United States: How The Medicaid Expansion Will Be Treated Under A Block-Grant Financing Framework

Last Updated: February 22 2017
Article by Christian Springer and Ross Margulies

One of the most pressing issues before the 115th Congress and newly inaugurated President Trump will be to determine how the Medicaid expansion population will fit into a broader reform package for the Medicaid program as a whole.  Many state governors in expansion states have expressed concern that the long-standing Republican proposal of block-granting Medicaid will leave them exposed to unsustainable financial pressures.

President Trump's nominee for HHS Secretary, Tom Price, has recently reassured state governors that any Republican reform of Medicaid would take into account the Medicaid expansion under the ACA.  Indeed, House Speaker Paul Ryan's " A Better Way" plan, which was released in 2016, does account for the issue of what to do with the expansion population in a block-grant financing framework.  Considering that the transition of government to the Republicans is now complete, we thought it would be helpful to review Speaker Paul Ryan's proposal for block-granting Medicaid, and how this would interact with the Medicaid expansion under the ACA.

Per-Capita Block Grants

In transforming Medicaid's financing structure, Speaker Ryan's plan would designate a "per-capita allotment" as the default financing option for states moving forward.  Under this methodology, a state would be able to draw down from a total Medicaid allotment based on its federal matching rate.  This Medicaid allotment would be the product of (1) the state's per capita allotment for the four major benefit categories (aged, blind and disabled, children, and adults), and (2) the number of enrollees in each of these categories.  The base year for the allotment would be 2016, and the fixed allotment would grow steadily over the years, but at a slower rate than under the current law.  There would be a transition period before the per-capita allotments are applied in 2019.

Importantly, states that have not yet expanded Medicaid would be prohibited from doing so.  Those states which have expanded Medicaid would initially receive the same amount of dollars they receive under the current plan, but this amount would be "phased-out" over the years until it reaches the state's normal federal matching assistance percentages (FMAP).  The purpose of the "phasing out" period is to compel states to shift dollars away from "able bodied" adults towards more caring for more vulnerable categories.  The expectation is that able bodied adults would be transitioned to commercial coverage through tax-credits or employment-based coverage.

For the Children's Health Insurance Program (CHIP), Speaker Ryan's plan would scale back the enhanced FMAP (E-FMAP) for the program, which under the ACA was increased by 23 percentage points (not to exceed 100%) and provided 100% federal financing for 12 states.  According to the plan, Democrats and Republicans hailed CHIP as a success under the original matching rates, therefore it's "common-sense" to return the program to its original funding levels.

States would also be allowed to impose reasonable, enforceable premiums for non-disabled adults.  We discussed what this might look like in more detail in a previous blog piece regarding Indiana's and Kentucky's section 1115 Medicaid waivers.

Block-grants

For states that want even more control over their Medicaid programs, they will be given the option of opting out of the per-capita allotment and receive a block grant of federal funds instead.  Under this approach, the amount of funds would be determined using a non-specified base year, which would assume that Medicaid expansion individuals would be transitioned to other forms of coverage.  Moreover, states would be given maximum flexibility to manage the eligibility and benefits for non-disabled, non-elderly adults and children.  Importantly, states would not be required to undergo the Section 1115 waiver process that has traditionally governed these type of changes.

All in all, it is true that the most current and developed Republican proposal takes into account the Medicaid expansion population in a block-grant financing framework.  However, it also makes some very important assumptions about the transition to block-grants which are extremely uncertain.  Most notable among these is that able-bodied adults will smoothly transition out of Medicaid into commercial coverage.  As the turmoil that has characterized the ACA's Marketplaces has demonstrated, this task may be much more difficult than Speaker Ryan's plan anticipates.

To view Foley Hoag's Medicaid and the Law blog please click here

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