Charles Luband

Author: Charles Luband


Where McConnell’s latest attempt to pass a health care bill stands

Senate Majority Leader Mitch McConnell’s latest attempt to pass the GOP’s health care agenda was revived this week with the release of an updated bill.

However, two Republican senators, Susan Collins of Maine and Rand Paul of Kentucky, quickly have said they would not support a procedural vote early next week that would bring the latest health care proposal to the floor. With no more votes to spare, leadership enters the weekend focused on their whip operation.

Here’s a summary of the latest round of horse trading as illustrated in the newest version of the bill:

  • CassidyMedicaid base year: latest draft allows late expansion states to only use four quarters of data for their per capita base year and not eight. Important for Louisiana.
  • MurkowskiEnhanced FMAP: latest draft includes an enhanced 100% FMAP for eligible individuals who are members of an ‘Indian tribe’, which will be helpful in multiple states, but is written to also include individuals in Alaska.
  • RubioPublic health expenditures: latest draft exempts public health expenditures from both the Medicaid per capita caps and block grant funding. A priority for Sen. Rubio considering Florida’s experience with the Zika outbreak.
  • Portman/ CapitoOpioid Funding: latest draft includes an additional $45 billion for the opioid crisis, specifically for state grants for treatment and recovery programs as well as research money into pain and addiction with respect to the crisis.
  • Corker/ Thune and several GOP SenatorsIncrease affordability: latest draft includes additional $70 billion to the Long Term Stability fund to help individuals purchase health coverage at a lower price.
  • Moderate GOPKeep some ACA taxes: Latest draft maintains two ACA taxes against high income Americans (Medicare tax on high earners and net investment tax).
  • ConservativesMarket reform: latest draft allows HSA funds to pay for insurance premiums, allow catastrophic plans to be sold on exchanges and allows subsidies to be used to buy them; Medicaid: latest draft maintains Toomey’s slower per capita cap growth rate than in house-passed bill; Cruz proposal: latest draft includes bracketed language that would allow insurers that sell ACA compliant plans (at least one gold and silver) to also offer plans off the exchange that would be exempt from several ACA insurance requirements (including pre-existing conditions, community rating and guaranteed issue) but would allow federal subsidies to be used to purchase them.

Is it enough?

  • Sens. Rand Paul and Susan Collins reiterated their opposition almost immediately after the new draft was released; therefore GOP leadership cannot afford another no vote.
  • First vote will be a procedural vote– on the motion to proceed– that is a procedural vote to start debating the House-passed bill. GOP leadership has been working with Senators emphasizing the need for a Republican-led Senate to be able to vote to get on an Obamacare repeal bill so they can start debating the contents of the legislation.

What will the Parliamentarian say?

  • This week started the official litigation with the Senate Parliamentarian where majority and minority staff are both present to argue their case as to whether provisions of the draft legislation violate the Byrd rule. The process was focused on provisions in the first CBO score and this week focused on Medicaid provisions, tax provisions and the insurance provisions in Title II of the draft.
  • What the parliamentarian said this week about the insurance provisions, the Sec. 1332 waiver changes, etc will have an impact of the politics of the bill. Will the parliamentarian strike any of the provisions that the conservatives point to as repealing parts of the Obamacare.
  • These official litigations will continue next week to include the new provisions in the latest draft, including the Cruz proposal, next week.

What will the CBO say?

  • A new CBO score is due out early next week, as early as Monday. Originally, reports suggested CBO would have two scores, one with the Cruz proposal and one without. However, since the CBO didn’t receive legislative language until too late on the Cruz proposal, it is likely the CBO will not have the time to score that part of the newly released draft.
  • Leaving GOP Leadership of having to find another official body to do the analysis of the Cruz proposal, possibly OMB or CMS.

Compare latest version of Senate GOP health bill to first attempt

Below is a summary of the discussion draft released yesterday by Senate Majority Leader Mitch McConnell with those comments in PURPLE denoting changes that were made to the prior version.


