Senators Must Address A Critical Stumbling Block To Changing Medicaid: State Envy – Forbes
Senate Republicans are working out their draft legislation in hopes to have it ready for discussion as early as June. As they consider changes to the Medicaid program, they must address a critical stumbling block: state envy.
What is state envy? It is the concept in which some states will financially benefit more than other states under the per capita cap. A per capita cap could result in lower payments to states that have worked to control costs of their Medicaid program through the use of innovative cost saving strategies, Medicaid managed care, or lower provider payments. On the other hand, a per capita cap could reward states with high spending Medicaid programs.
Conceptually the per capita cap formula under the American Health Care Act (AHCA) includes three parts: 1) medical expenditures from FY 2016, 2) enrollment numbers, and 3) the medical care component of the consumer price index for all urban consumers (MCPI-U). Enrollment numbers and MCPI-U will rebase; enrollment numbers will be updated quarterly through the CMS-64, while MCPI-U is updated on a monthly basis. Although it is unclear how often the per capita cap will adjust with new numbers for enrollment and MCPI-U, what is certain is that expenditures will be frozen at FY 2016 spending.
This formula will trap states at their FY 2016 reimbursement rates, creating downward pressure across the system. Many providers already do not accept Medicaid patients due to low payment rates, this formula could exacerbate that problem for low paying states. The state of Iowa recently converted its Medicaid program to managed care. In doing so, provider rates were lowered considerably. There has been a spirited debate in Iowa questioning if those payment rates were cut too much. Iowa may ultimately provide some relief to their Medicaid providers, but if the AHCA goes into effect, Iowa’s base payment will revert to the 2016 numbers.
This will create an obvious inequity between neighboring states. Research from the Urban Institute shows that Florida pays Medicaid providers 56% of Medicare rates. In Georgia, Medicaid providers are paid 75% of Medicare rates. Meaning, Medicaid providers in Florida would be paid approximately 34% more if they were practicing in Georgia. Under the per capita cap as written in the AHCA, states like Florida would be disadvantaged in trying to increase their provider rates to compete with other states paying Medicaid providers high rates and could lead to clinician shortages in certain states.
To be clear, Florida could always pay certain types of providers (e.g., pediatricians or nursing homes) more by reallocating between providers under the per capita cap in an effort to be more competitive with Georgia. But it would be mathematically impossible for Florida to improve its rates to Georgia’s rates across the board.
Why are provider payment rates higher in Georgia than Florida? Why are provider payment rates higher in Maryland than Virginia? Why are provider payment rates higher in North Dakota than South Dakota? Because the current Medicaid program gives states the freedom to set their provider payment rates. Each state gets to determine what it thinks the right payment rate is to attract enough providers to participate in the Medicaid program in their state. That is called state flexibility.
If the AHCA passes, why will Georgia, Maryland, and North Dakota have higher payments rates than their neighbors? Because in 2017, Congress voted to freeze payment rates for states, relative to each other, at 2016 levels. Effectively FOREVER.