understanding and evaluating block grants and other capped

Manatt HealthDecember 21, 2016

Understanding and evaluating block grants and other capped funding proposals

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Agenda

Current Program Financing

Alternative Financing Structures

Key Policy and Implementation Considerations

Discussion

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Current Program Financing Structure

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Current Program Financing Structure

States receive federal funding for all allowable program costs

Federal dollars guaranteed as match to state spending

In aggregate, states received $346 billion in federal Medicaid funds in FY 2015

Matching rates vary by state, population and service

States claim federal dollars for clinical and administrative services provided Medicaid enrollees; states also claim federal dollars for DSH, UPL, GME and under certain circumstances for waiver payments (e.g. Designated State Health Programs (DSHPs))

States must follow federal rules (or waiver terms & conditions)

Source: MACPAC, “MACstats: Medicaid Spending by State, Category, and Source of Funds, FY 2015 (millions)” Available at: https://www.macpac.gov/wp-content/uploads/2015/01/EXHIBIT-16.-Medicaid-Spending-by-State-Category-and-Source-of-Funds-FY-2015-millions.pdf.

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Federal Financing

Medicaid is the largest source of federal revenue to states

Sources of Federal Funds to States, FY 2015

Source: National Association of State Budget Officers, State Expenditure Report FY2014-2016 5

Alternative Financing Structures

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Block Grants

States receive no more than a set amount of federal funds annually

Sources: “Alternative Approaches to Federal Medicaid Matching,” MACPAC, June 2016. Available at: https://www.macpac.gov/wp-content/uploads/2016/06/Alternative-Approaches-to-Federal-Medicaid-Financing.pdf; “Block Grants and Per Capita Caps,” Urban Institute, September 2016. Available at: http://www.urban.org/research/publication/block-grants-and-capita-caps

Amounts typically allocated among states by reference to spending in a base year

Caps could be frozen (no year-to-year increase), but Medicaid block grant proposals typically allow capped payments to grow based on a national trend rate (e.g., CPI or GDP)

Provides funding certainty to federal government; shifts risk for enrollment and health care costs to states

States may or may not have a state spending requirement

Eligibility and benefit rules set by block grant legislation, generally giving states more flexibility to set eligibility, benefits and other program features; may also impose new obligations on states

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Different Block Grant Designs


Some guarantee a set amount - no state spending required

o For example, the Social Services Block Grant provides a fixed amount of federal funding, not conditioned on state spending

Some guarantee a set amount so long as a state spends a certain amount of state funds

o For example, TANF block grant provides federal funding at the capped level so long as the states spends minimum amount of its own dollars on TANF-related initiatives

Some guarantee funding up to set amount; federal payments are provided as match to state spending up to federal cap (sometimes referred to as capped allotment)

o For example, CHIP provides federal funding as a match to state spending up to the federal cap

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Taking a Closer Look at CHIP

Differences between CHIP and Medicaid go beyond the financing


Covered Populations are Different

o CHIP finances coverage for 9 million generally healthy children in low-income families; Medicaid covers 81 million children and adults, including individuals with disabilities and seniors

Program Roles are Different

o Medicaid, in addition to providing coverage for low-income populations, supports safety net providers, low-income Medicare beneficiaries and long term services and supports; CHIP has a narrower scope – coverage for children in families with incomes above 1997 Medicaid levels

CHIP Financing

o CHIPRA sets each state’s federal funding cap using formula incorporating historic use of CHIP funds and adjusts for child population growth and medical inflation; in earlier years when federal funding was more limited, states were forced to close enrollment and establish waiting lists

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Federal Funding for CHIPFederal funding for CHIP has increased over the years and

appropriations to states were expanded with the passage of CHIPRA

Federal CHIP Expenditures and Appropriations

Source: Congressional Research Service, “Federal Financing for the State Children’s Health Insurance Program (CHIP).” Available at: https://fas.org/sgp/crs/misc/R43949.pdf

During FY 2011-2016, more than $35 B in federal CHIP funding was rescinded

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Federal Funding for TANF and Social Services Block Grants

Total dollars of federal funding for TANF and Social Services block grants have declined in value due to inflation

