The repeal and replacement of the Affordable Care Act (ACA) — both a longtime dream of newly re-elected House Speaker Paul Ryan (R) and a campaign promise of President-elect Donald Trump — may soon become a reality now that congressional Republicans are laying the groundwork with a budget resolution introduced in the Senate on Jan. 3. But just how quickly and how far Republicans will go in undoing Medicaid expansion as part of an ACA repeal remains to be seen. And with uncertainty comes numerous questions for Medicaid managed care organizations, such as what the GOP’s promise of greater state flexibility means for their ability to control costs, and how possible funding changes will impact their rates.

“The biggest question for Medicaid plans, which may not be the shortest-term question, is will Medicaid be converted to a block-grant program?” suggests Bob Atlas, president of the EBG Advisors unit of health care law firm Epstein Becker & Green, P.C. and a longtime Medicaid managed care strategist. Block granting, in which states receive a fixed amount of federal funding as opposed to the current percentage tied to whatever states spend, was part of Trump’s health care platform and already has the support of Rep. Tom Price, M.D. (R-Ga.), who has been picked by Trump to serve as HHS secretary.

Nevertheless, “something as fundamental as changing Medicaid financing” would require numerous Democrats to get on board, points out Atlas. And he doesn’t view that as likely, nor does he give block granting high odds of being approved via legislation this year given that the current Republican majority is not sufficient to overcome a Democratic filibuster in the Senate. “I think block granting is something that conservatives want to do as a long-term strategy to get federal deficits under control, but it will take more than one or two attempts to get there,” he predicts.

Block granting was one of two financing approaches laid out in the “A Better Way” proposal released by Ryan and the GOP last June. That plan promised states “new freedoms and flexibilities to run their Medicaid programs” by providing them a choice of either a block grant or a per-capita allotment. Reforming Medicaid’s financing with the latter, which basically translates to a per-member per-month amount, would not only reduce federal funding but incentivize states, plans and providers to “better manage dollars as they help provide care to vulnerable patients,” argued the GOP.

“The issue on block grants obviously is how much money is going to be there,” says Atlas. And while state Medicaid directors may look favorably on the idea of enhanced flexibility, “block grants over time would entail a greater squeeze on funding,” he suggests. As a result, “states with fixed resources are much more likely to delegate the risk to managed care companies.” The risk for the MCOs, therefore, is that with limited funding states will be “much more tight-fisted” with the plans, and since states would essentially be released from federal requirements by taking block grants, they wouldn’t have to adhere to the actuarial soundness requirement included in the Medicaid managed care rule that CMS published last year (MAN 5/5/16, p. 1).

States, Plans Need Flexibility, Argues MHPA

Nevertheless, Jeff Myers, president and CEO of Medicaid Health Plans of America (MHPA), says the national trade association is “generally optimistic” about the potential move away from federal medical assistance percentages (FMAPs) and the opportunity for innovation. “I think it’s clear that the current financing mechanism for Medicaid creates a lot of instability in the states, and makes it very challenging for state policymakers to think about their health care system in a holistic way,” he remarks in an interview with AIS Health.

But any replacement in financing must not only be actuarially sound and sustainable, it must be innovative “so that states can think through ways to provide access to care for the disadvantaged that give them a better opportunity to move up the economic ladder,” asserts Myers. For example, being able to integrate state resources like food stamps, job banks and housing into their Medicaid programs would help address some of the socioeconomic determinants of health that impact Medicaid beneficiaries and is something the plans would embrace, he suggests.

Furthermore, plans would welcome the opportunity to have more flexibility to control rising drug costs, and MHPA is currently putting together a set of recommendations for policymakers on this issue. “All of our plans are incredibly concerned about the pricing model that the life sciences community have taken to pricing both generic and branded medications,” Myers tells AIS Health. “It seems to me to be a reasonable question to ask, if you’re going to change the fundamental nature of Title XIX [Medicaid], why do the states need to still be in the position of determining formularies? That’s something that managed care plans do really well.”

Republican congressional leaders last week began laying the groundwork for ACA repeal when the Senate Budget Committee introduced a concurrent budget resolution that in part establishes a reserve fund for future health care legislation. That reserve would likely come from savings associated with repealing the ACA, similar to a 2015 reconciliation bill that called for a two-year phase-out of federal funding for Medicaid expansion but was ultimately vetoed by President Obama.

“The question that’s really unanswerable is, will states that haven’t already expanded have an opportunity to expand?” poses Atlas. “And it’s possible that Congress passes some kind of ACA repeal that says, ‘We’re going to delay the repeal of exchanges and they will continue to be open and all those rules will continue to operate for at least three years until we come up with a replacement.’ But they might say, ‘However, any state that hasn’t already expanded its Medicaid program as of Dec. 31, 2016, is forbidden to do so, and there will be no federal support for that.'”

Does Medicaid Expansion Stand a Chance?

Under the fixed funding proposal in “A Better Way,” states that did not expand Medicaid under Obamacare as of Jan. 1, 2016, would not have an opportunity to do so, while states that have already expanded would in 2019 have the enhanced FMAP for their expansion adult population phased down until it reached the state’s “normal FMAP level,” facilitating the transition of more “able-bodied adults” from Medicaid into commercial coverage.

“The political facts on the ground make it highly unlikely that the Republicans are just going to blow up Medicaid,” adds Myers. He points out that 14 Republican-led states have expanded Medicaid, including Kentucky, which now has a Section 1115 demonstration waiver pending CMS approval that would require most adult beneficiaries to pay monthly premiums of $1 to $15 and many members to engage in community service, job training or other activities to gain additional vision and dental benefits (MAN 8/18/16, p. 1). Or take Indiana, where Vice President-elect Mike Pence worked with Seema Verma, a top health policy consultant and Trump’s choice for CMS administrator, to secure a waiver that required Medicaid beneficiaries to contribute to “Personal Wellness and Responsibility” accounts to cover deductible expenses.

If Medicaid expansion is allowed to continue, more of these types of “personal responsibility” requirements or even coverage conditions based on employment may get pushed through in Republican-led states, suggests Atlas. Ohio Gov. John Kasich (R), for example, last April proposed to link work requirements directly to Medicaid participation. That waiver request was rejected by CMS (MAN 9/29/16, p. 8), but CMS under the new administration “may not draw that line,” he says. “And that ought to be a plus for the managed care industry because you now have people who are currently uninsured added to the Medicaid rolls, and the Medicaid programs would put those people into managed care plans, as most states did with their expansion populations.”