The Senate bill ends the ACA Medicaid expansion and starts a three-year transition period for expansion states, commencing on January 1, 2020. Expansion states are limited to those that implemented the Medicaid expansion by March 1, 2017. The three-year transition period would see the enhanced federal match for those states reduced in stages as follows:

  • 2020 — 90 percent federal match
  • 2021 — 85 percent federal match
  • 2022 — 80 percent federal match
  • 2023 — 75 percent federal match
  • 2024 (and subsequent years) — standard state matching rate

No changes to policy in latest draft.

Eligibility redeterminations:  Like the House bill, the Senate bill requires states, starting on October 1, 2017, to redetermine Medicaid eligibility every six months (or more often, if the state chooses). It also provides for a five percent enhanced federal match to help states implement this. No changes to policy in latest draft.

Optional work requirement:  The Senate bill allows states, beginning in FY 2018, to include in their Medicaid program an optional work requirement for non-disabled, non-elderly, non-pregnant individuals. There is an increased match available for implementation activities. No changes to policy in latest draft.

Medicaid and CHIP quality performance bonus payments:  The Senate bill provides for $8 billion in performance-based payments for states that report on and meet quality indicators and whose spending is below benchmarks. No changes to policy in latest draft.

Retroactive eligibility: The Senate bill reduces retroactive eligibility from 90 days to the month in which the applicant applied. The latest draft provides an exception to the reduction in retroactive eligibility for blind and disabled.

Presumptive eligibility: The Senate bill eliminates presumptive eligibility. No substantial changes to policy in latest draft.

Home and Community-Based Services demo (brand new): The latest draft of the Senate bill establishes an $8 billion, 100 percent Federal Medical Assistance Percentage (FMAP) demonstration project for 2020 through 2023 for states to provide home and community-based services payment adjustments. Priority is given to the 15 least densely populated states.

Per capita caps

The Senate bill starts the transition from the current Medicaid program to per capita caps (PCCs) in FY 2020. No changes to policy in latest draft.

Baseline:  Instead of using FY 2016 as the base year (as in the House bill), the Senate version allows the states to choose any eight consecutive fiscal quarters within the period of 2014 through 2017 to calculate an average base year. HHS may adjust the base year if it determines the state has taken actions (e.g., through supplemental payment data retroactive adjustments) to “diminish the quality of the data” used in calculating the PCCs. There are also certain exclusions from the baseline period, such as disproportionate share hospital (DSH) payment adjustments, Medicare cost-sharing, and non-expansion state provider payment adjustments. Newest draft includes a change for late expansion states that allows them to pick only four fiscal quarters instead of eight. This was a concern raised by Sen. Cassidy (R-La.) on behalf of his state.  Latest draft also excludes from the PCCs up to $5 billion in spending for public health emergencies between 2020 and 2024. This was a priority for Sen. Rubio (R-Fla.), whose state has recently been impacted by Zika outbreak.

Growth rate:  From 2020 to 2024, the Senate bases their growth rate on the medical component of the consumer price index (CPI). Starting in 2025, the growth rate will be based on the CPI for all urban consumers (CPI-U). No changes to policy in latest draft.

PCC target adjustments:  States whose expenditure targets exceed the mean by at least 25 percent will be reduced by an HHS-determined amount of between 0.5 percent and 2.0 percent. If less than the mean per-capita expenditure for all states (but not by less than 25 percent), states will receive a corresponding HHS-determined increase. Federal payments must be budget neutral. The provision does not apply to “low population density” states. No changes to policy in latest draft.

Excluded populations:  The Senate bill lists the following populations as excluded from PCCs: CHIP beneficiaries, Indian Health Service, breast and cervical cancer services-eligible enrollees, specified partial-benefit enrollees, and medically complex children. No changes to policy in latest draft.

Essential health benefits (EHBs):  Like the House-passed bill, the Senate bill sunsets Medicaid EHBs after Dec. 31, 2019. No changes to policy in latest draft.

