“Playing with Rags”: Prospectively Managing Care Under Per Capita Caps/Block Grants

July 12, 2017

As the Senate continues to move on the Better Care Reconciliation Act (BCRA), an examination of the Medicaid provisions reveals a potential future laden with multiple challenges. Both the House (American Health Care Act) and the Senate bill (BCRA) feature capping Medicaid payments to States through per capita caps (PCC) model and through the potential use of block grants.  The last CBO estimate of the BCRA estimates cuts $772B from Medicaid over 10 years, resulting in 15M fewer lives covered by Medicaid.


This is all the consequence of the bills’ provisions which “wind down” the enhanced FMAP; establishing PCCs/block grants for Medicaid; and changing eligibility determinations (i.e. elimination of retroactive coverage, frequent eligibility determinations). Without getting into the detailed mechanics of the aforementioned elements, according to the consulting firm Avalere, on average, States that expanded Medicaid under the Affordable Care Act (ACA) would see a 19% reduction in funding, compared to 8% for States that chose not to expand.


According to the previously referenced CBO score, “with less Federal reimbursement for Medicaid, States would need to decide whether to commit more of their own resources to finance the program at current-law levels or to reduce spending by cutting payments to health care providers and health plans, eliminating optional services, restricting eligibility for enrollment through work requirements and other changes, or (to the extent feasible) arriving at more efficient methods for delivering services.” Given that more than 70 percent of Medicaid beneficiaries are in managed care plans (i.e. an efficient method of delivering services), States are likely to even more heavily leverage MCOs to deliver care under austere funding mechanisms. Consequently, to make sure that capitation rates paid to MCOS are reasonable and appropriate, it will be imperative that policymakers continue to require that actuarial soundness of capitation rates to ensure sustainability of capitated models.