Capping Federal Medicaid Funding: Key Financing Issues for States

Prepared for the Robert Wood Johnson Foundation State Health Reform Assistance Network

President-elect Donald Trump and Republican congressional leadership have called for a repeal of the Affordable Care Act (ACA) and a fundamental overhaul of the Medicaid program that would include imposing caps on federal funding to states. If adopted, capped funding would replace the central feature of Medicaid’s financing structure—the federal government’s legal obligation to share all allowable state Medicaid costs.

Congress-Hall-Seat-with-Microphone

In a new issue brief for the Robert Wood Johnson Foundation State Health Reform Assistance Network, Manatt Health draws on a review of past proposals to explore financing issues that arise in the design of capped federal funding. The issue brief addresses 14 key questions:

  1. How would capped funding change Medicaid financing?
  2. What kinds of caps are under consideration?
  3. Would capped funding apply to all Medicaid populations, including the elderly and people with disabilities or just to the ACA expansion group?
  4. Could Congress exempt certain groups of beneficiaries or certain services from capped funding?
  5. If federal Medicaid payments to states were capped, would states still have to cover all groups of individuals or all services they are now required to cover?
  6. Would states that want to continue to cover their Medicaid enrollees—or new populations—be able to do so?
  7. How would capped payments be set?
  8. What funding would be counted in setting the caps? How do capped funding proposals treat states that have expanded Medicaid versus states that have not done so?
  9. Would Congress fold into the capped funding other ACA funds, waiver funds, or supplemental payments in the capped allotments?
  10. How do capped funding proposals accommodate advances in medical care or events beyond states’ control that can drive up state costs?
  11. Would states still be required to spend state funds as a condition of receiving federal capped payments?
  12. What can states learn from CHIP, which caps federal funding?
  13. What other Medicaid financing-related rules might be affected?
  14. Will new flexibility allow states to manage their programs within reduced, capped federal funding?