Medicaid And The Latest Version Of The BCRA: Massive Federal Funding Losses Remain

Washington, DC at the Capitol Building

Where Medicaid is concerned, the most notable thing about the latest version of the Better Care Reconciliation Act (BCRA) is that despite the drama of the past two weeks—the flood of news coverage regarding the potential impact of the losses; mounting concerns raised by Senators from expansion and non-expansion states alike; and the massive outcry from hospitals, physicians, insurers, and health care organizations—the new iteration leaves untouched the fundamental Medicaid contours of the earlier version.

The new draft retains the federal funding bar for Planned Parenthood (§ 123) as well as the earlier version’s limit on states’ ability to fund their programs through lawful, broad-based provider taxes (§ 131). The new bill does virtually nothing to lessen the financial losses to states that will flow from the prior iteration. According to the Congressional Budget Office (CBO), these losses would surpass $770 billion over 10 years as a result of provisions that eliminate the enhanced funding for the adult expansion population and superimpose flat annual growth restrictions on Medicaid’s historic federal funding formula (§124 and §132).

By 2036, CBO reports, federal Medicaid funding would be about 35 percent below current law, a catastrophe of epic proportions. According to one study that sought to translate BCRA’s Medicaid provisions into state-by-state loss estimates, California alone would lose between $37 and $52 billionbetween 2020 and 2027, depending on how the cap’s arbitrary growth limits play out over time. Indeed, depending on how the cap, which is tied to a general economic inflation rate that cannot be known with certainty, plays out against actual state spending needs—triggered by everything from new vaccines to long-term services and supports to address the opioid crisis or the consequences of Zika—the federal funding losses could grow from catastrophic to unimaginable.

Small Crumbs Of Money

Perhaps Congressional leaders have sought to convince their colleagues to disregard the CBO estimates and these studies, arguing that Congress, in fact, will never allow the bottom to fall out on states and will come through with additional funding. But the newest version of the bill underscores the fundamentally meaningless nature of such assurances.

Small crumbs of Medicaid give-backs can be found at various places in the new version. One that might be thought of as the Louisiana Purchase is designed to help one state cope with massive loss; over the long term, however, the adjustment washes out in the far larger picture of declining federal funding for an exceptionally poor state.

For purposes of setting the arbitrary growth limits over time, the original bill relied on per capita spending data from the 2014-2015 time period. The new draft would allow a late-expanding state (i.e., Louisiana) to use 2016 as its base period (§ 132). But regardless of whether it is tied to 2014-2015 or 2016, nothing can mask the fact that the base period is part of a growth formula unrelated to the real world of Medicaid spending. All state programs will be tied to the distant past where federal Medicaid funding is concerned.

Furthermore, the new version does not exempt the state from the bill’s exceptionally clumsy rate-setting procedures, which lack adjustments for volume and intensity or new technology and that allow the Health and Human Services (HHS) Secretary’s power to unilaterally alter what he considers to be unreliable state data. The measure continues to permit the Secretary to claw back what he determines to be “excessive” funding by reducing later payments without a prior hearing; in the event of state evidence of underpayment, the Secretary can withhold federal funds owed until a lengthy appeals system is exhausted.

As was the case with the prior version, the new draft tips its hat toward non-expansion states, further sweetening the pot by tweaking the disproportionate share hospital payment formula in ways that favor payments to states with the highest uninsured populations (§ 126, Restoring Fairness in DSH Allotments). Like its predecessor, the new version thus rewards states that have refused to insure their poorest residents and harshly penalizes struggling hospitals serving the remaining uninsured in those that have.

As an additional lure, the new version expands the block grant option in the earlier measure to enable states to use block grants for the ACA expansion population as well as for traditional low-income adults (§ 133). Like the earlier version, state block grant funding would remain virtually frozen, leaving states increasingly on the hook for care for millions of grievously under-funded adults.

The Illusion Of A Public Health Emergency Exemption To The Per Capita Cap

One of Medicaid’s most important dimensions is its irreplaceable role in addressing the immediate and long-term effects of public health crises. Medicaid is by far the nation’s biggest single source of health care financing for dealing with critical public health threats. These threats may begin with an initial, recognized period of a formally declared emergency. They then can morph into events with very long-term effects felt for years or decades after. This was the case with the World Trade Center attacks, which led to an immediate surge in health care spending, followed by years of elevated spending to address the long-term health fallout triggered by the emergency itself. One need think only about Zika or the opioid crisis now gripping the nation to understand the near-term/long-term nature of public health threats.

