ACAP Principles on Medicaid Capped Allotment Proposals

Created in 1965, Medicaid is a federal-state program that provides health coverage to low-income pregnant, disabled, blind, and aging Americans.  Despite changes over time that have integrated the rise of managed care as part of the delivery system, the Medicaid statute remains largely unchanged since its creation.

Enrollment in the Medicaid program has grown from roughly 25 million in 1990 to 70 million in 2016. As more Americans have come to rely on Medicaid, the nation’s governors and many members of Congress have sought to reform and restructure the program to give states added flexibility, more budgetary reliability, and to make the program more efficient.   Much of this effort revolves around restructuring the current  federal matching rate system with systems known as “per-capita allotments” or “block grants.”   Unlike the current matching system which reimburses a state for a defined portion of the of the cost of services provided to enrollees, these new approaches establish a fixed amount of funding from the federal government.  Any state that exceeds these federal cap allotments will have to cover the excess costs from state taxpayer revenues, reduce benefits, or reduce eligibility for the program.

Consistent with its mission to improve the health and well-being of vulnerable populations, ACAP supports policy changes to improve Medicaid, to produce savings, and to preserve needed benefits for enrollees.  ACAP plans emphasize the delivery of high quality health care as a component of the social safety net, and believe that policymakers, providers and plans should work to improve appropriate linkages with income support programs, housing and other supportive services.

As Congress begins to contemplate changes in the financing relationship between the federal and state governments for Medicaid, ACAP recommends that federal and state policy makers incorporate the following considerations into any program redesign.

  1. Maintain the Medicaid Program’s Guarantee of Coverage. Without a requirement that all eligible individuals can receive Medicaid coverage, states and safety net providers will be burdened with the costs of caring for low-income people, or will resort to waiting lists or enrollment caps, increasing the numbers of uninsured individuals.  Access to health care should not be predicated on participating in other activities, such as job training or work readiness activities, although ACAP supports making these services available to assist individuals in their efforts to attain economic stability.
  1. Ensure Transparent, Verifiable, and Actuarially Sound Rate-Setting by States. Since the early 1990s, states have increasingly turned to managed care to deliver benefits to Medicaid enrollees. In 1997, Congress recognized that plans were vulnerable to being reimbursed at rates that failed to cover the cost of services the state required under their contracts.  In addition, the Government Accountability Office has found inadequate CMS oversight of the rate-setting process to ensure actuarially-sound rates.  As Congress seeks to increase state flexibility through contracting with managed care entities, any reform proposal must maintain actuarial soundness and transparency in rate-setting to ensure that health plans participating in Medicaid managed care programs can provide covered services and promptly, accurately reimburse providers.
  1. Maintain the Federal/State Partnership in the Medicaid Program. Both the federal and state governments should continue to be full partners in the Medicaid program.  This can be achieved through periodic readjustments of capped levels or allotments to reflect significant variations from initial expectations.  Such adjustments will ensure that states and the federal government continue to equitably share in the costs and savings of the program.
  1. Provide States the Flexibility to Implement Delivery System and Other Reforms. States must be permitted to implement and experiment with program changes such as value-based and patient-centered purchasing models that produce the same or improved quality of care at lower cost. For example, states should be empowered to reimburse providers who work with their patients in new and more effective ways (such as using opportunities provided by telemedicine), encourage enrollees to use more cost-effective services while not deterring access to needed care, provide tools to willing enrollees to enable them to move toward greater self-sufficiency and broadly use non-medical support services that minimize the need for additional health care services.
  1. Protect State Budgets Against Economic Downturns. The current funding mechanism is flexible enough to compensate for increased need for Medicaid services resulting from economic downturns.  This is a vital part of the program that ensures that eligible people are not denied needed coverage but also protects state budgets from solely bearing added program expenditures.  ACAP believes that any block grant or per-capita allotment approach should increase federal help to states during economic downturns to protect coverage for all eligible current and potential enrollees.
  2. Maintain Federal Financial Support for Currently-Covered Services. Within federal guidelines, states have considerable discretion in determining what services will be provided under their Medicaid program, including mandatory and optional services and services incorporated in each state’s comprehensive benefits package. Any capped funding approach must be structured so that states continue to receive sufficient financial support and incentives to maintain the delivery of high quality services for all currently covered populations.
  3. Maintain the Medicaid Program’s Coverage of Supports and Services for the Elderly and Disabled. Unlike other health insurance programs, Medicaid provides long-term services and supports to the elderly and disabled. Effectively the default coverage program for these types of services, a per-capita allotment approach must ensure that the Medicaid program has sufficient resources to provide these services until alternative funding methods, if any, are implemented.
  1. Ensure Medicaid Contributes to Lifting People Out of Poverty. Addressing the social determinants of health – including job readiness, housing, and other issues – has great potential to help Medicaid enrollees improve health status and, simultaneously, economic stability. While ACAP does not agree that Medicaid enrollees should be required to engage in certain activities – such as seeking employment – as a condition of eligibility, we strongly support providing opportunities for people with low incomes for job training, stable housing, and other critical activities. This critical work – which while increasing front end costs, can result in health system savings – should be recognized and incorporated into any Medicaid per-capita allotment or block grant proposal.
  1. Ensure Per Capita Allotments or Block Grants are Built on Reliable, Dependable, and Publicly-Verifiable Data. The effectiveness of any per-capita allotment or block grant program will hinge on the reliability of the data used to determine payment amounts. Nearly all of the principles in this document – including actuarially-sound rates for plans, patient mix, and growth rates – are predicated on the assurance that allotments or grants will be built on air-tight data.  To ensure stability for millions of Medicaid enrollees, current limitations of existing Medicaid data sources must be recognized and remedied prior to implementation of such a program.
  1. Incorporate Reasonable Accounting for Inflation and Demographic Changes in Demand. Any Medicaid funding system should provide flexibility to encourage innovative ways to control outlays while maintaining the quality of care.  The only way to do that is to take into account real Medicaid inflation and changes in demography that will change the demand for services.  Establishing, and periodically reevaluating, a reasonable base year and an inflation adjusted appropriate for the package of covered Medicaid services is imperative.
  1. Recognize Differences in the Cost of Providing Care Across States. The cost of doing business varies from state to state.  Any capped funding formula needs to reflect that the costs of delivering care vary due to, for example, wages, real estate, transportation, and infrastructure costs. The formula must also recognize the historical variation among states relative to their overall reimbursement levels and delivery system efficiency.
  1. Reflect the Patient Mix in any Particular State’s Program. While states are required to cover specific groups of individuals, many states provide coverage beyond those currently mandated.  Moreover, within these various coverage or eligibility groups, individuals may have significantly different risk profiles and, therefore, different health needs.  A capped funding approach must recognize these variations.  In a per-capita funding environment, this can be done by, for example, establishing different allotments for specific eligibility groups and adjusting for other variables which have an impact on the amount of health and related care that is needed, and adjusting for changes in health needs and demographics over time (such as the effect of the aging of the population).