Author Archives: Alicia Espinosa

Here We Go Again: The Return of Medicaid Block Grants

            Last month, the Trump Administration unveiled a new demonstration program that has the potential to dramatically overhaul the way Medicaid operates.  Currently, Medicaid is designed as a federal-state partnership in which the federal government matches the money a state spends to cover its Medicaid population. The new program, Healthy Adult Opportunity (HAO), would provide a route for states to receive a capped amount of federal dollars (i.e., a block grant) in exchange for fewer restrictions on determining who qualifies and what services are available to them. Seema Verma, the Administrator of the Centers for Medicare and Medicaid Services (CMS), celebrated this plan as an innovative approach to ensure the long-term financial sustainability of Medicaid. While Medicaid’s financial maintenance is an ever-present concern, HAO may reduce access to important healthcare services, create greater financial risk for states, and present significant legal barriers.

            Changing Medicaid’s financing scheme creates greater financial risks for states that pursue HAO. Medicaid’s current open-ended financing structure was designed to broaden states’ ability to provide healthcare coverage to their low-income residents by adjusting federal funding depending on the state’s level of need. For example, if a recession hits and Medicaid enrollment grows, federal funding would increase to cover most of the additional costs. However, states adopting the new approach must accept responsibility for costs higher than the caps. This change would shift financial risk to states, with federal funding cuts likely to occur when states have the least ability to accommodate them— such as during recessions, public health emergencies, and other instances when states must balance high demand for coverage and budgetary strain. The risk of hitting the funding caps would put pressure on states to control spending by cutting coverage.

            States that adopt HAO will likely face litigation. By offering funding through a capped fund scheme, the Trump Administration claims expansive authority to overturn explicit statutory requirements for Medicaid eligibility, cost sharing, and financing. The legal basis of HAO lies in the “expenditure authority” outlined in section 1115 of the Social Security Act. This section authorizes federal matching funds for expenditures not typically allowed under Medicaid, if these expenditures are needed to implement an experimental project likely to assist in promoting Medicaid’s objectives. However, two legal problems exist for this framework. First, the ability of block grants to promote the objectives of Medicaid, the legal standard for the authorization of these waivers, is unclear. The U.S. Court of Appeals for the D.C. Circuit recently affirmed that Medicaid’s main objective is to provide health coverage to low-income people, but block grants would incentivize coverage of fewer people. Second, the part of the Medicaid statute that governs its open-ended financing structure is not listed as a provision that is alterable through waiver.

            The heightened discretion offered by the demonstration program may reduce access to services and impact millions of people. To receive federal matching funds, states must provide core benefits (e.g. hospital services) to mandatory populations (e.g. low-income pregnant women) without imposing waitlists or enrollment caps. States may also receive matching funds to cover “optional” benefits, such as prescription drugs. Conversely, states that adopt HAO would receive broad, and in some instances unprecedented, authority to change benefits. The demonstration project encourages states to include the millions of low-income adults without children who obtained coverage through the Affordable Care Act’s Medicaid expansion under capped funds, which would likely negatively impact their ability to access health care. Moreover, states would also gain the ability to deny coverage for costly but necessary prescription drugs, including those for diabetes and cardiovascular conditions. Finally, states may impose new out-of-pocket costs for physician visits and prescription drugs on low-income enrollees. Cost sharing in Medicaid, even in the amount of a $1 copay, has been shown to deter people from accessing care.   

            The idea of capped funds to meet Medicaid’s financing challenges is far from new. Policymakers have discussed block grants for Medicaid since the Nixon Administration and as recently as the 2017 repeal-and-replace. In light of this history, the Trump Administration should consider why prior administrations and congresses have chosen not to take up this policy, as well as its potential to create financial risks, lead to litigation, and reduce access to healthcare for millions of low-income people.

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Medicaid’s Power to Recoup: Estate Recovery and Long-Term Care

Financing long-term services and supports (LTSS) presents a concern to older adults, lawmakers, and society at large. LTSS refers to those services that meet a person’s routine health and personal care needs when he no longer can perform these tasks on his own, often due to age or disability. Affording LTSS is a challenge, as few people have the necessary financial resources to meet its high costs, and many must eventually turn to Medicaid for help. Medicaid is the largest payer of LTSS, covering 43 percent of national LTSS spending in 2013 (Nguyen). Concerns arose over the sustainability of Medicaid’s role in financing LTSS in anticipation of an aging baby boomer population that will need LTSS. One solution intended to ameliorate LTSS financing is the Medicaid Estate Recovery Program (MERP), which requires states to recover payments from individual estates for long-term care services (Estate Recovery). However, this program which is characterized by Rachel Corbett as “Medicaid’s Dark Secret,” tends to bring more distress than actual revenue.

MERP intends to control LTSS costs by providing a way for states to recoup the money spent on a recipient’s care. Since the beginning of the Medicaid program in 1965, states have had the option to recover from the estates of deceased beneficiaries over age 65 when they received benefits (MACPAC).            However, the highly billed savings of estate recovery have yet to materialize.

In 2005, the AARP Public Policy Institute published a study analyzing the first decade of mandatory estate recovery. The study found that Massachusetts collected an average of $16,442 per estate in 2003; offsetting a little more than one percent of its LTSS costs in total. That one percent made its efforts among the most effective in the nation. In contrast, the average amount recovered from an estate in Kentucky was $93, representing just 0.25 percent of its LTSS costs. The total amount states recovered increased from $72 million in 1996 to $347 million in 2003. Nonetheless, estate recoveries accounted for less than one percent of Medicaid’s total nursing home costs in 2003. Corbett notes that the “overwhelming majority” of estates recovered under MERP are not worth the hundreds of thousands of dollars needed to make an impact on Medicaid LTSS spending.

MERP, thus, seems more punitive than economical. As described above, the average amount recovered from an estate is far from the amount needed to reimburse the billions of dollars spent on LTSS. Financing LTSS presents one of the greatest challenges our healthcare system will face in the upcoming years. While Medicaid has met this need for now, its role as the primary LTSS payer is unsustainable. MERP was billed as a solution to manage the strain LTSS puts on state and federal budgets, but the program, with its slim returns and human cost, is not the answer. A few states have already responded to these concerns by scaling back their estate recovery programs (Corbett). More state lawmakers should consider following their lead.

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