Manatt on Medicaid

AHCA Would Affect Medicare, Too

By Cindy Mann, Partner | Allison Orris, Counsel

Editor’s Note: While the American Health Care Act (AHCA)—the bill that would replace the Affordable Care Act—does not include explicit changes to Medicare, it could have a profound impact on the 11 million Medicare beneficiaries who also rely on Medicaid for key components of their care. In a new blog post prepared for The Commonwealth Fund, summarized below, Manatt Health examines how the AHCA’s major changes in federal Medicaid funding would affect low-income older adults and the Medicare program. Click here to read the full post.

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One-Third of All Medicaid Spending Is for People Covered by Medicare

Dual eligibles—Medicare beneficiaries who also are enrolled in Medicaid—account for one-third of all Medicaid spending and could be disproportionately affected by efforts to cut and cap federal Medicaid funding. The 72% of dual eligibles who receive full Medicaid benefits tend to be in poorer health than other Medicare and Medicaid beneficiaries and rely on Medicaid for high-cost services.

While Medicare covers physician, hospital and most other acute care, Medicaid covers some of dual eligibles’ behavioral health services and most of their long-term services and supports (LTSS), such as nursing home and home- and community-based services. Under federal law, most of these services are optional. Similarly, many dual eligibles are optional Medicaid beneficiaries, only qualifying when they incur health and long-term care costs that far exceed their incomes. States can drop optional services and optional enrollees, even without new federal flexibility.

The AHCA’s Per Capita Caps Would Strain State Medicaid Spending

The AHCA’s Medicaid per capita caps would decouple the amount of federal financial support for Medicaid from actual costs and provide up to a preset capped payment for enrolled individuals. While today the federal government shares the actual cost of Medicaid expenditures, the AHCA would set federal funding based on state historic spending trended forward using national trend rates. The Congressional Budget Office projects that per-Medicaid enrollee health costs would grow faster than the annual increase in the capped federal payments, which is how the AHCA’s federal savings are achieved.

Although the AHCA includes a more generous growth rate for the aged and disabled than for other eligibility groups, its funding formula is unlikely to keep pace with most states’ spending on these high-cost, high-need populations. In addition, federal Medicaid spending would no longer adjust for new costs associated with breakthrough drugs and therapies; rising labor expenses; or changing demographics, such as the growth in the 85+ age group. Pressure to constrain care for dual eligibles also would arise because the AHCA would let states use the faster-rising allotment for the elderly and disabled to finance care of other populations, including children and pregnant women. This approach could help states manage in the near term, but it would not be sustainable.

Federal Caps Would Force Hard Choices Affecting Low-Income Medicaid Beneficiaries and Their Families

Federal caps will force hard choices for all states, but states would feel the impact differently. Consider some of the ways the AHCA would constrain spending on care for low-income Medicare beneficiaries:

  • Ironically, setting per capita caps on federal funding for Medicaid would be particularly challenging for states that have done a good job of delivering services efficiently. For example, states that already rely to a greater extent on home- and community-based services may be locked into a lower federal cap than those that continue to rely on more costly institutional long-term care.
  • States that have been relatively generous in their coverage of Medicare beneficiaries through their Medicaid programs may be forced to pare back that coverage. If some optional beneficiaries are particularly costly—as is the case for many Medicare beneficiaries who turn to Medicaid when they need LTSS—states may have little choice but to curtail eligibility.

Capping Medicaid Could Hurt the Medicare Program, Too

A cap on Medicaid funding not only would affect low-income Medicare beneficiaries, it also could affect the Medicare program because of the close connections between Medicaid and Medicare. The AHCA may on paper leave Medicare alone, but millions of Medicare beneficiaries and their families—and the Medicare program itself—would feel the impact.