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Senate Health Bill Deepens Medicaid Cuts for High-Cost States

The Senate Republican bill to repeal the Affordable Care Act would (like the House bill) fundamentally restructure Medicaid by converting its federal funding to a “per capita cap” that would grow more slowly than actual Medicaid per-beneficiary costs, and states would likely have to make even deeper cuts to Medicaid services and eligibility under these caps beginning in 2025.  Now we’ve learned that the Senate bill would penalize some states with Medicaid costs above the national average even more.

Starting in 2020, the Senate bill (like the House bill) would establish different per-beneficiary caps for different groups:  children, seniors, people with disabilities, adults eligible through the Medicaid expansion, and other adults.  Each year, states would receive a fixed amount of overall federal funding based on each of these caps and on enrollment in each beneficiary group.

The Senate bill, however, adds a section that deepens federal cuts for states with high Medicaid costs.  If a state’s spending is more than 25 percent higher in any eligibility group than the national average, the state’s per capita cap for that group would shrink between 0.5 percent and 2 percent the following year.  At the same time, states with low spending for an eligibility group would be rewarded with a slightly higher cap for the following year.  These adjustments wouldn’t permanently affect a state’s overall cap, which would still be based on the state’s spending before the cap took effect.

The Senate approach adds to state problems with the per capita cap by failing to recognize the many reasons that state spending varies.  States have very little control over many factors that affect their spending on Medicaid beneficiaries.  For example, states with large numbers of baby boomers who will need costly care as they age could be hit hard by these penalties, including Nevada, Arizona, and New Mexico.  States with poor average health status, such as Mississippi, Louisiana, Arkansas, Alabama, and Oklahoma, could have higher spending, which could also trigger a penalty.  These states could see their federal funding decrease at exactly the time when their state costs are increasing to help care for these vulnerable groups. The bill would only exempt a few states with very low population density from the adjustment (although the per capita cap would still apply to these states’ overall Medicaid spending). 

Moreover, these adjustments would be calculated each year based on average national spending.  In other words, states are pitted against each other.  If a high-spending state makes deep cuts to avoid the penalties in the same year that other states also make cuts, it could create a race to the bottom —where states make deeper and deeper cuts to their programs to avoid the penalty.  Ultimately, Medicaid beneficiaries would likely lose access to care.

If this penalty were in place in 2014, a full 24 states and the District of Columbia would have experienced per capita cap reductions in at least one category: Arkansas, Connecticut, Delaware, District of Columbia, Georgia, Indiana, Iowa, Kansas, Maryland, Massachusetts, Minnesota, Missouri, Nebraska, New Hampshire, New Mexico, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, Washington, and West Virginia.

As we’ve explained, the per capita cap would disproportionately harm some states, including those with high spending growth. The Senate bill doubles down on these cuts, forcing states with high fixed costs to make even deeper cuts to their Medicaid benefits and their payments to health care providers under their caps.  These policies would prove devastating to state Medicaid programs over time, very likely causing many of the most vulnerable people to lose access to care when they need it most.