As soon as tomorrow, the Senate plans to vote on its version of Affordable Care Act “repeal and replace” legislation. However, much of this bill is not actually about changing the ACA itself. Instead, it would radically alter the Medicaid program and its historic financing arrangement between the state and federal government. It would fundamentally change the relationship between the federal government and the states by shifting expenses and the risk of future cost growth onto state budgets.

Medicaid is currently the largest single source of federal revenue to states. The Senate bill aims to trim that significantly by instituting a capped funding arrangement. The Congressional Budget Office estimated that, in the near term, this new financing structure would result in a 26 percent in federal funding which would eventually increase to a sobering 35 percent loss in funding to states in 2036.

These reduced federal funding limits would put pressure on states to demand that the federal government give them much more latitude in operating their Medicaid programs and force states to make substantial changes to the detriment of enrollees. States would also become much more aggressive in trimming costs, including by tightening eligibility, provider rates and benefits. As states struggle to make up for losses in federal Medicaid funding, they will also face pressure to cut other priorities like education.

Elimination of Enhanced Funding for the Expansion Population

For Medicaid Expansion states, these funding reductions will mean tough choices in the near term. If a state wants to maintain its coverage expansion, it will need to raise sufficient revenue to make up for the loss in federal funding. Although a state may be able to meet this gap in funding in the short term, the magnitude of the cuts makes it unlikely that a state will be able to generate sufficient revenue to cover the expanded Medicaid population in the mid and longer term. Given the fiscal pressure from capped funding, the most likely result is a rapid elimination of expanded coverage in most if not all states.

Reductions in Provider Payments

Although Medicaid rates of payment to providers are substantially below what Medicare and commercial insurers pay, it is nearly certain that states would decrease provider payments, which will likely reduce access to care. These payment reductions will be substantial, and will compound over time. Many providers will stop accepting Medicaid patients. Some providers that currently participate substantially in Medicaid would go out of business. Some providers would adapt and find ways to provide services with whatever payment is offered. However, safety net hospitals and community long-term care businesses will struggle to adapt to the financing levels proposed by the Senate.

Reduction or Elimination of Benefits

Prescription coverage will likely be at the top of a state’s target list for cost reduction because it is the most expensive optional benefit in Medicaid and recently prescription drug expenses have grown much more rapidly than other medical expenses. States are unlikely to immediately drop prescription drug coverage altogether because it is an integral part of medical care delivery and it avoids certain other costs such as hospitalizations. Rather than immediately eliminate coverage, states will request extensive flexibility in managing the pharmacy benefit. This flexibility would allow them to severely restrict formularies to a minimal number of drugs and dramatically reduce enrollees’ access to needed medicines.

Community-based long term services, the kind that keeping aging adults and people living with disabilities in their homes and out of institutions, are the second most expensive segment of optional services in Medicaid. States would likely target these and similar services for reduction or elimination given the extent of fiscal pressure from the Senate’s proposed capped funding structure. States will seek to reduce a number of community long-term care benefits that are seen as high cost or growing in utilization. An example is personal care attendants, which have greatly increased people’s ability to remain living in their home while accessing needed services.

Ripple Effect on Other State Programs

States may also target optional Medicaid services that support other areas of the budget, such as therapeutic services for children with special education needs that enable children to fully participate in their education. With the pressures of capped funding, state Medicaid directors could target reductions in this area, which will push significant costs onto state and local governments, since education authorities will still have the obligation to provide these services.

Increased Managed Care

Most states will need to evaluate the use of large managed care contracts that shift the risk of living within per capita reimbursement caps to private vendors.  States (with the federal government’s support) will need to give these private vendors much greater latitude to form restrictive provider networks, provide more limited services, and increase cost-sharing in order to live within those caps.  These contracts would likely be developed for virtually all populations, including the elderly and adults with disabilities.  

The Senate’s proposed Medicaid capped funding represents a fundamental shift in financial risk from the federal government to the states. In response, states will have to make more and more dramatic cuts to coverage, provider rates and benefits in order to manage the additional financial pressure.

Mark Reynolds is President and CEO of the Risk Management Foundation of the Harvard Medical Institutions Incorporated (CRICO). He has served as Medicaid Director for the states of Massachusetts and Tennessee.

