Providers could lose in new policy encouraging states to ask for capped Medicaid funding

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Trine K. Tsouderos HRI Regulatory Center Leader, PwC US February 07, 2020


The Trump administration is inviting states to apply for Section 1115 waivers for capped funding for services for some Medicaid beneficiaries, a policy also known as “block granting.”

Laid out in a letter to state Medicaid directors dated Jan. 30, the program, “Healthy Adult Opportunity,” applies only to Medicaid funding for low-income adults under 65 whose qualification for the program is not based on a disability or need for long-term care in states that apply for, and win, waiver approval. It does not apply to funding for services for children, pregnant women, the elderly or people with disabilities.

Block-granting Medicaid was one of President Donald Trump’s campaign promises, and it has long been a goal of Republican lawmakers and policymakers who want to rein in the program. According to the latest statistics compiled by the Medicaid and CHIP Payment and Access Commission (MACPAC), one in four Americans were enrolled in Medicaid or the Children’s Health Insurance Program in 2018. More than 86 million Americans were enrolled in Medicaid at some time during 2018; an additional 9.4 million children were enrolled in CHIP, according to the MACPAC report.

CMS wrote in its letter that the program gives states freedom to experiment with new approaches to delivering care while offering them more predictability for their budgets. States that save money under the program would share that savings with the federal government.

States could design plans that include asking beneficiaries to pay premiums and cost sharing as long as those costs do not exceed 5% of a beneficiary’s income. The states must provide essential health benefits, but they could offer coverage packages similar to plans offered in the ACA exchanges. They also could include some benefits not traditionally funded by Medicaid, such as linking people to housing or other supports to treat the social and environmental factors that affect health.

Notably, the program also allows states to create closed formularies, such as in the commercial market. (In 2018, Massachusetts asked CMS for this authority and was denied; the agency seems to have changed course.)

Exceptions would be made for drugs that treat individuals with HIV or behavioral health conditions. But manufacturers that have a drug rebate agreement in place still would have to pay rebates to those states. States also would have the ability to negotiate supplemental rebates with manufacturers in exchange for the inclusion of their drugs on the state’s formulary.

HRI impact analysis

Medicaid serves millions of Americans; billions of Medicaid dollars flow through healthcare providers, Medicaid managed care organizations, pharmacies, drugmakers and others. Changes made to the program’s funding raise eyebrows.

However, this guidance is not likely to have an immediate impact. States must first decide whether they wish to pursue this approach, then they must develop a waiver application, apply to CMS and await an answer before implementing the program. This is a process measured in many months, if not years.

The policy also is likely to be challenged in the courts. Legal scholars have cast doubt on whether CMS has the authority to approve waivers that revolve around changes to Medicaid funding. Consumer and healthcare groups such as AARP voiced concerns that the proposal would lead to low-income people losing healthcare. Groups have threatened to sue.

Democrats are criticizing the program, arguing that block grants violate Medicaid law and would enable states to reduce benefits, the number of enrollees and rates for providers. 

Some states appear eager to move forward with the Healthy Adult Opportunity program. Oklahoma announced that it would apply for it. Tennessee put forth a proposal for a Medicaid block grant in September, but it applies to a different population from the new CMS program.

If the policy survives in the courts, it could give some new options to Medicaid managed care organizations in states that adopt and implement the program. States are being encouraged to try alternative approaches to ensuring network adequacy, access to care and availability of services. But CMS also is emphasizing that increased accountability measures will be included in the demonstrations through financial and quality metrics that must be met.

Block grant or per capita federal funding also could eventually affect healthcare providers in adopting states through slow increases in uncompensated care or eventual cuts in Medicaid reimbursement rates, especially if states face unforeseen economic pressures or are confronted with new high-priced treatments or drugs.  

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Trine K. Tsouderos

HRI Regulatory Center Leader, PwC US

Tel: +1 (312) 241 3824

Crystal Yednak

Senior Manager, Health Research Institute, PwC US

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