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The Future of Medicaid

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May 1st, 2017

The Affordable Care Act turned Medicaid into America’s largest public health care coverage program. While the volume associated with this growing program created increasing opportunities for providers, health systems, health plans, and vendors, these same stakeholders shouldn’t write off opportunities in Medicaid now simply because of the change in direction at the federal level. Instead, stakeholders should work with states to develop solutions that address their specific problems, meet their goals, and maximize efficiency and innovation.

Given the difficulties of aligning bipartisan House and Senate interests to assure passage of the American Health Care Act (AHCA) it appears that at least some components of the Affordable Care Act are here to stay for the “foreseeable future.” That said, whether the AHCA changes components of the ACA or not, many Medicaid provisions of the ACA will remain in effect, and many will be changed through additional legislative action or through executive branch action, such as Medicaid waivers.

The House version of the AHCA provides key policy signals regarding the administration’s and Congress’ priorities when it comes to the Medicaid program—and these signals are likely to materialize in future legislative or executive branch reform efforts. As Medicaid agencies, managed care organizations, hospitals, providers, and other stakeholders make plans in an uncertain environment, it will be important to pay attention to these key signals and their potential impacts.

Key Policy Signals

  1. There is a clear desire to limit federal financial exposure. By using per-capita caps and block grants, the federal government can increase predictability for federal expenditures, while shifting more risk to the states. With the scope of covered beneficiary groups, benefits, and financing streams that were included in the House version’s proposed per-capita model (e.g., long-term services and supports and non-DSH supplemental payments), it is clear the House and the administration are looking to shift as much of the old program structure into a new program structure that will maximize savings for the federal government.
  2. In exchange for increased financial risk, the federal government is seeking to provide more state flexibility. Governors had a limited voice in the drafting of the original House version of the AHCA and opposition to that version of the bill was high among both blue and many red state governors. To reduce this opposition, Secretary Price and CMS Administrator Verma sent a letter to governors affirming their “partnership in improving Medicaid” and vowing to address “rigid and outdated implementation and interpretation of federal rules and requirements [that] hinder states….”[1] A few of the specific areas of support outlined in the letter include improving the speed and transparency of the State Plan Amendment and 1115 waiver approval processes, conducting a full review of managed care regulation to prioritize state priorities, and supporting innovative approaches to increase employment and community engagement of Medicaid beneficiaries.
    CMS continues to signal this flexibility by approving state 1115 waiver applications and supporting state-based solutions. For example, Florida recently stated that CMS is supportive of Florida’s 1115 waiver renewal of its Low-Income Pool, which supports hospitals providing uncompensated care. The Obama administration had indicated that it would not renew this funding pool or would do so at a much lower rate. Several 1115 waivers are currently sitting in the queue at CMS and their approval or denial are future indications of how much flexibility CMS is able and willing to provide.
  1. The federal government is looking to balance “pulling out the rug” on Medicaid expansion states with eliminating enhanced funding and eligibility expansions. With the AHCA proposing a back-dated time limit on Medicaid expansion, it is clear the administration and House do not want more states to expand their Medicaid programs. That said, they also seem to recognize that an immediate end of Medicaid expansion would not be politically feasible for Congress and the administration or fiscally feasible for the states that have expanded. Instead, a phased approach is outlined in the House version of the AHCA that reduces the enhanced federal match for Medicaid expansion enrollees after a date certain. After that date, existing expansion enrollees only remain eligible for full federal match if they do not churn off Medicaid for more than one month. As a greater share of the expansion population is no longer eligible for enhanced match, states will be forced to make decisions about whether to continue Medicaid expansion.

What does this mean for Medicaid programs and stakeholders?

The House version of the AHCA sends a clear message is that Medicaid reforms will likely increase states’ financial exposure, which will in turn have a trickledown effect on providers, health systems, health plans, and other vendors and stakeholders that operate in the Medicaid space. These stakeholders should understand that these targeted reductions may disproportionately hit different stakeholder groups in different states and result in unintended consequences. It will also change the program dynamics and relationships when economic conditions deteriorate.

While this could translate to increased budget disputes—pitting different stakeholder groups against each other to fight for a limited amount of funds—it could also mean increased opportunity for those who are willing to engage in value-based payments, provide innovative solutions to care coordination, think more broadly to address the underlying social determinants of health, and operate in a lower-cost setting while providing greater efficiency.

Capped Medicaid funding could accelerate states’ drive to innovation

Leavitt Partners has always viewed states as laboratories of innovation, and historically states have looked to create Medicaid programs that maximize cost efficiencies and improve care. An increasing focus on care coordination, value-based payments, and consumer engagement are just a few examples of the initiatives many states are engaged in to capture these efficiencies. Many states are continuing with plans that were in place before change in the federal administration and several states are now looking at submitting new waivers to take advantage of the promise of “increased flexibility.”

While the uncertainty of Medicaid reform at the federal level may slow some innovative initiatives in the short term, it is expected that states’ need for innovative approaches to Medicaid will continue, if not accelerate in the long-term.

[1] Price and Verma letter. [update]
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