Block grant option

Medicaid Flexibility Program:  The Senate bill, like the House bill, provides states the option beginning in FY 2020 to choose the “Medicaid Flexibility Program” instead of PCCs. The Senate bill imposes certain requirements on the states with respect to the application process, including a requirement to publish the application in the state along with at least a 30-day state notice and comment period. The Senate bill also includes required benefits and services, applies mental health and substance abuse parity and applies Medicaid rebates if outpatient drugs are covered. Premiums, deductibles and cost-sharing are permitted as long as they do not exceed 5 percent of family income. The latest draft expands the populations that states may include in the Medicaid Flexibility Program from the “other nonelderly, nondisabled, nonexpansion adult category” to also include the expansion category. Additional funds may be provided if there is a public health emergency, again a priority for Sen. Rubio.

Provisions for non-expansion states

Removes DSH cuts for non-expansion states:  The bill would remove ACA-implemented DSH allotment cuts for all non-expansion states. In addition, non-expansion states whose DSH allotments were below the national average in FY 2016 would receive an increase in their FY 2020 DSH allotment by the amount it would take to meet the FY 2016 national average. This one-time increase would not impact future calculations. The removal of DSH cuts would not apply to expansion states, whose ACA DSH cuts would stay in place. Latest draft includes a slight change in the methodology that would be used to determine states whose DSH allotments were below the national average. Latest draft clarifies that for the purpose of this provision, a non-expansion state is a state that does not cover expansion populations as of January 1, 2021 (rather than date of enactment).

Additional safety net funding for non-expansion states:  The Senate bill allows non-expansion states to provide additional “safety net” provider payments “so long as the payment adjustment to such an eligible provider does not exceed the provider’s costs in furnishing health care services” and also provides an increase in FMAP for such adjustments: 100 percent in FY 2018 through 2021 and 95 percent in FY 2022. No changes to policy in latest draft.

Other Medicaid-related provisions

Support for state response to opioid crisis:  The bill would appropriate to HHS $2 billion for FY 2018 “to provide grants to States to support substance use disorder treatment and recovery support services for individuals with mental or substance use disorders.” Latest draft boosts opioid-response funding by $45 billion to provide states grant money for treatment and recovery support services as well as research funds on addiction and pain as they relate to opioids.

Medicaid provider taxes:  Starting in FY 2021 and continuing over the next four years, the bill gradually reduces the threshold allowed for provider taxes from 6 percent in current law to 5 percent by 2025. No changes to policy in latest draft.

Planned Parenthood:  The Senate bill includes the House-passed policy defunding Planned Parenthood for one year in the Medicaid program. Also like the House-passed health bill, the Senate bill provides an additional $422 million for community health centers for one year. No changes to policy in latest draft.

Changes to the Affordable Care Act

Repeals the individual and employer mandates:  Like the House-passed health bill, the Senate bill also retroactively repeals both the individual and employer mandates, effective back to 2016. No changes to policy in latest draft.

Subsidies/tax credits

ACA subsidies:  The Senate bill continues through 2019 ACA subsidies as currently structured. Beyond 2019, the Senate bill modifies the eligibility of subsidies down from 400 percent Federal Poverty Level (FPL) to 350 percent FPL, and extends them down to 0 percent FPL from 100 percent FPL in the ACA. Also, the amount of the subsidy is based on income, age and geography, and is tied to a maximum percentage of income an individual can spend on the cost of his or her premium. No changes to policy in latest draft.

Definition of “lawful presence”:  The Senate bill makes modifications to the definition of lawful presence, such as replacing it with “qualified alien.” No changes to policy in latest draft.

Benchmark plan:  Instead of using the ACA’s second-lowest-cost silver plan as the benchmark for premium subsidies, the Senate bill defines the benchmark plan as median premium that has 58 percent actuarial value. Latest draft allows premium subsidies to be used to purchase catastrophic plans.

Small Business Tax Credit:  The Senate bill ends the small business tax credit, starting in 2020. For plans with abortion coverage, the credit ends starting in 2018. No changes to policy in latest draft.

Cost-Sharing Reduction (CSRs) Subsidies:  The Senate bill appropriates cost-sharing reduction subsidy payments for two years (through plan year 2019) and then repeals the cost-sharing subsidy program after Dec. 31, 2019. No changes to policy in latest draft.

