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Correcting the History of Medicaid Per Capita Caps

March 9, 2017 at 3:45 PM

Some House Energy and Commerce Committee Republicans, including Brett Guthrie, say that Democrats shouldn’t oppose a Medicaid per capita cap because President Clinton once proposed one in the 1990s. That’s both irrelevant and out of context.

As we’ve explained, the House Republican health plan, which the committee approved this afternoon, includes a radical proposal to impose a per capita cap on federal Medicaid funding that would shift significant costs and risks to states. By ending the Affordable Care Act’s (ACA) Medicaid expansion and converting the program to a per capita cap, the plan would shift $370 billion in Medicaid costs to states over the next ten years. In addition to the 11 million people who’ve newly gained coverage under the expansion who would likely lose it, tens of millions of additional children and families, seniors, and people with disabilities who rely on Medicaid today would face the significant risk of ending up uninsured or losing access to needed care due to the per capita cap.

As for the Clinton years, the main argument for a per capita cap in the mid-1990s — that Medicaid costs per beneficiary were growing very rapidly — is no longer true. Medicaid spending growth per beneficiary averaged 9.2 percent per year in the late 1980s and early 1990s but only 1.9 percent per year between 1999 and 2014 — a much lower rate than in either private health insurance or Medicare.

A big reason is that Medicaid has become much more efficient. Using their considerable flexibility under the program, states are better coordinating care to improve quality and lower costs and are pursuing cost-containment strategies in areas like prescription drugs. States have also adopted innovative reforms to streamline health care delivery, including health homes and accountable care organizations.

In addition, federal policymakers addressed states’ “gaming” of Medicaid financing rules to boost their federal funding — a widespread problem a couple of decades ago — through strong legislation and an array of regulatory controls.

These developments, plus the recent slowdown in costs across the health care system (driven in part by the ACA), have helped lower Medicaid per-beneficiary cost growth sharply.

Not only are Medicaid’s per beneficiary costs well below those in both private insurance and Medicare; they’re expected to continue growing more slowly than costs in private insurance, as analysis by the Medicaid and CHIP Payment and Access Commission shows. Since August 2010, the Congressional Budget Office has lowered its projection of federal Medicaid spending for the 2011-2020 period by $311 billion (9.3 percent), mostly due to lower-than-expected growth in per-beneficiary costs.

In fact, Medicaid cost growth has slowed so much that if the Clinton Administration’s per capita cap proposal were enacted today, it would produce no federal savings because its per capita caps would grow faster than currently projected Medicaid per-beneficiary costs.

Meanwhile, the political context was dramatically different in the mid-1990s. In 1995, a Republican-run Congress passed a budget reconciliation bill converting Medicaid into a block grant at substantially lower funding, which would have shifted large costs to the states. In the pitched budget battle that ensued in 1995 — which ultimately led to a government shutdown — the Clinton Administration and some congressional Democrats developed a per capita cap as a “lesser of two evils” alternative just to stave off the draconian block grant. But the Administration and Democrats dropped their support for a per capita cap once the block grant was dropped from the budget negotiations, which eventually culminated in the bipartisan Balanced Budget Act of 1997.