Medicaid enrollees are disproportionately likely to live in poor communities, and poor communities are disproportionately likely to face public health threats ranging from environmental hazards to infectious disease. These communities also are inherently less likely to have fewer resources to cope with the effects of an emergency. Thus, a program such as Medicaid is crucial in its ability to deploy health care financing resources to the hardest-hit populations. Indeed, two thirds of all Louisiana Medicaid beneficiaries lived in the parishes affected by Hurricane Katrina.

Section 319 of the Public Health Service Act authorizes the HHS Secretary to declare the existence of a public health emergency arising from events such as a “disease or disorder,” “significant outbreaks of infectious diseases or bioterrorist attacks,” or other events identified as public health emergencies by the HHS Secretary. Whether to declare an emergency is entrusted to the Secretary’s judgment, and during the immediate emergency period, the Secretary enjoys expanded powers to deploy resources to designated populations or geographic areas. These special powers end when the declared emergency period ends. In the aftermath, states and local communities effectively are on their own, relying on the resources they have.

In and of itself, a loss of federal health funding as large as that imposed by BCRA elevates the threat risk. This risk grows exponentially when a true crisis hits, if Medicaid is crippled in its ability to provide a large-scale surge in public health care spending both during the emergency and thereafter. To understand how little the revised bill does to mitigate the crippling impact of the initial draft one need only look carefully at what the revisions would do when a true emergency strikes.

The press release accompanying the new draft states that “if a public health emergency is declared, state medical assistance expenditures in a particular part of the state will not be counted toward the per capita caps or block grant allocations for the declared period of the emergency.” But a close read of the actual bill text reveals its fundamental inadequacy.

First, the period of exemption lasts only five years, from January 1, 2020 through December 31, 2024. Emergencies happening after this date won’t qualify for the spending adjustment. Second, the bill provides no additional federal spending during the period of a declared emergency. The draft simply allows states to eventually qualify for additional federal funding in the years following the emergency if they can prove to the Secretary that their spending on the affected population went up compared to prior years and then only for immediate emergency costs. What state will have the money in advance? And what state will be able to take a chance on spending more given the purely speculative nature of whether an emergency will be declared and emergency expenditures recognized?

Third, states would receive no additional funding ever unless the HHS Secretary actually declares an emergency in the affected portion of the state or for the state’s affected populations. Many public health threats may not rise to a level that triggers a formal Secretarial determination, and the Secretary may be inclined not to make such a determination because of other, spillover effects that come with such a determination, such as the elevated demand for other types of resources.

Fourth, the additional amount of federal funding made available would be limited to the difference between what the state spent on the population in connection with the emergency and the state’s previous expenditures for the same population. Expenditures to cope with the emergency aftermath would not count, and of course these expenditures likely would not occur simultaneously with the emergency expenditures. For example, Zika has triggered emergency expenditures aimed at preventing the spread of the virus, but the true costs of Zika will roll out slowly in the form of babies left permanently and severely disabled by the virus.

And here is where the public health implications of BCRA become clear: other than exempting state expenditures on children classified as disabled from the caps, the revised bill, like its predecessor, makes no adjustment for long-term consequences. To be sure, as just mentioned, BCRA does exempt state expenditures on severely disabled children from the federal cap. But because the vast majority of children qualify for Medicaid based on poverty, this type of cramped classification system for measuring exemptions is sure to exclude spending for millions of children in severely compromised health from the exemption process.

Fifth, the bill allows only $5 billion in the aggregate for all additional federal funding over the five-year time period covered by the emergency exemption. In other words, the bill essentially creates a five-year, $5 billion mini-block grant to help all states address Medicaid spending for all emergencies occurring during this time period. The incredibly small size of the block grant alone would be likely to incentivize the HHS Secretary to avoid declaring emergencies out of concern that the money won’t be there to cover them.

In the end, the newest iteration of BCRA does nothing to alleviate the catastrophic effects of its predecessor: the difference in magnitude between what Medicaid can do today and what it will be capable of doing in the future is incalculable.

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