Insurance market changes

Age rating:  Like the House bill, the Senate legislation changes age rating bands to 5:1 and would take effect for plan years beginning on or after Jan. 1, 2019. States are given the flexibility to set their own age rating bands. No changes to policy in latest draft.

MLRs:  The Senate bill sunsets the ACA’s medical loss ratio for plan years beginning on or after Jan. 1, 2019, allowing states to set their own MLR thereafter. Latest draft maintains the sunset of the MLR in 2019, and then requires states to set their own MLRs for group and individual coverage.

QHP definition:  The Senate bill specifically excludes from the definition of a “qualified health plan” (QHP) any plans that cover abortion (except for abortions “necessary to save the life of the mother” or undertaken to end “a pregnancy that is the result of an act of rape or incest”) as of Dec. 31, 2017.

1332 waivers:  The Senate makes changes to the ACA’s 1332 waiver process by allowing states to waive a variety of ACA requirements, including essential health benefits and regulations prohibiting subsidies off-Exchange. The Senate bill also removes the requirement that 1332 waivers must be budget neutral or achieve the same coverage rates as would otherwise be attained under federal law and instead requires that the waiver must not add to the federal deficit. HHS may also establish an expedited waiver approval process, if the waiver responds to “an emergency situation with respect to health insurance coverage” in the state. The Senate bill encourages states to apply by making available $2 billion in grant funding through 2019 for the application process. Latest draft adds to the description of the alternative means that a state’s application can use to meet the 1332 requirements to include “providing consumers the freedom to purchase the health insurance of their choice and increasing enrollment in private health insurance.” Latest draft also adds that the Secretary must approve the waiver unless the waiver adds to the federal deficit or is missing a required element of 1332 waivers. It also adds to the pass-through funding language those who would qualify for a reduction in the premium tax credits.

Small business health plans:  The Senate bill adds a section to include group health plans sponsored by trade associations within the definition of “small business health plan.” It establishes requirements for plan certification, sponsors, board governance and plan oversight, and includes a provision that preempts states laws that preclude issuers from offering trade association-sponsored plans. Latest draft makes changes to this section that would increase oversight of small business health plans, including certification requirements of both the plan and plan sponsors.

ACA Taxes

Cadillac tax:  Like the House bill, the Senate bill delays the Cadillac tax until 2025. No changes to policy in latest draft.

Medical device tax: Like the House-passed bill, the Senate bill repeals the 2.3 percent excise tax on medical devices. But it does so beginning in 2018, one year later than the House version. No changes to policy in latest draft.

Health insurance tax:  The Senate bill repeals the health insurance tax beginning in CY 2017. No changes to policy in latest draft.

Medicare tax:  The House-passed health bill repealed, effective January 1, 2023, the ACA’s 0.9 percent Medicare surtax on high-income earners. The prior draft of the Senate bill did as well, but the current version has removed this section, leaving the ACA Medicare surtax in place.

Net investment tax:  The prior draft of the Senate bill, like the House-passed bill, repealed the 3.8 percent net investment tax; retroactively effective January 1, 2017. The latest draft has removed this section, leaving the ACA Net Investment tax in place.

Tax on OTC medications:  The Senate bill, like the House-passed health bill, repeals the prohibition of paying for over-the-counter medicines with health savings accounts; retroactively effective January 1, 2017. No changes to policy in latest draft.

Tax on prescription medications:  The Senate bill repeals this tax effective in 2018, one year later than the effective date in the House-passed health bill. No changes to policy in latest draft.

Medicare Part D deduction:  The Senate bill repeals the ACA’s elimination of employers’ deduction for retiree drug costs; retroactively effective January 1, 2017. No changes to policy in latest draft.

Medical deduction tax:  Also known as the “chronic care tax,” it is repealed in the Senate bill retroactively effective January 1, 2017, and the medical deduction threshold is restored to its pre-ACA level of 7.5 percent. No changes to policy in latest draft.

Tanning tax:  The Senate bill repeals the ACA tanning tax effective Sept. 30, 2017. No changes to policy in latest draft.