Source: CBPP, “Eliminating Social Services Block Grant Would Weaken Services for Vulnerable Children, Adults, and Disabled,” Available at: http://www.cbpp.org/research/eliminating-social-services-block-grant-would-weaken-services-for-vulnerable-children; and Congressional Budget Office, “Temporary Assistance for Needy Families Spending and Policy Options,” Available at: https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/49887-TANF.pdf

Reductions in Inflation-Adjusted Funding for the Social Services Block Grant

Total Spending on TANF and Programs That Preceded It

73% reduction in block grant value between 1982 and 2016 due to inflation, funding freezes, budget cuts and sequestration

TANF’s purchasing power has declined 25% since 1998

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Per Capita Caps

States receive fixed amount of federal funds per Medicaid enrollee


Per capita amount set based on each state’s per enrollee spending in base year; amounts typically grow consistent with a national trend rate

Under the proposals, caps would vary by eligibility category (e.g., disabled, children)

Shifts risk of higher health care costs, but not enrollment, to states

o However, may be subject to national cap, limiting ability for federal funds to grow with enrollment; in which case, both enrollment and cost risk shifted to state

State match typically required; federal funds provided to states based on actual expenditures up to the cap

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Per Capita Cap Proposals Differ from Caps in 1115 Waivers

States operating under 1115 waivers are subject to per person cap on federal funding to assure “budget neutrality”

Waiver caps are set to reflect state’s expected medical spend without waiver; they are not designed to achieve savings

Waivers are optional and features, including per capita caps, are negotiated between CMS and state; scope is limited to aspects of the program subject to the waiver

Waiver caps can be adjusted to reflect unexpected costs and are not subject to an aggregate cap

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Recent Block Grant and Per Cap Proposals

Most Proposals are missing key details

Feature A Better Way(Ryan)

Patient CARE Act(Hatch/Upton/Burr)

FY17 House Budget Comm. (Price)

HAEL Act of 2016 (Sessions/Cassidy) Heritage Foundation

Type Per capita cap, with option for block grant Per capita cap Block grant Per capita cap Per capita cap

State Match Required

(per capita cap)

? (block grant)

? ?

National aggregate cap

Different caps for populations ?

Populations covered All All, except acute care of elderly & disabled All All All

Base amount Average Medicaid spend in state during base year

Nat’l Medicaid spend allocated based on state population with income

< 100% FPL

UnclearAverage Federal

Medicaid spend during base year

Unclear

Trend rate Unclear CPI + 1 Unclear GDP + 1 Unclear

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Implications of Alternative Financing

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State RisksCapping federal funds puts states at risk for costs above cap

and limits new investments


All recent proposals to cap federal Medicaid funding would sharply reduce federal payments to states.o FY 2013 House Budget plan: $1.7 trillion reduction (-38%) from 2013-2022

o FY 2017 House Budget Plan: $1 trillion reduction (-25%) from 2017-2026

Annual growth rates are below estimateso FY 2013 House Budget plan included an average 3% growth rate each year, falling short of the estimated

7% annual cost growth

Capping federal Medicaid dollars locks in funding based on earlier state choices, constraining future state decisions on eligibility, benefits, payment rates and other new investments.

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Proposals Sharply Reduce Federal Payments to States

Sources: National and State-by-State Impact of the 2012 House Republican Budget Plan for Medicaid John Holahan, Matthew Buettgens, Caitlin Carroll and Vicki Chen, The Urban Institute, October 2012. Available at: https://kaiserfamilyfoundation.files.wordpress.com/2013/01/8185-02.pdf; “Medicaid Block Grant Would Add Millions to Uninsured and Underinsured,” Center on Budget and Policy Priorities, March 2016. Available at: http://www.cbpp.org/research/health/medicaid-block-grant-would-slash-federal-funding-shift-costs-to-states-and-leave#_ftnref5

Percent Cut in Federal Medicaid and CHIP Funds (House FY 2017 Plan Relative to Current Law)

Proposal would cut federal Medicaid funds by $1 trillion (or 25%) over ten years, resulting in a combined 33% reduction in federal funds for Medicaid and CHIP.

