Featured in Health Business Daily, Dec. 12, 2017

Plans Weigh Potential Impact of Medicaid Per Capita Caps on Duals, Medicare Spend (with Chart: Growth Rate for Aged, Disabled and Full Dual Eligibles)

Reprinted from MEDICARE ADVANTAGE NEWS, biweekly news and business strategies about Medicare Advantage plans, product design, marketing, enrollment, market expansions, CMS audits, and countless federal initiatives in MA and Medicaid managed care. Subscribe today!

By Lauren Flynn Kelly, Managing Editor
April 27, 2017Volume 23Issue 8

As House Republicans consider reviving efforts to repeal and replace the Affordable Care Act, any reform to Medicaid will likely include a shift to fixed federal funding. Depending on various state-specific factors, the concept of per capita caps that was floated in previous versions of the recently tabled American Health Care Act (AHCA) — which at press time was reportedly undergoing revisions in preparation for a possible House vote — could inadvertently lead to benefit cuts for dual eligible beneficiaries that will drive up Medicare costs, according to a new report from Avalere Health LLC and the SCAN Foundation.

“We don’t know what states will do in the face of limited Medicaid funding, but there is the risk that states will focus on some of their highest cost beneficiaries that are really driving up spending at a rapid rate, and dual eligibles are some of the costliest enrollees to the Medicaid program,” observes Caroline Pearson, senior vice president at Avalere. “So if a state were to focus on its highest cost enrollees, cuts to duals might be one of the policies that they could consider, more specifically cuts to long-term care services,” such as long-term services and supports (LTSS) and home- and community-based services (HCBS).

Medicare Advantage News

Reform Could Lead to Cuts for Duals

About three-quarters of states spend more than 30% of their Medicaid budget on Medicare beneficiaries yet have limited control over many of their duals costs, which include Parts A and B premiums, deductibles and coinsurance, observes Avalere in the report posted April 20. According to various data sources cited in the report, dual eligibles comprised 14% of Medicaid enrollees and accounted for 33% of Medicaid spending in 2011. Moreover, 23% of total Medicaid expenditures in 2011 were for certified long-term care services for duals; this amount comprised 62% of total Medicaid spending for duals, between long-term institutional care and HCBS.

The AHCA, introduced as a pair of reconciliation bills on March 6 by House Republicans, had proposed to move the current federal medical assistance percentage funding structure for Medicaid to per capita allotments beginning Jan. 1, 2020, when it would also begin phasing out enhanced FMAP funding for Medicaid expansion enrollees (MAN 3/16/17, p. 1). Although a spending bill and tax reform have become priorities for the GOP since an amended version of the American Health Care Act was withdrawn from the House floor on March 24, congressional discussion around repealing and replacing the Affordable Care Act (ACA) has continued, with the House Freedom Caucus and the House Tuesday Group contributing to an amendment this week.

CPI-M Plus 1% Comes Closer to Duals Growth

An earlier version of the proposed legislation would have increased the per capita cap, based on states’ per-beneficiary spending in fiscal year 2016, each year to match growth in the medical care component of the Consumer Price Index (CPI-M). The Congressional Budget Office estimated that enacting the legislation would cut federal deficits by $337 billion between 2017 and 2026, with much of that savings coming from reductions — $880 billion in total — in outlays for Medicaid and the elimination of the ACA’s subsidies for nongroup health insurance. The revised version of the bill that never made it to a House vote would have granted a higher inflation rate in the capped per capita payment for the aged and disabled population (MAN 3/30/17, p. 1).

“The magnitude of cuts that a state would experience as a result of per capita caps is extremely dependent on the growth rate” adopted in the legislation, points out Pearson. And if Medicaid spending growth exceeds the capped funding growth rate, states will either have to pay a higher share of Medicaid costs or find ways to reduce Medicaid spending.

According to new modeling from Avalere, GOP proposals to limit per capita federal Medicaid funding growth based on CPI-M could lead to a $44 billion spending cut for dual eligible beneficiaries, $13 billion in lower spending for all aged Medicaid beneficiaries and a $91 billion spending reduction for all disabled Medicaid enrollees over the next 10 years. States would see reductions ranging from 6% to 9% in federal funds attributable to duals with a CPI-M growth factor, adds Avalere.

Use of the CPI-M plus 1% formula more closely reflects the expected costs for these beneficiaries, projects Avalere, which determined the composition of dual eligibles who are aged or disabled using a combination of data sources to show that the average per enrollee growth rate for full duals would be roughly in line with the CPI-M plus 1% growth rate of about 4.7% by 2026 (see chart, p. 7). From 2020-2026, use of that factor would lead to a $20 billion increase in spending for duals and $26 billion more in available federal funding for the aged.

Spending on the disabled, however, is growing even faster than CPI-M plus 1%, which would still result in funding cuts of about $8 billion by 2026, estimates the firm.

“It’s a very high-cost population and states are experiencing rapid growth in their spending on the disabled, so that’s one group where even an enhanced growth rate would still be too low and could result in adverse effects for those beneficiaries,” observes Pearson.

Although studies have shown that LTSS and HCBS for duals reduce overall health expenditures, states may look to limit the scope of coverage for these services if the selected growth factor doesn’t sufficiently account for high-cost populations. However, such a reduction could ultimately drive up Medicare costs by leading to higher rates of hospitalization and more intensive use of services in these populations, suggests the report.

“Because Medicare is paying for the majority of medical services for duals but Medicaid is paying for long-term care services that in many cases can be critical in keeping beneficiaries out of the hospital, the risk really is that if states cut back on the scope of their benefits for dual eligibles — either by limiting long-term care services or simply having less rigorous disease and other care management programs, then it increases the risk that those dual eligibles are going to end up back in the hospital and Medicare pays for that,” Pearson remarks.

The impact of per-capita caps, however, will largely depend on certain state-specific factors, such as their current federal match rate, Medicaid expansion and eligibility criteria, and annual rate of spending, observes Avalere. The impact of per capita caps will also depend on whether a single cap would apply for all beneficiaries or different caps would be established for various Medicaid populations (e.g., children, disabled). Because dual eligibles on average incur higher costs than other beneficiaries, a non-specific per capita cap may not fully cover the higher costs for duals, adds the firm.

View the full report at http://tinyurl.com/m7x8da3.

Average Per Enrollee Growth Rate for Aged, Disabled and Full Dual Eligibles, 2020-2026

Average Per Enrollee Growth Rate for Aged, Disabled and Full Dual Eligibles, 2020-2026

CPI-M = The medical care inflation component of the Consumer Price Index
CPI-M+1% = Medical care inflation plus one percentage point
Note: Projections for Medicaid per enrollee spending growth come from CMS 2016 Medicaid Actuarial Report. Projections for CPI-M are from the Congressional Budget Office. Avalere estimated the composition of dual eligibles that are aged or disabled using a combination of MACPAC reports, MSIS data, and Census population projections.
SOURCE: Avalere Health LLC, an Inovalon Company, and the SCAN Foundation report, “Medicaid Funding Reform: Impact on Dual Eligible Beneficiaries,” published April 20. View the full report at http://tinyurl.com/m7x8da3.


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