Health savings accounts (HSAs):  The Senate bill lowers the additional tax on distributions not used for qualified medical expenses from HSAs from 20 percent increase in the ACA to a 10 percent increase, and for Archer medical savings accounts from 20 percent down to 15 percent; allows spouses each enrolled in a high-deductible health plan (HDHP) to make catch-up contributions to the same HAS; and increases maximum contributions to HSAs to the amount of the deductible and out-of-pocket limitation. The latest draft adds a provision that would allow HAS funds to be used to pay the premium of the HDHP.

Stabilization Fund

Short-term stability:  The bill would appropriate $15 billion for CY 2018 and 2019; and $10 billion for years 2020 and 2021 for CMS to fund arrangements with “health insurance issuers to assist in the purchase of health benefits coverage by addressing address coverage and access disruption and responding to urgent health care needs within States.” Funds remain available until spent. Latest draft amends purpose for funds in the short-term stability fund as noted above in red.

Long-term stability and innovation program:  The bill appropriates a total of $62 billion from CY 2019 to 2026, including $8 billion for CY 2019, $14 billion for CYs 2020 and 2021, $6 billion for CYs 2022 and 2023, $5 billion for CYs 2024 and 2025 and $4 billion for CY 2026. For CYs 2019-2021, HHS must ensure that states spend at least $5 billion each year on premium stabilization (e.g., reinsurance or high-risk pools). The Senate bill identifies a formula for redistributing unspent money among other states. Latest draft includes an additional $70 billion for the long-term stability fund, the money was added to CYs 2022-2026. The total for the long-term stability fund in the latest draft is $132 billion.

States can apply for funding for one of four purposes: (i) to establish a program or mechanism to fund high-risk individuals to purchase health coverage including by reducing premiums for those who don’t have access to coverage; (ii) to enter into arrangements with health insurance issuers to assist in the purchase of health coverage by help stabilizing premiums and promoting state health insurance market participation; (iii) to provide payments for health care providers;  and (iv) to provide health insurance coverage by funding assistance to reduce out-of-pocket costs, such as copayments, coinsurance and deductibles, of individuals enrolled in plans offered in the individual market. Starting in CY 2022, states will have to pay a specific match rate to receive 100 percent of the federal amount as follows: 7 percent for CY 2022, 14 percent for CY 2023, 21 percent for CY 2024, 28 percent for CY 2025, and 35 percent for CY 2026. Latest draft amends some of the parameters states can use the fund for, as noted above in red.

BRAND New Provisions in Latest Draft

Continuous Coverage: Latest draft includes a provision that requires that starting in 2019 a person must maintain continuous health coverage or they will be subject to a 6-month waiting period to buy health insurance in the individual market. A “gap in continuous coverage” is defined as a significant break of 63 days or longer within a 12-month period or, if applying during a special enrollment period, no creditable coverage at any point during the 60 days prior to application submission.

Catastrophic Coverage: Latest draft allows any individual to enroll in a catastrophic health plan and that those individuals would be included in the single risk pool under the ACA and as stated above allow the premium subsidy to apply to the cost of a catastrophic plan.

Sen. Ted Cruz’s proposal: Latest draft includes bracketed language (commonly referred to as the Cruz amendment) that would allow insurers who sell compliant plans (at least one gold and one silver level qualified plan on the exchange) to sell plans exempt from many of the ACA insurance requirements in off-exchange markets, starting in 2020. It would not allow ACA subsidies to be used to buy these off-exchange plans, but does allow HSA dollars to be used to pay the monthly premium for high-deductible health plans, unless the plan includes abortion coverage.

ACA provisions waived by the Cruz amendment:

  • ACA metal tiers, i.e. bronze, silver, gold
  • Community rating
  • Pre-existing conditions
  • Guaranteed issue
  • Essential health benefits
  • Cost-sharing reductions in group health market
  • MLR rebate requirement
  • Requirements around preventive health

How the House, Senate GOP health bills would change Medicaid

Perhaps the biggest change in both the House and Senate versions of the Affordable Care Act (ACA) repeal and replace bill is not something that repeals or replaces anything that was in the ACA.  Although both the House’s American Health Care Act (AHCA) and the Senate’s Better Care Reconciliation Act (BCRA) do repeal certain ACA aspects of the Medicaid program, the Medicaid changes represented by the proposed per capita cap and block grant provisions in both AHCA and BCRA are even more fundamental, in effect changing the original underpinnings of the program.

