has been unable to unwind the ACA or substantially alter Medicaid.

At CMS’ last count, over 69 million individuals were enrolled in Medicaid. Any change to funding and eligibility for the program, therefore, needs to undergo great scrutiny, especially because Medicaid beneficiaries—eligible low-income adults, children, pregnant women, elderly adults, and people with disabilities—are the most vulnerable segment of the population.

MainStory: StrategicPerspectives NewsFeed AccessNews AgencyNews CHIPNews DemonstrationProjectNews EnrollmentNews MedicaidNews MedicaidExpansionNews ProviderPaymentNews ProgramIntegrityNews FedTracker HealthCare

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