5 Options for States to Respond to Medicaid Per Capita Caps

Congress is debating potential changes to Medicaid's financing structure that could set a limit on federal Medicaid spending through a per capita cap. If Congress passes the Medicaid changes proposed in the American Health Care Act (AHCA), states could face restrictions in federal financing and have to make difficult choices. A new brief from the Kaiser Family Foundation looks at five options states have to manage their budgets under a Medicaid per capita cap, and the associated challenges. States could: Raise taxes or make other budget cuts. States with low per capita incomes and/or current budget shortfalls would likely face challenges using this approach to fill gaps from a substantial loss of Medicaid funds. Reduce Medicaid “optional” benefits not required by law. States that already have limited benefits could face challenges in this area, and this approach could result in short-term savings but costly long-term health problems for some individuals. Limit coverage of high cost enrollees. This could limit access to care and needed services for the elderly and people with disabilities. Reduce provider rates or implement delivery system reforms. Since reimbursement rates for Medicaid are generally lower than private insurance, cutting provider rates could restrict access to care. Implement policies to promote personal responsibility or skin in the game. Research finds it is not clear implementing such policies would generate significant savings. An associated brief reviews the literature about the potential for Medicaid cost savings from premiums, cost-sharing, and enrollee wellness incentives; complex care management; patient-centered medical homes; alternative payment models; tightening financial eligibility rules for long-term care services; promoting private long-term care insurance; expanding home and community-based services; and increasing use of managed long-term services and supports.  The brief finds that the literature does not provide strong evidence that adopting these policies achieves large Medicaid savings, though there may be other reasons to pursue these policies, such as improved health outcomes or increased enrollee satisfaction. Filling the need for trusted information on national health issues, the Kaiser Family Foundation is a nonprofit organization based in Menlo Park, California.

Contact: Chris Lee | (202) 347-5270 | clee@kff.org