In fact, some Republican leaders have gone so far as to indicate that the Medicaid reforms are the most important provisions in the ACA repeal bills.  This past weekend, Sen. Ben Sasse of Nebraska told a group that “this is largely a Medicaid reform package.”  Earlier this spring, Speaker Paul Ryan noted that he has wanted to make fundamental changes like these to the Medicaid program since 1997.  Even if Congress doesn’t eventually pass an ACA repeal bill, it is not inconceivable that a similar Medicaid reform bill could move separately.

Medicaid Background

In order to understand the fundamental nature of the change that would be imposed by per capita caps and block grants, it is important to understand Medicaid.  Medicaid, like Medicare, was created in the Social Security Amendments of 1965.  However, while Medicare has always been as a federal program that was largely uniform across the country, Medicaid has always been a state-federal hybrid.  Although the federal government provided rules that the states had to follow, the states are responsible for operationalizing and operating the program within those rules. States have much discretion in the operation and administration of the program, and thus the program differs substantially from state to state in terms of systems for the delivery of care, scope of eligibility, and coverage.

Medicaid has been described as having two separate entitlements.  The first is that eligible individuals have rights to payment for medically necessary health care services defined in statute.  The second is that the state is entitled to payment by the federal government for its share of the expenses incurred.  The financing of the program is shared, and the federal government always pays at least half of the cost, according to the federal medical assistance percentage (“FMAP”).  As an entitlement, the federal obligation is not limited.  If an individual is eligible and the state program provides care, the federal government must provide its share.

Medicaid has changed substantially since its inception.  While eligibility for Medicaid was originally tied to eligibility for certain welfare programs, eligibility in many states (as a result of the ACA) now basically includes most all persons under age 65 with income at or below 138 percent of the federal poverty level.  (The ACA would have made this expansion mandatory, but the U.S. Supreme Court made it an option, which 31 states have now taken.)  Even before passage of the ACA, many states had dramatically expanded Medicaid eligibility.  For over a decade, Medicaid has been the largest governmental source of coverage in the United States, covering over 64 million individuals in 2015 (over 20 percent of the US population).  Medicaid also fills gaps not filled by other sources of health insurance. For example,  Medicaid is the primary provider of long term care, which is not covered by Medicare.

Federal expenditures on Medicaid have risen substantially.  Medicaid grew from 1.4 percent of federal expenditures in FY 1970 to 9.5 percent in FY 2015. Since 2000, federal expenditures on Medicaid have jumped annually an average of 7.5%, totaling greater than $349 billion in 2015.  Although much of this is attributable to enrollment increases, there have also been increases on a per enrollee basis.

Although states do have substantial discretion in administering the Medicaid program, many state officials have felt hamstrung by federal rules.

The per capita caps and block grant provisions in the AHCA and BCRA attempt to address recent concerns regarding the Medicaid program, in particular the concerns about increasing growth in federal expenditures and, to a lesser extent, the need for greater state flexibility.  In doing so, AHCA and BCRA would fundamentally change the open ended financing relationship between the states and the federal government that has characterized the program since 1965.  This is not the first time that fundamental changes to Medicaid have been proposed — a block grant proposal passed Congress in 1995 only to be vetoed by President Bill Clinton — but this is the first time since then that such fundamental changes seem likely.

Per capita caps

Per capita caps would not change the current eligibility and financing requirements.  However, financing from the federal government would no longer be open-ended.  Per capita cap limits would impose reductions on future federal payments if states do not comply with limits beginning in federal fiscal year 2020.

Per capita-cap limits would be set for five Medicaid Enrollee Categories, excluding some minor categories:

  • elderly (over 65)
  • blind and disabled
  • children
  • expansion enrollees, and
  • other nonelderly, nondisabled, nonexpansion adults.

