Medicaid Block-Grant Waivers Would Be Bad for Insurers, Experts Warn

by Leslie Small

The Trump administration is reportedly working on a way to let states use waivers to implement a block-grant system in their Medicaid programs — and if those plans come to fruition, Medicaid managed care organizations might not fare so well, some experts warn.

Citi analyst Ralph Giacobbe advised investors that "block grants could result in millions losing health care coverage and/or a greater squeeze on reimbursement, which would be a negative for providers that have benefitted from Medicaid expansion." MCOs with significant Medicaid exposure, particularly Centene Corp., would also be negatively impacted, he added.

Currently, the federal government matches state spending for eligible Medicaid beneficiaries and services without a pre-set limit, according to the Kaiser Family Foundation. But with a block grant, states receive a pre-set amount of federal funding for Medicaid — typically determined by establishing a base year of Medicaid spending and then increasing the cap each year in line with inflation.

Jerry Vitti, founder and CEO of Healthcare Financial Inc., isn't sure states would apply for waivers that let them implement Medicaid block grants. "It would be a less rational decision to look at the lay of the land and say, 'I'm getting reimbursed at a certain level now, but I'm going to jump off a cliff at some point,'" he says.

Some states may opt for such a waiver for ideological reasons, just like how some legislators voted to repeal the Affordable Care Act "even though it would have had a particularly devastating effect on their states," says Edwin Park, a research professor at Georgetown University's Center for Children and Families. Some states might also embrace block-grant waivers if that means they're allowed to take steps they can't now, such as cutting mandatory Medicaid benefits or capping enrollment, he says.

Should such a waiver become reality in some states, though, both Vitti and Park expect Medicaid MCOs won't be happy.

After all, insurers opposed the Medicaid financing changes included in ACA repeal bills "because it would affect the number of enrollees they would have," Park says. Medicaid block grants could also result in "insufficient federal funding that could lead to inadequate capitation rates that are no longer actuarially sound," he points out.

Further, if states get more flexibility to restrict Medicaid eligibility, it would increase beneficiary churn, making it more difficult for MCOs to manage their members' chronic conditions, Vitti says.

From Health Plan Weekly