 

Last week, I had the honor of speaking at the National Academy of Medicine in Washington, D.C., at the release of the Academy’s new special report, “Effective Care for High-Need Patients: Opportunities for Improving Outcomes, Value, and Health.” This report focuses on patients with high medical needs, and advances insights and perspectives on how to improve their care. I had the opportunity to respond to the report and I wanted to share a few of my reflections.

First, the report calls attention to an important fact: the health care system is failing the very people who need it most. The report notes that high-need individuals are more likely to suffer from care that is not coordinated and to have unmet medical needs. For those of us who spend a lot of time in the health care system, whether as patients, caregivers or providers, this is not surprising. Trying to get appropriate care when you or a loved one (or your patient) has a complex set of needs exposes all of the gaps and shortcomings in our health care system. We must do better, and this report provides a tremendous amount of data and evidence to guide our way forward.

Second, an important step for improving care is to identify the patients with high needs who are suffering from poor care. The report presents a starter “taxonomy” of high-needs patients. But one of the report’s findings – that health care consumers know when the system is failing them – presents the possibility of an alternative approach. Instead of starting from the claims data in the hopes of getting to the person, why not start with the person? This means identifying a simple set of two or three questions that could allow providers, patients and caregivers to identify who has high needs and is at high risk for getting inadequate care. These questions – perhaps derived from measures of patient activation, patient confidence, health status and care quality –could serve to identify those consumers who might benefit from an intervention, such as enrollment into an enhanced-care coordination program. This, to me, seems a much more direct method to identify who is at risk, and one that can be applied at any point of contact with the system.

Third, in order to be successful, the work to improve care for people with complex needs must have a laser-like focus on consumers and caregivers. While the report identifies organizational attributes of successful care models for consumers with complex needs – including leadership, customization, team relationships, training, continuous assessment and data use – I would argue that these are the strategies, not the vision. A clear and shared vision of patient-centered care is necessary to carry out the hard work of transformation, otherwise we risk this vital endeavor becoming reduced to a “check the box” exercise without fundamentally changing the culture of health care so that it focuses on taking care of a person, in partnership with that patient and their caregivers.

Fourth, consumers should be full and engaged partners in the development and implementation of these models of care. We have seen some of this great work by our consumer advocates and community partners working on their states’ the dual eligible demonstration projects, and in the Center’s Consumer Voices for Innovation program. We’d love to see this focus on engagement become standard practice. In the same way that policymakers now routinely incorporate technical assistance and outreach to providers as they adopt new models of care, I would like to see technical assistance and outreach to consumers as they participate in these models. In this work, we must be mindful that some people and communities face greater barriers to engagement, and focus on addressing disparities in engagement and access.

Finally, the publication of this report in the midst of a pitched battle about health care coverage in this country raises a pointed question: what will happen to care for people with complex needs if they lose health care coverage? Just as we see this great progress toward improving care for those who are most at risk – frail elders, people with complex conditions, people who face social as well as health challenges – there are tremendous changes proposed to health coverage and the funding of Medicaid in this country that threaten the care for exactly these populations.

We can and should work to improve care for those with high needs and protect the coverage that is the foundation of this care. This report is a wonderful acknowledgement of the work done to date and an encouragement to all of us as we forge the path forward. I believe that the expertise of consumers – particularly those with complex needs and their caregivers – can help our country collectively write the next chapter in this journey toward better care, for everyone.

Yesterday, after three more weeks of backroom deals and secret negotiations, Senate Majority Leader Mitch McConnell unveiled a ‘new’ health care repeal bill that features all the same failings of the previous version. There simply isn’t a tweak big enough that can fix what’s fundamentally wrong with this bill. It still guts Medicaid by more than $2 trillion over the next two decades, forces people to pay more for skimpier coverage and undermines access to services like maternity care or substance use disorders treatment.

Instead of addressing these underlying issues, the latest version of the bill includes a new idea by none other than the Senate’s most famed agitator, Sen. Ted Cruz. Rumors of this amendment swirled for days, and the version that made its way to the bill lives up to the expectations: it’s yet another way to undermine coverage for people with preexisting conditions. By allowing insurance companies to offer bare-bones plans that don’t comply with the Affordable Care Act’s consumer protections – such as the essential health benefits, the ban on coverage denials and cost increases based on health status, and the limits on out-of-pocket costs – this new provision essentially takes us back to the old days of bad insurance practices. This would result in two systems of insurance: one for healthy people and one for those who are sick or have preexisting conditions. It’s a high-risk pool dressed up in new clothes.

