What will Medicaid reform say about our society?

Just before the holidays, I summarized potential courses of action that the new Congress and administration likely will take on the “repeal” of the Affordable Care Act (ACA). I outlined the pitfalls of each option, together with a recommended response by us to each alternative. Here, I would like to do the same for Medicaid “reform."

Members of the new Congress and administration already have expressed a strong desire to “reform” Medicaid, although specifics are quite scarce. Both historical precedent and often-stated hopes of previous Republican administrations suggest, however,  that an effort will be made to change Medicaid from a joint federal-state entitlement program to one based upon some type of  fixed federal payment to each state in return for greater state flexibility in the use of federal funds.

Before exploring some likely potential “reform” options, it is important to summarize the complex nature of the Medicaid program.

Overview of Medicaid

Medicaid is a joint federal-state entitlement program of health insurance for persons who are poor. Coverage is provided to single adults and families with dependent children, persons who are disabled, and persons with designated illnesses, e.g., HIV-AIDS. The Children’s Health Insurance Program (CHIP) expanded Medicaid health insurance coverage to a broader array of children in poverty, and ACA expanded coverage to a broader array of adults in poverty, at state option.

Because Medicaid is jointly operated by the federal government and the states, considerable variability exists from state to state in the populations covered and the actual benefits offered. The percent of federal financial participation also varies depending upon the percent of a state’s population that lives in poverty.

Several important facts about the Medicaid Program deserve emphasis.

First, it is very clear that Medicaid and CHIP are essential health insurance programs for persons and families living in poverty. In September 2016, nearly 74.4 million persons were enrolled in Medicaid and CHIP, of which 5.5 million were enrolled in the latter. Two out of three enrollees reside in the 31 states that undertook the ACA Medicaid expansion. Between 2013 and 2016, about 17 million persons newly enrolled in Medicaid and CHIP. Most of this growth occurred in large western states that implemented the Medicaid expansion.

Second, Medicaid is a very important as a source of health insurance for persons with disabilities. When a person qualifies for Supplemental Security Income (SSI) because of a disability, then s/he qualifies immediately for Medicaid. In November 2016, 8.3 million persons were receiving federal SSI payments and Medicaid health insurance.

Approximately 40% were persons with mental illness, and about 12% were persons with intellectual and developmental disabilities (ID/DD). Persons with substance use conditions were excluded from the SSI program beginning in 1998, but more recently have been able to enroll in Medicaid through the state Medicaid expansion.

Third, many who do qualify for Medicaid health insurance benefits still are not actually enrolled. To date, 19 states have not implemented the Medicaid expansion; many of these states have large populations of persons in poverty. Even in states that have undertaken the expansion, many persons remain to be enrolled, e.g., persons being released from county and city jails. Also, because Medicaid originally was not designed as a continuous insurance program, many problems still exist with dis-enrollment and re-enrollment of persons who are eligible.

“Reform” of Medicaid

The most likely options for “reform” of Medicaid will entail new caps on federal financial contributions to the states. These caps likely will take the form of a block grant to each state.

As has been true for decades, we continue to strongly oppose federal financial caps for Medicaid. Caps will have the effect of unduly limiting the scope of the populations that can be covered or unduly limiting the benefits available to those who are covered, or both. Which effect will predominate will depend upon the type of cap that is imposed.

• Flat Fixed Payment per State. This type of cap most likely will primarily limit the scope of the population that can be covered. It could take the form of freezing federal financial participation at the 2016 level in future years; freezing it at a prior year level, like 2013, before the ACA was implemented; or, more likely, freezing the federal contribution at the 2016 level less some percentage, like 15%. The latter was the strategy employed by the Reagan administration at the time the Community Mental Health Service Block Grant was created in 1981. The net effect will be a progressively larger financial burden on each state and progressive restrictions on the populations covered.
• Fixed Payment per Person. This type of cap most likely will primarily limit the benefits available to persons who receive coverage. Per person federal payments can be frozen at the 2016 level, the level from an earlier year, or the 2016 level less some percentage. The net effect will be a progressively larger financial burden on each state and progressive restrictions on the use of services which will lead to neglect of necessary healthcare.

Two variants of this option also might be considered: a fixed payment per person in the state’s poverty population (a capitation rate) or a fixed payment per person in the enrolled Medicaid population (a case rate). The former will unduly limit care per person; the latter will unduly limit the size of the enrolled population or the care per person, or both.

Discussion

In each state, the potential population to be covered by Medicaid includes large numbers of persons with chronic illnesses and disabilities. For example, we have estimated up to 30% or 40% of the Medicaid expansion population suffers from a mental or substance use condition. Thus, traditional insurance concepts, including funding caps, will not produce better quality outcomes. Rather, they will either limit the size of the covered population, thus excluding many who need care, or limit the care provided per person, thus jeopardizing care outcomes, or both. For these reasons, we must oppose the current efforts to reform Medicaid. They represent little more than a slightly disguised ruse to limit federal expenditures.

If the measure of our society is how well we treat children, older adults, those who are poor, and those who are disabled, then the likely course of Medicaid “reform” will show us to be sadly wanting. We can’t let this happen.