The Uncertain Future of the Medicaid Program

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The entire system of healthcare coverage is currently under attack in Congress. First, Congressional Leadership and the new Administration came after the Affordable Care Act, and now they have set their sights on the Medicaid program.

Medicaid provides healthcare for approximately 1 million people in our state each year, including more than 630,000 children. In South Carolina, 60% of all births and 75% of all nursing homes are covered by Medicaid. As a result, many of the successes that we see in South Carolina’s healthcare outcomes are due to Medicaid.

The Medicaid program is jointly funded by a combination of federal and state funding, with the majority of the funding coming from the federal budget. These federal funds are not considered to be discretionary, which means under the current system, the funding is open ended and not funded yearly. In this way, Medicaid is an entitlement program; it is mandatory and cannot run out of funds. While South Carolina is responsible for some of the costs, SC is paid approximately 70% by the federal government for most Medicaid services and an even higher amount for children’s health (80%) and family planning (90%). In addition, the federal government provides enhanced federal match for systems upgrades, services for newly eligible adults, and preventive services.

Under the current financing system individual states have a lot of flexibility. For example, the system allows states to add new coverage groups, decide many of the services it is willing to pay for, and add new procedures and lifesaving medications as they are developed. Perhaps most importantly the Medicaid’s flexibility allows the program to respond to issues the state is facing in real time—be it a recession, healthcare emergency or natural disaster. This flexibility is one of the key elements that makes Medicaid an effective program for providing healthcare.

However, current proposals in Congress would fundamentally restructure Medicaid, and this could all change.

Block Grants and Per Capita Caps

Of the many changes to Medicaid that have been proposed in Congress, two stand out as the most sweeping and potentially detrimental: block grants or per capita caps. Under either of these proposals, Congress could substantially reduce funding, as well as the flexibility currently afforded to SC’s Medicaid program. Under the current system, because South Carolina has a higher poverty rate than many other states, SC receives an increased amount of federal matching funds for each dollar of state funds that is spent on Medicaid. Under either block grants or per capita caps, this would change and the federal government would come up with a standard payment for all states. This could greatly impact the amount of federal funding SC receives.

Specifically, block granting would significantly change the way our state’s Medicaid agency can manage its funds. Each year, the federal government would establish a set amount of funds for each state and no additional funding would be available as caseloads grow, even if the state has control over the increased need. This would also severely limit a state’s ability to address situations such as disasters or unexpected rise in costs. As a result, states would be forced to place applicants on waiting lists, or states may be forced into prioritizing one beneficiary group over another.

With a per capita cap, on the other hand, the federal government would provide a set amount of money to each state per Medicaid beneficiary. Once in the state’s hands, a per-person payment amount would be established that is allocated for the average cost of care, per enrollee—for children, adults, individuals with disabilities, and senior citizens. These populations would be indexed to a predetermined growth rate from one year to the next to establish a fixed amount of increasing federal funds each year. The fixed amount would then be adjusted annually for general inflation, but medical inflation is usually much higher. No matter what annual increase is established, it is unlikely to keep up with real medical costs, especially in relation to the creation of new medication or the implementation of new medical services, much less, exposure to health epidemics or natural disasters. In events, such as these, South Carolina would be required to absorb the cost of any medical expenses that exceed the established per capita cap. This reduced, less flexible federal funding could ultimately result in the need to completely restructure Medicaid or—as with block grants—could result in waiting lists or priority beneficiary groups.

With either option one thing is clear, Medicaid’s ability to provide quality healthcare and respond to changing needs within a state would be greatly reduced. Likewise, changes to Medicaid would have a dramatic effect on individuals and families who are already vulnerable to poverty, when faced with the cost of unexpected medical needs.

Either way you look at it, these outcomes are bad for the health of our state.