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Wednesday, May 31, 2017

Per Capita Caps in Medicaid Would Result in Devastating Funding Cuts

Republican plans to repeal the Affordable Care Act—including the American Health Care Act passed by the House—go well beyond repealing the health care law to a wholesale gutting of Medicaid funding, using what is called a “per capita cap” model.  All indications are that the Senate Republicans are seriously considering this model, which will lead to enormous cuts to the Medicaid program.

A Medicaid per capita cap is just that—a fixed amount the federal government pays each state for each person in the state’s Medicaid program.  While on its face that may sound like an adequate funding structure, a per capita cap amounts to a giant funding cut to Medicaid in all states.

Per Capita Caps End the Federal Government’s 50-Year Guarantee of Matching State Medicaid Spending

Per capita caps would end the federal government’s 50-year-plus guarantee to match each state’s actual Medicaid spending. In its place, Republicans want to give states funding that is capped at a pre-set amount and a pre-set growth rate. 

We oppose per capita caps because the federal cap will not keep up with actual spending on health care in the states. In the House bill (the AHCA), the drop in Medicaid funding as a result of per capita caps was hundreds of billions of dollars. Read more about what this drop in Medicaid funding will mean for states in our fact sheet: Per Capita Caps: Shifting Costs to the States.


Here are four reasons why per capita caps translate to such a massive cut in funding. 

Reason 1: Per Capita Caps Are Measured By a Flawed Growth Rate 

One of the biggest problems with per capita cap proposals is that funding does not grow to match actual changes in spending on health care needed by people in the Medicaid program (enrollees).

Currently, the federal government adjusts Medicaid spending in response to the rise in the actual cost of providing care to enrollees, with no limit on total federal contributions. Current Republican repeal proposals, in contrast, would tie the rate of spending to a wholly unrealistic growth formula. 

Republicans want to tie the basis for growth in per capita cap to something called the medical Consumer Price Index, or “CPI-M.” But CPI-M is an inaccurate measurement because it does not measure actual growth in per capita costs in Medicaid or any other part of the American health system. 

CPI-M measures the average change over time in prices paid by urban consumers for medical care commodities and services. CPI-M only accounts for what households spend out-of-pocket on medical care commodities and services, not the full cost of these items. It is an inaccurate and arbitrary basis to limit Medicaid growth. 

For example, the CBO recently projected a growth rate in Medicaid per capita spending of 5% from 2016-2025. This is well above the CPI-M projection of 3.7% per year. With discrepancies like these, year after year, Medicaid caps will fall further and further behind overall health care costs. 

Reason 2: Per Capita Caps Lock States in to Whatever Their Spending Was on Medicaid in 2016 

Despite claims to the contrary, no states receive additional flexibility under a per capita cap arrangement. Caps are set based on a given year’s Medicaid spending and states that spend more than their per capita allotment will be punished with a dollar for dollar penalty the following year. States that do not spend over their cap do not get to keep the difference in the way a managed care plan would.

Per capita caps will therefore arbitrarily lock states into their 2016 spending level. This means that states that spent more in 2016 get a higher cap. And states that were relatively low spending in 2016 are effectively penalized with much lower federal funds for the indefinite future. The table below illustrates the huge disparity in federal funds to different states that will be frozen in place under the AHCA.

State 2011 Per Capita Spending (average) Above or Below National Average & State Rank
Massachusetts $11,091 1
Maine $6761 19
Colorado $5,730 35
Louisiana $5,567 39
Nevada $4,010 51

Reason 3: Per Capita Caps Ignore Medicaid’s Huge Challenge in Paying for Long-Term Care for the Baby Boom Generation

The large baby boom generation is aging. The capped structure makes no provision for the huge surge in long-term care costs this aging population will require. People 85 and up are much more likely to use long-term care, and Medicaid is the primary source of payment for long-term care. Nationally, Medicaid costs are on average 250% higher for people 85 and older than for people between the ages of 65-74.

In 2016—the year which the AHCA uses to set state Medicaid caps—the Baby Boomers were aged between their late 40s and early 70s. This means that the per capita cap formula would drastically and arbitrarily undercount future Medicaid long-term care costs.  

Reason 4: Per Capita Caps Can Be Used to Cut Medicaid Even Further at Any Point in the Future

This restructuring would create a new mechanism for further cuts in Medicaid. As Medicaid has worked for over 50 years, the federal government automatically matches state expenditures.  By capping federal funding, Congress and the president can at any point reduce the caps. The Trump Administration immediately sought to put this potential into effect in its budget, adding a $616 billion Medicaid cut onto the House repeal bill’s already huge cuts by dialing the per capita caps back even further. Taken together these caps would cut the program by an unconscionable almost 50%.

The Senate and Medicaid Cuts

Senate Republicans are currently grappling with per capita caps as they draft their own proposal to repeal and replace the health care law. These cuts have nothing to do with repealing the Affordable Care Act—they are simply a huge money grab at the expense of seniors, children, and the other 74 million Americans who rely on Medicaid for their health care.