Skip to content
Repeal & Replace Watch

On Medicaid Money, GOP Has Win-Or-Lose Proposition For States

If a per-capita system were in effect this year, Vermont would receive $6,067 per enrollee — one of the highest allotments in the country — while New Hampshire would get the least, just $3,084 per enrollee.

New England’s bucolic countryside looks much the same on either side of the Connecticut River separating Vermont from New Hampshire.

But Medicaid beneficiaries are far better off in Vermont.

Vermont generously funds its Medicaid program. It provides better benefits, such as dental care, and pays doctors more than New Hampshire’s program does. That attracts doctors to Vermont’s program, giving enrollees more access to care.

New Hampshire has twice Vermont’s population, but Vermont spends almost as much on Medicaid and covers more enrollees. Under the complicated formulas that set federal funding, Vermont’s substantial investment helps it capture nearly as much aid from the government as New Hampshire gets.

States’ policies differ about who or what to cover in Medicaid, and those decisions have led to historical variances in how much federal money they receive. House Republicans’ effort to shrink federal Medicaid spending would lock in the differences in a way that favors those already spending high amounts per enrollee.

California appears ready for battle.

The largely Democratic state depends heavily on the Medicaid program, known here as Medi-Cal, which insures a third of residents and half of children. And it could suffer one of the hardest blows under the proposal, given the state has added 3.5 million people to the rolls who were ineligible before the health law. That’s more than any other state, according to last year’s estimates from the Kaiser Family Foundation. (KHN is an editorially independent program of the foundation.)

To cover the new enrollees, California expects to receive more than $19 billion federal dollars this fiscal year, according to the state Department of Finance. Consumer advocacy groups in California say Medi-Cal could lose almost that same amount of money if, as the GOP is proposing, the Medicaid expansion is rolled back and federal funding is limited to fixed amounts per person.

“It’s basically reneging on a promise,” said Linda Nguy, policy advocate for the Western Center on Law & Poverty. Eliminating billions of federal dollars would force state policymakers to make very difficult decisions about how to backfill the loss, she said. They could cut Medi-Cal’s services or enrollment or try to raise revenue.

“It’s not easy to raise taxes,” said Nguy.

Republicans argue that overhauling federal Medicaid spending with caps per person would hold down federal costs while giving states more leeway to run their programs as they see fit. “This incentive would help encourage efficiencies and accountability with taxpayer funds,” said House Speaker Paul Ryan last June in his white paper, “A Better Way.”

But Nguy said the state could face cuts to mental health and substance abuse treatment, as well as occupational therapy, dental care and vision benefits. California recently started providing comprehensive coverage to undocumented children, but that coverage could be reconsidered, too.

“We don’t want to be in that position where we are choosing” which populations will keep benefits or which services will stay or go, she said.

“Republicans are finding out why changing Medicaid is so hard and why the easiest thing to do is to do nothing given the substantial variation in federal spending across states,” said John Holahan, a health policy expert with the nonpartisan Urban Institute.

Here’s why.

Medicaid, the national health program for low-income people that covers about 1 in 5 Americans, is 60 percent funded by the federal government and 40 percent by states. Total spending in 2015 was about $532 billion, according to the latest official data.

Federal funding is open-ended, which means the government guarantees states it will pay a fixed rate of their Medicaid expenses as spending rises.

Those matching rates are tied to average personal incomes and favor the lowest-income states. Mississippi has the highest Federal Matching Assistance Percentage — 76 — while 14 wealthy states, including New York and California, get the minimum 50 percent from the federal government.

But state Medicaid spending varies significantly, too, and that influences how much federal money each receives to fund its program. State policies about how generous benefits should be and how much to pay doctors and hospitals account for those differences.

GOP leaders want to give states a set amount of money each year based on the number of Medicaid enrollees they had in 2016, a formula known as per-capita caps.

A per-capita system would benefit high-spending states already receiving relatively rich allotments from the government, the Urban Institute said in a paper last September.

According to its estimates, if the system were in effect this year, Vermont would receive $6,067 per enrollee — one of the highest allotments in the country — while New Hampshire would get the least, just $3,084 per enrollee.

Per-capita caps would limit the government’s Medicaid spending because it would no longer be on the hook to help cover states’ rising costs. But caps also would shift costs and financial risks to the states and could force them to cut benefits or eligibility to manage their budgets.

“It would present a huge problem,” said Adam Fox, a spokesman for the Colorado Consumer Health Initiative, an advocacy group.

Under the GOP bill, federal Medicaid funding to states would be adjusted annually based on a state’s enrollment and medical inflation. But that would not be enough to keep up with rising Medicaid spending per enrollee, which would force states to put up more of their money or scale back the program, the nonpartisan Congressional Budget Office said Monday.

Other analyses of the GOP plan have reached the same conclusion.

Since 1999, however, the average annual growth rate in Medicaid spending per enrollee has risen more slowly than medical inflation, according to MACPAC, the Medicaid and CHIP Payment and Access Commission, which advises Congress.

Bill Hammond, director of health policy for the nonpartisan Empire Center for Public Policy in New York, said House leaders’ decision to tie future Medicaid funding to medical inflation could help mute concerns that funding wouldn’t keep up with rising costs, but would not address the fairness issue of giving some states higher per-capita amounts than others.

“If a low-spending state decides it wants to spend more money on paying hospitals and doctors or adding more benefits, they would have a harder time doing that without breaking the federal cap,” he said.

Medicaid advocates in New Hampshire are worried because their state has few alternatives to make up for a loss in federal funding. New Hampshire lacks an income or sales tax.

“There is a tremendous amount of fear among families here as Republicans try to dismantle the ACA,” said Martha-Jean Madison, co-director of New Hampshire Family Voices.

This story was produced by Kaiser Health News, an editorially independent program of the Kaiser Family Foundation.

Related Topics

Cost and Quality Insight Medicaid Repeal And Replace Watch States The Health Law