Analysis Outlines Savings Needed for States to Participate in Healthy Adult Opportunity

February 10, 2020

Avalere Health released an analysis outlining estimated savings that states electing to opt into the Health Adult Opportunity program need to generate in order to remain below capped funding levels mandated in the Trump administration’s new Medicaid initiative.

Avalere Health released an analysis outlining estimated savings that states electing to opt into the Health Adult Opportunity (HAO) program need to generate in order to remain below capped funding levels mandated in the Trump administration’s new Medicaid initiative.

The HAO is an optional Medicaid funding model that allows states to utilize capped funds, sometimes called block grants, to share in savings resulting from unused federal funds. The program would allow states to operate under the block grant or a per capita cap financing model for adult populations under age 65 for whom coverage is not mandatory.

Proponents argue the program will increase states’ flexibility when it comes to determining Medicaid spending. Critics feel any cap on Medicaid funding will target vulnerable populations.

According to the analysis, “States that choose to participate in the HAO may need to generate up to 8% of total Medicaid savings to stay below an aggregate cap over the 5-year life of the demonstration. Under this option, if states are successful in achieving spending below the cap, they will be eligible to share those savings with the federal government.”

Avalere estimates that over 5 years, potential percentage reductions in total Medicaid funding could range from 0.1% in Nebraska to 8.1% in California.

“Importantly, several states most likely to pursue this demonstration do not currently cover sufficient numbers of non-mandatory adults to model the implication on existing federal funding. For these states, the HAO may provide an opportunity to expand coverage with additional flexibilities,” the report found.

The report determined that under per capita caps, states may need to generate up to 6% savings in 5 years, lower than under an aggregate cap. Predictions estimate 25 states would see reductions of less than 2% over 5 years.

“In the case of an economic downturn, per capita caps would better protect federal Medicaid reimbursement as the total reimbursement to the state would rise with an increase in enrollment. Aggregate caps, in comparison, do not rise during an economic downturn and increase in Medicaid enrollment,” according to the report.

In order to estimate recent and historical Medicaid spending and enrollment, Avalere used a combination of CMS’ Medicaid Statistical Information System and Medicaid Budget and Expenditure System data from the Medicaid and CHIP Payment and Access Commission.

Although funding approaches vary by state, Avalere was able to conclude that “participation in an aggregate cap demonstration will generally create a lower federal funding cap for states than per capita caps.”