During the July 4th recess, members of the Senate, including Sen. Chuck Grassley and Sen. Shelly Moore Capito, publically opposed Cruz’s proposal and at least six others have promised to protect people with preexisting conditions. Conservative groups, the insurance industry and insurance market experts all agree that Cruz’s proposal will destabilize the insurance market and lead to higher costs for people with preexisting conditions. So why isn’t this bill dead on arrival?

Even if Cruz’s proposal ends up in the trash where it belongs, there is still no way to fix this bill. Members of Congress have seen the public polls and they’ve heard it from angry constituents at town halls and jamming their phone lines. It’s time to end the circus and start working on bipartisan solutions that won’t force millions of people to lose their coverage, destabilize the insurance market and irreparably damage the Medicaid program that is a lifeline for low-income families, children and seniors.

Both the House-passed version of ACA repeal legislation, the American Health Care Act (AHCA), and the Senate’s version currently under deliberation – the Better Care Reconciliation Act (BCRA) – include a particularly debilitating change: a per capita cap system of funding for Medicaid. This change would dramatically cut federal Medicaid funding to states. It would force states to make difficult decisions between benefit cuts, provider payment cuts and changes to eligibility requirements – or all of these in varying measure – in order to balance their budgets. Analyses have pointed out how a per capita cap system would lead to significant underfunding of long-term services and supports (LTSS), penalize adults and children with disabilities, lead to significant shortfalls in state funding and cause financial challenges for providers.

Of particular significance for Medicaid beneficiaries who need support with activities of daily living (ADLs) due to functional or cognitive impairments, such caps would cause a shift away from home and community-based services (HCBS) toward institutional care facilities such as nursing homes. This would reverse a positive 20-year trend toward allowing individuals to age in place with services coming to them, rather than the other way around. Why would such services be at risk under a per capital cap approach?  Because providing LTSS through HCBS are optional benefits under Medicaid rules, and have been implemented on a state-by-state basis, while institutional care is a federally mandated benefit. Therefore, when financially strapped under a per capita cap system, states would cut HCBS before institutional care, despite HCBS providing quality care at lower costs, and in the setting preferred by the majority of consumers – their own home.

In addition to the direct effects of per capita caps, the downstream effects are also significant. One of the most harmful impacts of the proposed per capita cap system is that that there would inevitably be fewer funds available to pay para-professionals providing HCBS. Home health aides and personal care aides provide the bulk of HCBS and comprise one of the fastest growing sectors in the U.S. economy, growing by roughly 7 percent per year and accounting for roughly one in five health workers. Reflecting the rapid aging of the U.S. population, the Bureau of Labor Statistics estimates an additional 1.1 million direct care workers will be needed by 2024 – a 26 percent increase over 2014. The resources to pay for these services and attract workers into this sector would decline under a per capita cap system. Moreover, these workers are currently among the lowest paid in the health care workforce and because states would face pressures to reduce HCBS expenditures, their reimbursement rates would likely be cut. There would also be a health equity impact, since nine in ten home care workers are women, and more than half are women of color.

The graph below shows that between 305,000 and 713,000 jobs would be lost nationally under a per capita cap system due to the potential cutback in HCBS expenditures and associated declines in beneficiaries. Given the level of projected reductions in overall Medicaid expenditures, we believe that a reduction of between 15 percent and 35 percent in total HCBS recipients represents a reasonable range of assumptions. For more details on our methodology, as well as state-by-state job loss estimates, see our report, Capping Medicaid: How Per Capita Caps Would Affect Long-Term Services and Supports and Home Care Jobs.

As those with LTSS needs lose access to Medicaid-financed home care workers, their families – who already shoulder significant caregiving responsibilities – would need to pick up substantial additional duties. Unpaid family caregivers provide the majority of LTSS in the United States. In fact, in 2013, about 40 million family caregivers provided an estimated 37 billion hours of care to adults with ADL limitations. The economic value of this care totaled $470 billion – more than all Medicaid spending on health and LTSS combined and more than four times all government expenditures on LTSS. Thus, the LTSS system is highly dependent on the ability and resilience of family caregivers to support those with LTSS needs. Caregiving is not easy and a variety of studies have documented the negative effects of significant caregiving on overall health, stress, mortality, labor force participation, workforce accommodations, and family finances. In many cases, increased caregiving hours also result in family caregivers having to leave their own paid employment.