CMS would calculate provisional targets for each Enrollee Category for the initial fiscal year 2019.  Targets would exclude Medicaid DSH payments, Medicare cost-sharing, and new safety net provider payment adjustments for non-expansion states (created in the legislation).  Provisional targets would be based on average per capita expenditures in a base period, inflated based on inflation, multiplied by the number of enrollees in each Enrollee Category.  Under the Senate bill, the base period would be based on a period of 8 consecutive fiscal quarters between the first quarter of fiscal year 2014 and the third quarter of 2017 chosen by the state.  (Under the House bill the base period is 2016.)  Non-DSH supplemental payments and waiver payments would be excluded from the category-specific calculation and applied as a percentage adjustment to category-specific calculations.

The targets would increase annually using simple inflation, not actual increases in expenses.  Through fiscal year 2024, inflation would be the medical component of the consumer price index for urban consumers (“CPI”) plus an additional 1 percent for the elderly and disabled categories only .  After 2024, inflation would be the CPI for all urban consumers.  Since Medicaid has generally grown by a significant percentage above either the medical component of the CPI or the CPI, these limits generate substantial future savings.  CBO estimated that the Medicaid coverage changes save $772 billion against the budgetary baseline, the largest category of the savings in AHCA.

In addition, in the Senate bill, beginning in fiscal year 2020, targets would be adjusted annually to promote program equity.  (These adjustments also do not apply to any state with a population density of less than 15 individuals per square mile.)  States where a certain category’s per capita amount exceeds the mean per capita categorical amount by at least 25 percent would have their per capita amount reduced by between 0.5 and 2 percent.  States where a certain category’s per capita amount is less than the mean per capita categorical amount by at least 25 percent would have their per capita amount increased by between 0.5 and 2 percent.  These adjustments cannot cause an increase in federal payments.

Medicaid Flexibility Program/Block Grants

The per capita caps provide tremendous incentives to reduce expenditures to avoid going over the caps (and incurring federal payment reductions).  However, the per capita caps do not provide much additional flexibility for states.  Flexibility is provided by the Medicaid Flexibility Program option included in BRCA.  (Although similar and in some ways broader flexibility is provided by the block grant option in AHCA, only the Senate option is described below.)

Beginning in FY2020, a State would be able to apply for a block grant to provide “targeted health assistance” to program enrollees in order to implement a Medicaid Flexibility Program.  Program enrollees are defined as individuals in the per capita cap “other nonelderly, nondisabled, nonexpansion adult” Enrollee Category.  The block grant period would be five years, although a state could request additional periods.  Although the application may make some states nervous, the flexibility to be gained is substantial.

A State participating in the Medicaid Flexibility Program receives a block grant equal to the federal share of the per capita cap target amount (FMAP * per capita cap target amount * number of enrollees in the category).  Amounts for subsequent years would be increased by the CPI-U.  States can generally rollover funds to a subsequent Medicaid Flexibility Program year.  CMS will publish the potential block grant amount for each state no later than June of each year.

Certain mandatory populations must be covered by the Medicaid Flexibility Program.  The following services must be covered (although others can be):

  • hospital services
  • lab and x-ray services
  • nursing home services
  • physician services
  • home health services
  • rural health clinic services
  • FQHC services
  • Family planning services
  • Nurse midwife services
  • Pediatric and family nurse practitioner services
  • Freestanding birth center services
  • Emergency medical transportation
  • Dental services
  • Pregnancy-related services
  • Mental health and substance abuse disorder services.

The value of the package to be provided by the state must be at least 95 percent of the aggregate actuarial value of benchmark coverage (as it existed prior to the ACA).  Cost-sharing, premiums and deductibles are acceptable so long as they do not exceed 5 percent of family income.

Once received, the state can use Medicaid Flexibility Program funds for any purpose consistent with certain quality standards to be established by the Secretary (including use for other state health programs and even roads and bridges).  States are required to spend at least the Children’s Health Insurance Program FMAP’s share of the block grant each year or else the amount of the block grant is reduced in the immediately following year.

The Medicaid Flexibility Program would provide a State with substantial additional flexibility, particularly  with the “other nonelderly, nondisabled, nonexpansion adult” category.