WASHINGTON — The Trump administration said Thursday that it would allow states to cap Medicaid spending for many poor adults, a major shift long sought by conservatives that gives states the option of reducing health benefits for millions who gained coverage through the program under the Affordable Care Act.
Seema Verma, administrator of the Centers for Medicare and Medicaid Services, said states that sought the arrangement — an approach often referred to as block grants — would have broad flexibility to design coverage for the affected group under Medicaid, the state-federal health insurance program for the poor that was created more than 50 years ago as part of President Lyndon B. Johnson’s Great Society.
The announcement by Verma, who often speaks of wanting to “transform” Medicaid, comes as her efforts to let states require adults on Medicaid to work or train for a job — which led to 17,000 people in Arkansas losing coverage in 2018 — are mired in court battles.
“Government has a solemn responsibility to provide for the most vulnerable among us,” Verma said in a morning call with reporters. “Part and parcel of that responsibility is making sure the Medicaid program is sustainable.”
Democrats, health care providers and consumer groups warned that capping federal funding for adults on Medicaid and giving states more freedom to decide whom and what the program covers would jeopardize medical access and care for some of the poorest Americans. A legal challenge is inevitable.
“After failing to cut Medicaid in 2017 through congressional action, the Trump administration has consistently tried to achieve the same results through administrative attacks,” said Emily Stewart, executive director of Community Catalyst, a consumer group. “With fewer dollars to provide care to millions of people, let alone address current and future public health issues, CMS is opening the floodgates to allow states to cut benefits and limit services.”
The new funding option could possibly have the effect of increasing the number of Medicaid beneficiaries in some states — namely, the 14 that have not yet expanded Medicaid, who might see it as a more conservative way to move forward in covering poor adults. States that have already expanded Medicaid could also pursue the option, which could lead to pared-down coverage for that population, though some experts predicted most would not.
“There’s no question this plan provides unprecedented flexibility to states to restrict health care under Medicaid,” said Larry Levitt, executive vice president for health policy at the nonpartisan Kaiser Family Foundation. “What is less clear is how many states will want to do that and be willing to roll the dice with a cap on federal contributions.”
States can use the new approach only with adult beneficiaries younger than 65 who aren’t eligible for Medicaid because of pregnancy, a disability or their need for long-term care — in essence, those whom the Affordable Care Act gave states the option of covering.
Medicaid has always provided unlimited federal matching payments to states based on whatever they spend providing care to the poor. Some of what the program covers is mandatory — emergency and hospital care, for example — but states can also choose to provide additional benefits, such as dental care or prescription drugs. No matter how much a state’s enrollment or spending rises, the federal share of funding rises with it.
But under the waiver program Verma is proposing, a state would use a formula to determine ahead of time how much it will spend on its adult Medicaid population in a given year, then get a fixed federal share in either a lump sum or a per-person amount. Critics said this could be devastating if more people became eligible for Medicaid because of a recession, or if costs went up because a lot of enrollees needed an expensive new medicine; Verma said the program would “allow adjustments” under such circumstances.
The plan — called “the Healthy Adult Opportunity” — would allow states to cover fewer drugs for enrollees in the block grant program. And while it would require a minimum level of coverage based on the Affordable Care Act’s 10 categories of “essential health benefits,” states could decide whom exactly to cover and omit traditional Medicaid benefits like long-term care, transportation to medical appointments and retroactive coverage for people who got care in the months before they got Medicaid.
“Another big difference could be in the scope of the service,” said Cindy Mann, who ran Medicaid during the Obama administration and is now a partner at Manatt Health, a consulting firm. “It could skinny down the benefits significantly.”
States would also be allowed to impose premiums and out-of-pocket costs on the waiver population, but nobody would be required to pay more than 5% of their household income.
Allowing states to exclude certain drugs from Medicaid coverage appears to be a policy reversal, said Rachel Sachs, an associate law professor at Washington University in St. Louis. Today, states must cover all medically necessary drugs, but the proposal appears to allow states that participate in the block grant program to exclude certain drugs in an effort to secure deeper discounts by pitting competing manufacturers against each other.
In 2017, Massachusetts asked for permission to exclude “drugs with limited or inadequate evidence of clinical efficacy,” but the Trump administration denied the application.
Stacie Dusetzina, an associate professor of health policy at Vanderbilt University School of Medicine, said a balance would need to be struck between excluding drugs as a way of saving money, and not limiting access to drugs that patients need.
Republicans have proposed block grants in various forms for decades, going back to the Reagan administration. Most recently, Republicans’ bills to repeal and replace the Affordable Care Act in 2017 proposed giving states a choice between a fixed annual sum per Medicaid recipient or a block grant — both of which would have led to major cuts in coverage over time, analysts projected. Concerns from moderate House Republicans about the potential of deep cuts to Medicaid — which now serves more than 71 million people, or more than 1 in 5 Americans — helped doom the repeal effort.
Conservatives said Medicaid spending, which consumes a major and growing portion of the federal and states’ budgets — it cost about $620 billion in 2018 and accounted for 9.5% of the federal budget — needs to be reined in. They contend that the current system of unlimited federal matching funds has encouraged states to milk as much as they can, sometimes wastefully. Capping funding, their argument goes, would make Medicaid more efficient and ensure it can continue to help the sickest and most vulnerable Americans.
Although the federal government generally pays between 50% and 77% of a state’s total Medicaid costs, depending on the state’s wealth, it covers much more — 90% of the costs — for the adults who became eligible for Medicaid under the Affordable Care Act. While most adults who qualified for Medicaid in the past were disabled, pregnant or extremely poor parents of small children, the newly eligible group — nearly 15 million people, Verma said — includes adults who may be healthy and childless and have somewhat higher incomes.
Verma has often suggested that adding healthy working-age adults to the program has threatened its viability for more fragile populations, like children, the elderly and the disabled. She did so again Thursday, saying in a call with reporters that Medicaid “was not originally designed for this group” and that many states had been “far too lax” in verifying whether people are even eligible.
The popularity of Medicaid raises the question of why Trump would sign off on a contentious block grant program heading into his reelection campaign. The threat posed to the program by Republican efforts to repeal the Affordable Care Act helped Democrats retake the House in the 2018 midterm elections. But if the new option is taken up by states that have not yet expanded Medicaid at all, Trump could point to it as a new expansion of health coverage.
“Trying to get to the bottom of the politics of this is hard,” said Sara Rosenbaum, a professor of health law and policy at George Washington University. “I assume that they are trying to look like they are helping poor people without in any way extending the entitlement.”
Gov. Kevin Stitt, R-Okla., was on hand for the announcement and said his state would be among the first to seek federal approval for the new spending arrangement. Advocacy groups in Oklahoma collected enough signatures to get a question on this November’s ballot asking voters whether to expand Medicaid; similar efforts have succeeded in Maine, Idaho, Utah and Nebraska. But Stitt opposes expanding Medicaid in this way and may see the new opportunity as a way to get out in front of the ballot question.
How much federal funding a participating state would receive would be based on a complex formula. If states spent more than their predetermined budget, they wouldn’t get more federal money. But if they spent less, they could keep part of the unspent federal funds.