The graph below shows the anticipated increase in monthly hours of care that families would have to absorb in a per capita cap system. The range is based on the potential numbers of paid home care workers who would lose their jobs when HCBS recipients lose access to Medicaid-financed benefits. To predict the amount of caregiving hours that families would have to take on to maintain the same level of care, we assume that each paid home care worker provides 35 hours of care a week. Thus, aggregate job losses are multiplied by the 35 hour per week to obtain projections for the total number of hours that families would have to absorb to keep care levels constant.

Based on these assumptions, somewhere between 42 and 98 million hours per month would be shifted to families, in order to assure that current levels of service support are available to adults who have LTSS needs. When these hours are evaluated at the average earnings of a home health aide – $11.35 per hour – this means that on an annual basis, the costs to families would total between $5.7 and $13.3 billion in additional care-related time. This burden would disproportionally fall on women, as they are more likely than men to take on family caregiving responsibilities.

Clearly, individuals with LTSS needs would face significant negative impacts to their care in a per capita cap system. The potential loss of jobs in what is projected to be a high-growth segment of the health care field is significant, and would harm paid caregivers while adding additional strain to the tens of millions of unpaid family caregivers who already provide significant assistance to their family members and often experience heavy financial, emotional and physical tolls.

Marc Cohen, PhD, is Research Director at the Center for Consumer Engagement in Health Innovation and Co-Director, LeadingAge LTSS Center at UMass Boston. Kris Wiitala is Program and Policy Associate at the Center for Consumer Engagement in Health Innovation.

This year, many states’ budget negotiations are so challenging that several have made national news: from Alaska with its eleventh-hour showdown to Illinois – which just passed its first budget in over two years – to New Jersey with its closed beaches on July Fourth weekend.  Yet if Congress succeeds in passing its ACA repeal and replace legislation, these state budget negotiations would grow exponentially more challenging.  

Last month, the Congressional Budget Office released its score for the Senate’s Better Care Reconciliation Act (BCRA). CBO found that the proposed legislation would cut $772 billion from Medicaid – slashing its funding by 26 percent in 2026, compared to current projected funding. This alone would blow a hole in state budgets, likely leading states to cut essential programs and services for older adults, people with disabilities and children.

However, that is just the beginning of the bad news. Starting in 2020, the BCRA would cap the federal contribution to states’ Medicaid programs and force it to grow at a rate that is slower than per capita Medicaid costs. In 2025, the Senate’s bill would slow the rate of growth even further. These changes are particularly untenable because Medicaid costs already grow more slowly than those of private health insurance, but still above the rate proposed for 2025 and later.

To make matters worse, CBO’s score only accounted for the bill’s impact during the first ten years after passage. CBO later released an estimate of the bill’s impact during the second decade after passage, which found that by 2036 Medicaid funding would decrease by 35 percent.

Federal Medicaid funds help buoy states’ budgets and economies. For example, Medicaid employs hundreds of thousands of health care workers and provides billions of dollars to schools to ensure all students can fully participate in their education. If these draconian federal funding changes pass into law, states will need to figure out how to make up for the massive loss in the federal contributions proposed under the Senate’s bill.

In effect, these proposed changes to Medicaid financing will trigger a massive ‘race to the bottom’ among the states. Research shows that Medicaid spending varies widely not only among states and between categories, but also within categories. For example, Kaiser Family Foundation found that for children, Oklahoma spent as low as $131 per person up to as high as $24,571 in 2014.

A capped funding proposal will incentivize states to enact policies that increase enrollment by young healthy children and families while decreasing enrollment by older individuals or those with chronic conditions or disabilities. This ‘cherry-picking’ may lead to state policies that are particularly harmful to those who most benefit from access to Medicaid coverage. For example, a state might choose to end programs that place enrollment assisters at safety net hospitals or limit policies that permit presumptive eligibility for children and pregnant people. A state might also make it more difficult for those experiencing substance use issues to access care by limiting payments for mental health services or by decreasing provider payments for specialists.

With massive Medicaid cuts on the horizon, every state has a stake in the decisions Congress will make in the coming weeks. The Senate’s proposed Medicaid financing changes will only exacerbate the challenges states are currently facing as they struggle to balance their budgets.