Trump's proposed trillion-dollar cuts to Medicaid include a 'fundamental change' in how the program would operate

The Trump administration’s 2018 budget proposal released Tuesday included massive cuts to Medicaid,
the government-run health program that provides insurance primarily to pregnant women, single parents
, people with disabilities, and seniors with low incomes.
While the plan calls for cuts amounting to $US627 billion over the next 10 years, it also proposes an even bigger change to how the program has operated since its inception.

The budget plan calls for providing states “flexibility” by forcing them to make a choice between receiving Medicaid funds as a per-capita cap grant or a block grant beginning in fiscal year 2020.

That change, first proposed by the American Health Care Act, the GOP leadership’s plan to repeal and replace the Affordable Care Act, is a “fundamental” change in how Medicaid operates, Richard Frank, a professor at Harvard Medical School professor, told Business Insider recently.

The CBO estimated that changes to eligibility under the AHCA would most likely result in a loss of 14 million people from the Medicaid rolls by 2026.

“It’s no longer an open-ended matching program,” Frank said. He added that changing funding to block grants or per-capita cap grants “fundamentally changes the kind of contract that exists between the states and the federal government.”

Since its establishment in 1965, Medicaid has been an open-ended entitlement program. Anyone who meets the eligibility requirements has a right to enroll, and if costs go up because of new, expensive treatments or increasing healthcare needs, states receive more federal money. While states fund a big portion of their individual Medicaid programs, the federal government matches up to a certain percentage, with bigger matches for poorer states.

If passed, Trump’s budget proposal would change the federal Medicaid funding by telling states to either accept a per-capita spending cap — meaning the federal government would send states a fixed amount of money per Medicaid enrollee, regardless of whether that would cover needs or care — or a block grant — a fixed grant based on a state’s Medicaid spending that the state is then free to spend as it sees fit and grows according to some rate to compensate for inflation.

The possibility that Medicaid might change from an open-ended entitlement to block grants or per-capita cap grants has sent conservative states scrambling to expand their Medicaid program under expansion afforded by the Affordable Care Act, the law better known as Obamacare. Under the ACA, eligibility for Medicaid was expanded to include any adult living under 138% of the federal poverty level — an income of $US27,821 for a family of three in 2016. It’s up to states to decide whether they want to participate. States that expanded Medicaid under the new ACA requirements received federal funds to do so.

Kansas, Virginia, and North Carolina all made pushes to expand Medicaid in March, though none were successful. Kansas came the closest, with its legislature falling a few votes shy of overriding a veto for Kansas governor Sam Brownback.

The problem with block grants and per-capita cap grants

Whether a state chooses per-capita cap grants or block grants, it is likely that the grants would increase yearly according to the medical-care component of the consumer price index — between 2% and 5%, depending on the year.

Frank said that using medical-care CPI (or any other inflation rate) as a benchmark for Medicaid would become a problem for states because it doesn’t take into account changes to population or unexpected crises.

One of the most obvious pitfalls would come with the ageing of the baby boomer generation, Frank said.

By 2050, the population of people 65 and is expected to have increased to 83.7 million — nearly double the 43.1 million in 2012 — according to a 2014 US Census Bureau report, with big increases in the number of people over the age of 85 as well.

Under Trump’s budget proposal, the cost to cover Medicaid recipients in those categories would be determined by their 2016 spending patterns and then increased according to medical-care CPI. The problem, according to Frank, is that healthcare costs for elderly people would increase at a far higher rate than medical-care CPI.

In addition, the per-capita system would divide Medicaid recipients into different categories, such as elderly people or people with disabilities, to determine the size of payments.

However, those categories are broad. For instance, 65-year-olds are in the same category as 85-year-olds, even though healthcare costs go up substantially as people age.

Frank estimated that the AHCA plan (which is more or less the same as the budget proposal) would lead to a 9% shortfall in the coming decades, or about $US10 billion a year that states would have to make up for.

“Even under the best-case scenario for the per-capita cap, you are going to fall behind. That assumes there are no new drugs or treatments. Together, that’s problematic,” Frank said. “The states are going to take a big hit here.”

Current CBO projections say Medicaid spending under the per-capita system would be about 25% less than it would be under the ACA by 2026. Block granting presents similar problems.

The choice for states

To stay above water, states would either have to spend more money on their Medicaid programs — a daunting proposition for poorer states like West Virginia, where one-third of its population is on Medicaid — or cut costs.

Because Medicaid is already one of the lowest-cost providers of healthcare, a state could either cut benefits, which would affect the quality of coverage, or reduce who is eligible for the program, which could hurt people with disabilities, older people, or people suffering from substance abuse.

One of the first things to go could be treatments for substance use and mental illnesses, Frank said.

Even if state Medicaid programs don’t cut coverage for substance-use treatments, the per-capita and block granting proposals would likely be devastating in terms of the opioid epidemic.

Opioid-overdose deaths increased by about 15% in 2014 and 2015, and Medicaid has paid for more than 50% of substance-use treatment services in some states, according to official statistics. Medicaid recipients’ access to treatment has increased by between 20% and 25% over the past several years, according to Frank.

Those numbers far outpace a growth in spending fixed to medical-care CPI.

If the budget proposal were to become law, Ohio, Pennsylvania, and West Virginia — among other states suffering the brunt of the opioid crisis — would be ill-suited to handle the loss in funds, government officials and treatment experts say. And that’s to say nothing of states like Florida, where a disproportionately ageing population could suffer.

The plan wouldn’t likely be popular with the public. When presented with a choice of accepting the Republicans’ proposals to limit Medicaid spending or keeping the program the same, 65% of respondents said they would want the program to stay the same, according to a tracking poll released in February by the Kaiser Family Foundation

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