R

eforms to Medicaid proposed in the Republican-led American Health Care Act have provoked a certain degree of hysteria. Politicians, interest groups, and lobbyists have launched epithets at them ranging from “unsustainable” and “damaging” and have warned that the reforms are the “real death panels” and that “people will die.” A recent report from the Brookings Institution turned up the heat by suggesting that “implementing a Medicaid per-capita cap during the 2000s would have reduced federal Medicaid funding to more than half of states.”

The federal government currently allocates Medicaid money to states according to how much they are themselves able to spend on the program. The AHCA’s proposed caps would limit the amount by which each state is able to automatically claim increases in funding per Medicaid enrollee from federal taxpayers in any particular year.

Taken in context, these proposed caps are extraordinarily modest. Far from threatening “to end Medicaid as we know it,” the per-capita caps would do little to alter the program’s existing commitments, and serve mainly to increase the scrutiny applied to expansions of benefits that states may make in the future.

advertisement

The Medicaid program was designed to help states meet health care needs they aren’t able to finance by themselves. The poorest states have the largest low-income populations and the greatest unmet medical needs, but they also have the shallowest pool of taxable resources. For every dollar that states spend on Medicaid services, the federal government provides $1 to $3, depending on the size of the state’s low-income population. In theory, this provides the most resources to the poorest states with the least ability to fund medical services out of their own tax revenues.

In practice, though, wealthier states are able to put up more money to be matched by the federal government, which means that states needing the least help receive the greatest share of federal funds.

Consider the cases of Alabama and Connecticut, representative of high- and low-spending Medicaid programs. In Alabama, 17 percent of the state’s population lived under the poverty level in 2015, compared with 9 percent in Connecticut. Yet in February of this year, 18 percent of Alabama residents were enrolled in Medicaid, compared with 21 percent in Connecticut. Alabama’s Medicaid program received much less federal support ($786) per capita than Connecticut ($1,253), a disparity little altered by the Affordable Care Act’s expansion of Medicaid for able-bodied adults.

Per-capita caps are a modest proposal that would begin to address this inequity. They would not reduce the funds available to any state. Instead, they would merely limit the yearly increase in federal subsidies which each state could automatically claim per individual enrolled. From 1999 to 2015, Medicaid per-capita spending increased at an average of 2 percent per year; the metric proposed by the AHCA as a cap increased at a rate of 3.7 percent per year.

The reality of such caps are hardly recognizable in former Democratic Congressman Henry Waxman’s recent characterization of “cuts growing larger each year” that would “deny care to the most vulnerable among us.” More accurate is Waxman’s 1996 assessment of per-capita caps as a sensible response “to the pleas of those who want more cost discipline in Medicaid without terminating the guarantee of basic health and long-term care.”

Medicaid caps can — and likely would be — revised every year in the federal budget by future sessions of Congress. They are unlikely to be enforced to prevent Alabama from bringing its Medicaid spending in line with the national average, nor would they prevent Congress from acting against sudden public health challenges in states. Their main practical effect is likely to be constraining attempts by the wealthiest states to further expand their benefit packages beyond national norms.

Newsletters

Sign up for our First Opinion newsletter

Please enter a valid email address.

The recent experience of states scrambling to pay for Sovaldi, a highly effective yet expensive drug used to treat hepatitis C, serves as a demonstration of the inadequacy and inequity of Medicaid’s current matching-fund setup. The proportion of Medicaid beneficiaries with hepatitis C receiving prescriptions for Sovaldi in the first quarter of 2014 ranged from 0.8 percent in West Virginia to 39 percent in Hawaii. Beneficiaries in poorer states would likely fare better if Congress were to appropriate funds directly for hepatitis C care rather than relying on the misguided assumption that Medicaid’s matching-fund setup takes good care of them.

In 2015, Connecticut’s Medicaid program spent $2,077 per inhabitant, compared to $1,037 in Alabama. Yet this disparity in spending is not explained by Connecticut being a Medicaid expansion state nor by differences in the regional cost of living. Connecticut spends little more per person on hospital services, $520, than Alabama does, $410. The difference between the two is largely a matter of the breadth of eligibility for long-term care, on which Connecticut spent $935 per capita and Alabama $307.

The AHCA does not go as far as it could in closing disparities between the states. The bill could be improved by having per-capita Medicaid caps grow slower in states that spend above the national average of Medicaid spending, and should also be amended to prevent states from claiming greater payments merely by increasing enrollment.

