The Senate’s version of the House-passed American Health Care Act will almost certainly include a fundamental change in the way the federal government contributes to Medicaid. Over time, that new structure would result in deep cuts in the federal contribution to Medicaid and ultimately reduce long-term care benefits for frail older adults as well as younger people with disabilities. These changes may give states important new flexibility in how they provide these supports and services. But they may also mean that states will slow or even reverse their shift toward delivering assistance in community settings and revert to providing care in nursing homes.

Because Senate Republican leaders are writing their bill behind closed doors, it is not possible to know exactly what they are going to propose when a bill surfaces, perhaps as soon as tomorrow. But their plan reportedly will follow the outline of the House measure.  It may delay some Medicaid changes for a few years, but the structure will likely be the same.

Cutting Federal Medicaid Payments

Thus, it will repeal the current model where the federal government pays a fixed percentage of Medicaid costs and replace it with a design that caps those federal contributions. States could choose to accept either a block grant—a fixed dollar amount of federal assistance—or a per-capita cap where   federal funding is adjusted based on the number of people receiving benefits. Under either model, the federal contribution would increase each year based on some index of inflation.

Under the existing system, the federal government pays about 60 percent of Medicaid costs, though in some states it funds about 70 percent. While two-thirds of Medicaid enrollees are young families with children, the highest-cost beneficiaries are frail older adults and young people with disabilities. In 2015, Medicaid spent about $150 billion on that population. And much of that money paid for long-term supports and services, not medical treatment.

Per Capita Caps

But whichever model states adopt—the block grant or the per capita cap—federal contributions would fail to keep up with a rapidly aging population.  Even though the inflation index in the House bill for older adults, health inflation plus one percent, seems very generous, the feds would pay a smaller and smaller share of Medicaid costs. This would be especially true with block grants, which would not take into account a growing population of older adults. But it would even be true with per capita caps.

Why? Because of  77 million rapidly-aging Baby Boomers.  Many have already turned 65, but as they begin to turn 80 or 85, their care needs will grow significantly, and so will their Medicaid costs.

In a new paper, AARP describes this phenomenon. Today, almost half of Medicaid beneficiaries who are 65+ are age 65 to 74, about 31 percent are 75 to 84, and only about 22 percent are 85 or older.  By 2025, the percentage of those 65 to 74 will begin to shrink. And by 2050, as the Boomers live to very old age, fully one-third of the older 65 population will be 85 plus.

What will that mean for Medicaid costs? Today, average spending per enrollee is about $17,500, according to the Kaiser Family Foundation. But those 65-74 cost the program only about $12,000 annually while those 75-84 cost roughly $18,000 and those 85+ cost nearly $29,000.

Aging Boomers

In other words, as millions more older adults reach very old age, the costs of caring for them increases. A per capita cap would account for a growing number of seniors in Medicaid and might even cover cost inflation for any given service. But it would not keep up with growing need for care. To put it another way, an inflation adjustment might increase the hourly wage of a home care aide, but it would not reflect the extra hours of care needed by the growing numbers of old-old.

What will happen when states have to operate their Medicaid programs with fewer federal dollars. The additional flexibility offered under the AHCA may help them operate the programs more efficiently. But the AHCA would cut federal spending on Medicaid by more than $800 billion over 10 years, and no new effieicires will cover those costs. The result: States will either have to reduce benefits, cut payments to providers, tighten eligibility, or cut other programs or raise taxes to maintain Medicaid services.

Back To Nursing Homes

If states do have to cut Medicaid long-term care benefits, what would they target?  A new report by The Center for Consumer Engagement in Health Innovation and Leading Age (which represents non-profit aging service providers) concludes that many cuts would come in Home and Community-based services.. The reason: Stets are obligated to provide care in nursing homes but home care services are optional.  With limited resources, states may opt for the mandatory setting.

A new report by the actuary at the federal Department of Health & Human Services reaches the same conclusion. It projects that there “is no estimated impact on Medicaid enrollment because of the presence of the per capita allotments.”  That’s because it assumes states will “(i) lower provider reimbursement rates; (ii) manage utilization and program efficiency; and (iii) reduce optional services.”

Keep in mind too that Congress can, and likely would, reduce the inflation index over time, thus cutting even more deeply into the federal share of Medicaid funding and leaving even more of the cost to the states.