WASHINGTON -- Proposals to overhaul the Medicaid program, such as the recently withdrawn GOP repeal-and-replace bill, would significantly affect a large swathe of Medicare beneficiaries as well. "Everyone says we're not touching Medicare. Per-capita caps do touch Medicare," Melanie Bella, MBA, a former director of the Medicare-Medicaid Coordination Office at the Centers for Medicare and Medicaid Services, during a Capitol Hill briefing hosted by the National Coalition on Health Care on Monday. Bell, citing 2014 data from the Kaiser Family Foundation, said roughly 11 million Medicare beneficiaries -- one in five -- also rely on Medicaid. The way Medicaid is currently run, the federal government covers 50%-75% of Medicaid spending depending on states' per capita income relative to the national average, paying a greater share of poorer states' Medicaid expenses. A per-capita cap, a type of block grant, would limit the federal contribution and, in essence, shift it from an open-ended entitlement to a lump sum payment. Under such a program, the payment formula would be based on the number of enrollees multiplied by the average cost per person in a state during a pre-determined year, multiplied by a "trending factor" such as the Consumer Price Index. Conservatives, for political and philosophical reasons, have championed such ideas, arguing that they will give states more flexibility, increase budget predictability and lower costs. But Bella argued that this kind of overhaul would be ineffective because the growth or trending factor is unlikely to keep up with the actual growth of healthcare costs. With an influx of baby boomers that are living longer, one problem with this new design is that it doesn't allow for costs to grow with the population and doesn't recognize that as seniors age, spending per enrollee increases. The per-capita cap formula is also not risk adjusted and would not reflect increases in medical care costs that outstrip the trending factor. Setting a per-capita cap based on the spending of an average person in a disability or age group will make it difficult to adequately fund services, Bella noted, resulting in a funding shortfall for states. Moreover, two-thirds of Medicaid spending goes towards long-term supports and services (LTSS), such as respite and attendant care. When states have budget shortfalls, these services are seen as optional. But Bella noted, research has indicated a correlation between states with more generous Medicaid LTSS programs and more efficient Medicare utilization and spending. If LTSS services are reduced or eliminated, she said, "you can also be certain that Medicare costs are going to go up." Another core challenge with per-capita caps is that such a design would undo much of the innovation focused on integrating the Medicare and Medicaid programs. Traditional Medicare and Medicaid programs are siloed, which creates perverse incentives and can lead to duplication of services, Bella said. For example, some providers are incentivized to shift costs from one payer to another to increase their payments. If a Medicaid patient is sent from a nursing home to a hospital for 3 days and then returns, the nursing home can receive Medicare payments for a certain period, which can be three times the Medicaid payment for the same care. So nursing homes are incentivized to game the system. But recent demonstration projects -- such as the Medicare Advantage Dual Eligible Special Needs Plan (D- SNP), the Medicare-Medicaid Demonstration Plan, and the Program of All Inclusive care for the Elderly (PACE) -- have sought to eliminate the problem of cost-shifting, by aligning payments and the delivery of care. "These types of models are very much at risk with a per-capita situation that only looks at Medicaid," Bella said. Lastly, Bella noted that nursing home care is an entitlement, while staying in one's home is not. A per capita cap would reduce the chance for states to continue to fund optional waiver-based services that keep people in their homes and communities. As Ann Hwang, MD, director for the Center for Consumer Engagement in Health Innovation, noted, "Most of us do not want to end our days in a nursing home."
A potential overhaul of the Medicaid program would significantly affect beneficiaries of Medicare as well, despite politicians’ assurances to the contrary. The per-capita caps proposed in overhauls such as the withdrawn GOP repeal would also affect Medicare offerings, as around 11m Medicare beneficiaries also require Medicaid assistance. A per-capita cap would limit contributions by the federal government, making an open-ended state entitlement into a lump sum payment, and putting pressure on long-term supports and services (LTSS) that are seen as “optional”. These LTSS options in generous states currently help to make Medicare spending more efficient, leading to concerns that Medicare costs will increase without these services. In addition, changes to Medicaid, which is administered through states, could lead to cuts for low-income people who rely heavily on it.