New Trump Medicaid funding changes take aim at working-age adults

The Trump administration on Thursday took another significant step in overhauling Medicaid, allowing states to ask for a set amount of federal financing for part of their programs in exchange for more local control.

Titled “Healthy Adult Opportunity,” the guidance permits states to apply for so-called block grants to cover certain low-income adults, particularly those who gained benefits under the Affordable Care Act’s Medicaid expansion provision. Federal funding, which is now open-ended, would be capped, with states receiving either a lump sum or a specific amount per enrollee.

The plan is the latest move by the Trump administration to inject conservative ideals into the 55-year-old health program for low-income people, coming two years after it allowed states to require certain beneficiaries to work, an effort that’s largely been halted by the courts.

Republicans have long wanted to implement block grants as a way to curtail Medicaid spending, but its inclusion in the GOP bills to repeal and replace Obamacare helped doom the legislation in 2017. The description of the guidance given to journalists doesn’t mention the words “block grant.”

Consumer advocates, health care industry associations and Democrats swiftly condemned the effort, even before it was formally announced. It will likely be challenged in court.

The effort will hurt people with pre-existing conditions, said a coalition of 27 patient and consumer groups, including the American Heart Association, the Arthritis Foundation and the American Cancer Society Cancer Action Network.

“Simply put, block grants and per capita caps will reduce access to quality and affordable health care for patients with serious and chronic health conditions,” said the coalition, which represents millions of people.

President Donald Trump and other Republicans have repeatedly said they will protect those with pre-existing conditions.

A group of House Democrats, led by Massachusetts Rep. Joe Kennedy III, sent a letter Wednesday to Health & Human Services Secretary Alex Azar and Centers for Medicare and Medicaid Services Administrator Seema Verma opposing the plan, saying it defies Congress and the federal Medicaid statute.

“Medicaid block grants necessitate cost-cutting measures like restricting enrollment, decreasing provider reimbursement and limiting eligibility and benefits through managed care,” the letter said. “The actions endanger the lives of the most vulnerable patients, the population Medicaid was created to protect.”

The guidance would like encourage states to undermine coverage, said Aviva Aron-Dine, vice president for health policy at the left-leaning Center on Budget and Policy Priorities.

“Medicaid’s coverage guarantee means that coverage is there when you need it,” she wrote in an online post.

“Weakening that guarantee — or eliminating the federal standards and oversight that ensure that states, health plans, and providers comply with it — would worsen access to care, health, and financial security for beneficiaries and likely increase providers’ uncompensated care costs,” she added.

Among the main concerns about block grant funding is that the lump sum model cannot adjust to economic downturns, when enrollment typically increases, and that both the fixed annual amount and the per person cap versions would have difficulty handling spikes in health care treatment costs, as is happening in the opioid epidemic.

States’ funding would be based on their prior spending levels. For the lump sum model, it would be increased annually based either on the state’s historic growth rate or a medical inflation rate, whichever is less. The agency could work with states to readjust the funding levels under special circumstances, Verma said.

The caps, however, are designed to reduce federal spending on Medicaid, said Cindy Mann, a partner with Manatt Health, a professional services firm that works with states. States would not be allowed to set caps on enrollment, so if they exceeded their federal funding limits, they would have to clamp down on eligibility, benefits or provider payments — or be fully on the hook for the additional costs.

“When states look under the hood a little bit on some of these flexibilities, they’ll find that most of them have already been offered and made available in waivers where they don’t have to take a cap,” Mann said.

Medicaid covers more than 70 million Americans, or roughly one in five people, particularly low-income children, pregnant women, the elderly and people with disabilities. Some 36 states, plus the District of Columbia, have opted to expand benefits to low-income adults under the Affordable Care Act, adding about 15 million recipients to the program.

Total Medicaid spending in fiscal 2018 was $593 billion, with 62.5% paid by the federal government and 37.5% shouldered by states, according to the Kaiser Family Foundation.

Funding is now open-ended. Conservatives complain that the financing formula encourages states to spend more so they can secure more federal money, while a block grant would prompt them to better control costs. Medicaid is typically one of the top two expenditures for states, and governors and lawmakers often complain that the state contribution eats up money that could be spent on education, infrastructure and other needs.

The newly issued guidance is targeted at working age, able-bodied adults and does not apply to most of Medicaid’s traditional beneficiaries, including children, seniors or the disabled. However, states that did not expand Medicaid could apply for fixed funding to cover certain low-income adults in their programs.

Also, states that opt to receive a set annual amount could keep a portion of any unused funds, though they must show that access to and quality of care has not declined and they must reinvest that money into state-funded health programs.

And they could request to add new conditions for eligibility for these recipients, change their benefits, require them to pay up to 5% of their income and limit their drug coverage by implementing a list of approved medications. States could also limit retroactive coverage, which could hurt hospitals and other providers, since they often sign up eligible patients when they seek care.

States will be required to report quarterly on enrollment, retention of beneficiaries, complaints, financial management and several other metrics.

“Our focus with our Healthy Adult Opportunity program is to change the whole paradigm and to reset the framework of how we’re working with states,” Verma said.

Thursday’s notice comes four months after Tennessee unveiled a plan to shift most of its Medicaid program into a block grant-type model. The state, which did not expand Medicaid, is seeking to exclude certain costly expenses from the block grant and to allow federal funding to increase if enrollment rises.

Another provision: If the state spends less than the block grant amount, it gets to keep 50% of the federal share of those savings.

However, Tennessee’s proposal does not fall into the parameters of the new guidance because it would move many of its traditional Medicaid enrollees into the block grant, which is wider than the federal program would allow. The Centers for Medicare and Medicaid Services is working with the state, Verma said.

Other states are also looking to change how their Medicaid programs are funded. Alaska has commissioned a study of block grants.

Oklahoma Republican Gov. Kevin Stitt, who attended the unveiling of the guidance on Thursday, said he would seek to apply for such a waiver. Oklahoma has not expanded Medicaid but a measure to do so will be on the ballot this year. Voters in four other states have approved broadening the program to low-income adults in recent years.

This story has been updated to include additional information and reaction.