The proposed per-capita caps on Medicaid spending won’t give us an equitable distribution of Medicaid spending overnight. But they’re a necessary first step in that direction.

Chris Pope is a senior fellow at the Manhattan Institute.

Leave a Comment

Please enter your name.
Please enter a comment.

  • You say:
    “From 1999 to 2015, Medicaid per-capita spending increased at an average of 2 percent per year; the metric proposed by the AHCA as a cap increased at a rate of 3.7 percent per year.”

    This is a tricky slight of hand because the *average* growth rate means that there are some years higher and some years lower. The lower years will stay low, but now the higher years cannot exceed 3.7 percent per year. Further, the average is for all states, but again, many states have higher and lower growth – the average of 50 states over 20 years masks the great swings that some states have compared to each other. Medical costs also have increased at an exponential rate. If you had just chosen the last decade, the increase would be above 3% on average.

    An easier example to understand – you would never say, that the Dow Industrial Average increases by 6% a year over the last 20 years. therefore, if we were to cap every stock’s growth at 7% per year, it would have no difference. Of course it would, because that would mean no stock could grown by more than 7% in a year. Therefore the ceiling is capped, but the floor isnt, and inherently that lowers the average.

  • Great or not the changes, the discussione we’ve been reading for weeks is misleading as regards the main problem, which is the way US face health problems of its citizens.

    I have a friend (who became quite famous in Italy when, after she openly spoke in favour of using animals for experimental purposes, she’ve been bullied by animal rights advocates wishing her death) with various genetic diseases, including cistic fibrosis, and various correlated secondary diseases. Each month, she takes drugs for more than 10’000eur (when everything is fine and she doesn’t have to run to the ER). In America which company would insure her? In America, the richest country in the world that always calls on Freedom, the only freedom she would have would be the freedom to die.
    The reason why she’s alive is that the Italian NHS does not charge her of a single euro. And it’s Italy, with all the problems we have as a country.

    I’m a public health & epi ECI, and thinking about that is perhaps the strongest reasons making me exclude to move to the US.

  • The comment by Bruce Lesley is exactly right. Rather than address inequity in state funding of Medicaid, the AHCA locks in these inequities, harming low-spending states.

    Plus, author Chris Pope fails to mention that part and parcel of the per-capita cap scheme, the AHCA cuts Medicaid funding by more than $800 billion over the next decade, a drop of 25%. To imply that these draconian cuts are “modest” and would not produce harm is simply disingenuous.

    • Yes, this is a very dishonest opinion piece — an attempt to give cover for tremendous damage that will really REALLY hurt people.

  • Unfortunately for Chris Pope, his analysis proves the exact opposite of the case he is trying to make.

    Under the House bill’s arbitrarily imposed Medicaid per capita cap or block grant option, all current funding inequities would be locked into place for at least a decade. If Connecticut spends more per person than Alabama now, that disparity will be the same or made even worse by the per capita cap. If Connecticut spends three times more than Alabama per capita on long-term care, the per capita cap would widen the per capita funding disparity over time.

    Despite Pope’s vague assertion that the spending caps would be revised at some later date and not really enforced against Alabama, he has no evidence that would ever happen. In fact, the arbitrary limits under every other block grant have all been enforced or even severely cut.

    Consequently, despite Pope’s false hope, Alabama would be precluded from closing the current funding gap, as the House bill would lock current disparities into place for at least a decade.

    Even worse, under the block grant option, if Alabama’s population grows faster than Connecticut’s, the disparity would grow worse because the block grant does not adjust for population change. This is exactly what has happened between Connecticut and Alabama under the TANF block grant. (See chart at https://twitter.com/BruceLesley/status/871685806959841280)

    In 1997, Connecticut received 515% more per child in poverty than Alabama under the TANF block grant. Alabama’s child population grew faster than Connecticut’s over the next 12 years. As a result, by 2009, that disparity had grown and Connecticut was receiving 721% more per child in poverty than Alabama.

    In short, the funding disparity that Chris Pope identifies in his analysis would tragically be made much worse by the House bill’s arbitrary caps — the opposite of what Pope asserts.

    In fact, while both Connecticut and Alabama would be harmed by arbitrary caps, Alabama would be more disadvantaged. It is sadly ironic that Alabama’s congressional delegation largely voted to do that to its citizens and that conservative think tanks would push a Republican Congress to disproportionately harm their citizens in this way.

Recommended Stories

Sign up for our Biotech newsletter — The Readout

Your daily guide to what’s new in biotech.

X