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Shifting Risk to StatesCapped federal funds constrains states’ ability to

respond to events beyond their control


Neither block grants nor per capita caps account for:o Public health crisis such as HIV/AIDs, Opioid epidemic, Zika

o New block buster drugs or other medical advances

o Natural disasters such as Hurricane Katrina

o Manmade disasters such as 9/11 and lead poisoning

In addition, block grants do not account for:o Economic downturns or other causes of higher-than-anticipated enrollment

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31 Expansion States + DC Received > $60 billion in Additional Federal Funds

California

Nevada

Arizona

Utah

Idaho

Wyoming

MaineVermont

New York

North Carolina

South Carolina

Alabama

Nebraska

Georgia

Mississippi Louisiana

Texas

Oklahoma

Wisconsin

Minnesota North Dakota

Ohio

South Dakota

Kansas

Iowa

Illinois

Tennessee

Missouri

DelawareNew Jersey

Connecticut

Massachusetts

Virginia Maryland

Rhode Island

Hawaii

New Hampshire

Not Expanded Medicaid (19)Alaska

Expanded Medicaid (31 + DC)

West Virginia Colorado

New Mexico

Oregon

Washington

Michigan

Arkansas

Kentucky

Washington, DC

Iowa

Indiana

Montana

Pennsylvania

Sources: Manatt analysis based on December 2016 CMS-64 expenditure data. Data available online at: https://www.medicaid.gov/medicaid/financing-and-reimbursement/state-expenditure-reporting/expenditure-reports/index.html; Current Status of State Medicaid Expansion Decisions, Kaiser Family Foundation, July 2016. Available at: http://kff.org/health-reform/slide/current-status-of-the-medicaid-expansion-decision/

Note: Federal funding does not reflect enhanced funding provided by the ACA to states that expanded before the ACA ("early expansion states"). Total federal funding for all expansion adult enrollees (not just those that are newly eligible) from January 2014 - June 2015 was $78.8 billion.

California: $20.8 B

Connecticut: $1.2 B

Arkansas: $1.4 B

Ohio:$3.4 B

Washington:$2.8 B

North Dakota:$251 M

Examples of federal funds for new adult group

New Mexico: $1.4 B

Michigan:$3.3 B

Kentucky:$3.0 B

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Spending Per Medicaid Enrollee Varies Across States

Source: Rudowitz, R., Garfield, R., and Young, K., “Overview of Medicaid Per Capita Cap Proposals,” Kaiser Family Foundation, June 2016. Available at: http://kff.org/report-section/overview-of-medicaid-per-capita-cap-proposals-issue-brief/

Capped funding locks in historic differences in spending

Spending Per Full Medicaid Enrollee, FY 2011

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Spending Growth Varies Widely Across States

Source: Rudowitz, R., Garfield, R., and Young, K., “Overview of Medicaid Per Capita Cap Proposals,” Kaiser Family Foundation, June 2016. Available at: http://kff.org/report-section/overview-of-medicaid-per-capita-cap-proposals-issue-brief/

Capped funding does not account for differences in state growth rates

Growth in Federal Medicaid Spending By Group and State , FY 2000 – 2011

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Capped Funding, Supplemental Payments and Waivers


Financing the Non-Federal Share

HAELA (Sessions – Cassidy proposal) would prohibit use of intergovernmental transfers

Future Waivers

Unclear if federal funds will continue to be available through waivers A Better Way limits use of federal funds for state program “costs not otherwise

matchable”

Proposals vary on how they handle supplemental payments:o Patient CARE Act includes supplemental payments in capo A Better Way excludes DSH and GME from cap and does not address other supplemental payments

Unclear whether cap amounts would account for Delivery System Reform Incentive Payment Programs and uncompensated care pools

Supplemental Payments & Existing Waiver Pools

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How Will the Flexibility Play Out with Reduced, Capped Funding?

Fewer people served?

More churning, less continuity of coverage?

Limited benefits, limited access?

Greater competition for constrained funding?

With funding reductions, will new positive programmatic opportunities be more theoretical than real?

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Discussion

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Thank you!Cindy Mann

[email protected]

Deborah BachrachPartner

[email protected]

Patricia Boozang Senior Managing [email protected]

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mailto:[email protected]



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