United States: Medicaid & The American Health Care Act

Last Updated: March 20 2017
Article by Thomas Barker and Christian Springer

It's official—the 115th Congress has set its sights on overhauling the Medicaid program.  We predicted as much ( here and here) shortly after the November 2016 presidential elections,  but now we have some insight into exactly what those proposed changes to Medicaid will be.

On March 6, 2017, the House Energy & Commerce Committee (E&C) and Ways & Means Committee (W&M) officially released draft legislation, the "American Health Care Act" (AHCA), that would repeal and replace parts of the Affordable Care Act (ACA) through the budget reconciliation process.  The AHCA language includes some of the same provisions from the GOP discussion draft leaked to the press in late February 2017, but also makes several key changes.  The legislation has not yet been scored by the Congressional Budget Office.  The E&C and W&M committees conducted the first round of mark-ups on March 8, 2017.

Below is a summary of key provisions from the E&C legislation as it relates to the Medicaid program.  A summary of the provisions from the W&M bill are not included because that bill deals primarily with tax issues largely unrelated to the Medicaid program. This summary is as of March 8, 2017, before the mark-up session.  It goes without saying that details of the E&C bill are likely to change as the process moves along.  As always, stay tuned for timely updates and analysis on what is proving to be a momentous year for Medicaid.

Per-Capita Caps

Beginning in FY 2020, the AHCA proposes to replace the existing open-ended financing structure of Medicaid with a per-capita cap, paid to each state depending on their Medicaid expenditures for FY 2016 forecasted forward to a target level of spending for each enrollee category in FY 2019 and subsequent years.  In other words, FY 2016 will serve as the base year for determining the per-capita cap (i.e. target amount), and the caps will grow in-sync with the medical care component of the Consumer Price Index. Any overruns that the state experiences will come out of its Medicaid payments for the following year.

The following categories would be exempt from the per-capita allotments (i.e. paid for outside of the per-capita caps): DSH payments, administrative payments, individuals covered under CHIP Medicaid expansion program or who receive medical assistance from an IHS facility, breast and cervical cancer patients, and partial benefit-enrollees (dual-eligible, individuals eligible for premium assistance, Medicaid emergency medical care for unauthorized aliens, etc).

Notably, the AHCA does not discuss the scenario in which a Medicaid program is underpaid (i.e., a situation where a state's expenditures in a year are less than the cap), and what the state's recourse in that event may be.  Underpayments may be particularly common when one factors in the requirement for states to make semi-annual income redeterminations of their Medicaid expansion population (see "Medicaid Expansion" paragraph), and searching for expansion enrollees who have had a break in coverage exceeding one month.  Considering that Medicaid enrollees commonly fluctuate between Medicaid and other forms of coverage, it would be unsurprising if payments to states often do not account for the actual expenditures the state experiences.

Section 1115 Waivers

Under the AHCA, expenditures and payments under a state's Section 1115 waiver will be treated in the same manner as if the state did not have a waiver and were instead covered under regular Medicaid.  In other words, states with waivers are not penalized for having a waiver.  However, if a state's waiver contains payment limitations (such as limiting payments because the waiver imposes an enrollment cap), the limitations in the new law, not the waiver, apply.

Medicaid Expansion

The AHCA codifies NFIB v. Sebelius' holding that the Medicaid expansion is optional for states.  Further, it would eliminate states' ability to offer Medicaid to otherwise-ineligible individuals above 133% of the federal poverty level by December 31, 2019.  For states that have expanded Medicaid by December 31, 2019, they would keep their enhanced FMAP but only for individuals who were enrolled in Medicaid as of December 31, 2019 and do not have a break in eligibility for more than one month after that date.  The FMAP applicable to newly eligible individuals after January 1, 2020 would be that of the corresponding state's traditional FMAP.

Moreover, states would be required to make redeterminations of their expansion population's eligibility every 6 months, and increases the amount of civil monetary penalties that can be levied on someone who intentionally defrauds the Medicaid program.  States could also receive a temporary bump of 5% to their FMAP for complying with this redetermination requirement.

Medicaid Data Reporting

The AHCA imposes new reporting requirements which would capture expenditures within categories of services and categories of enrollees.  To facilitate these increased reporting requirements, the AHCA would offer a temporary increase in the FMAP for technology-related expenditures.

Disproportionate Share Hospital Payments

The AHCA would repeal the Medicaid DSH reductions set in motion by the ACA in 2018 for non-expansion States, and 2020 for expansion states.  DSH payments would also operate outside of the caps.  Notably, the legislation does not repeal the Medicare DSH reductions imposed by the Affordable Care Act.

Essential Health Benefits (EHBs)

The AHCA would eliminate the EHB requirements that currently apply to Medicaid benchmark coverage for dates after December 31, 2019.  This is not to be confused with the EHBs applicable to Qualified Health Plans; they are not addressed by the AHCA as currently drafted.

Reducing State Medicaid Costs

The AHCA would seek to limit costs to the Medicaid program by considering monetary winnings from lotteries for the purposes of eligibility, limiting retroactive coverage to the month the applicant applied for Medicaid benefits on or after October 1, 2017 (as opposed to three months, as under present law), and improving verification of documentation status for Medicaid enrollees.

Safety-Net Funding for Non-Expansion States

The AHCA would provide $10 billion over five years to non-expansion States between CY 2018 through CY 2022.  These states would also receive, with respect to expenditures attributable to payment adjustments they make to providers under this section, an increased matching rate of 100% for CY 2018 through CY 2021, and 95% for CY 2022.  There are limitations to the type of payment adjustments these states can make that take into account the number of individuals in the state with income below 138% of FPL in 2015 relative to the total number of individuals with income below 138% of FPL for all non-expansion States in 2015.

Other Medicaid Provisions

The AHCA would eliminate states' expanded authority to make presumptive eligibility determinations for individuals other than children, pregnant women, and breast cancer and cervical cancer patients.  Furthermore, the mandatory Medicaid income eligibility level for children would be reverted back to 100 percent of federal poverty level.  The 6% bonus federal match rate for community-based attendant services and supports would also be eliminated.

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

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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