CMS Gives States More Leeway With Medicaid Block Grant Restructuring

January 31, 2020

CMS Administrator Seema Verma announced Medicaid structural reforms, rebranding what was previously known as block grant funding as the “Healthy Adult Opportunity.”

CMS Administrator Seema Verma announced Medicaid structural reforms, rebranding what was previously known as block grant funding as the “Healthy Adult Opportunity.”

The measure enables states to cap part of their funding for Medicaid and determine how they wish to spend remaining funds. The plan also allows limits on health benefits and drugs made available to some patients in the absence of any federal guidelines. Should states opt into the program, they are still required to meet federal government mandated minimums.

Republicans have historically supported block grants and attempted to implement the measure during their attempts to repeal the Affordable Care Act. Critics argue any cap on Medicaid funding may target vulnerable populations, marking a complete shift in how the safety net is intended to operate.

“Our most recent round of audits demonstrated many states’ practices for verifying [Medicaid] eligibility are far too lax. We shouldn’t have to tell someone with a disability to get on a wait list for services because we’re diverting precious resources to cover someone who doesn’t potentially qualify,” said Verma, referencing working-age adult enrollees added under the Obama administration’s expansion of the program. Specifically, the “Healthy Adult Opportunity” is limited to adults who are not eligible for Medicaid on the basis of disability, but for whom state coverage is an option.

The shift comes as Verma, along with Republicans such as Oklahoma Governor Kevin Stitt and Senator Bill Cassidy of Louisiana, also present at the announcement, argue that the current structure of Medicaid funding is too costly and ineffective.

“Medicaid is now the first or second largest budget item for states, crowding out other priorities like public education and safety,” Verma said. “It’s already the nation’s largest payer of long-term care.”

The plan promises greater flexibility for states to improve the health of Medicaid populations “while holding states accountable for a defined budget” and improve the quality of care provided to beneficiaries. It will also provide access to high-quality healthcare services, said Verma.

The measure mandates that aggregate out-of-pocket costs may not exceed 5% of household incomes and requires states to uphold statutory protections for tribal beneficiaries, individuals with substance use disorders needing treatment, those living with HIV, and individuals receiving prescription drugs for mental health conditions.

Should states not meet required benchmarks mandated by the plan, Verma notes, states will be held accountable, although it is unclear how. This leaves open the question as to whether federal funds will be witheld.

Critics were quick to denounce the policy, calling the measure illegal due to its violation of the Medicaid statute, and described the plan as a thinly veiled effort to cut Medicaid funding.

“President Trump is once again breaking the law and a promise he made to the American people. This illegal Medicaid block grant proposal could have devastating consequences on the health of millions of Americans, including those affected by the opioid epidemic,” said Energy and Commerce Committee Chairman Frank Pallone, D-New Jersey, in a statement.

He referred to the plan as a “bureaucratic backdoor to take people’s health care away.”

The American Society of Clinical Oncology (ASCO) also issued a statement condemning the restructuring.

“ASCO recognizes that state and federal budgets are facing mounting financial pressures—including the rising cost of cancer care—but transforming Medicaid into a block grant program would jeopardize health and outcomes for people with cancer…reducing access to care such as recommended cancer screenings could actually end up increasing the cost of care when patients present to providers with more complex, late-stage illnesses,” said ASCO President Howard Burris, MD.

Proponents of the plan disagree and believe that due to states’ differing populations and needs, an individualized, value-based approach will be superior to blanket federal funding.

“There is not a one-size-fits-all approach to delivering better healthcare and better outcomes. Every state has its unique challenges, their unique climates, and their own cultures. That is why the Trump Administration’s announcement today is a game changer,” said Stitt.

“Oklahomans want their federal tax dollars to be returned to the state and put into good use. But efforts to do this through amending our constitution to force Medicaid expansion are wrong, ineffective, and will fail to fix our problems,” he said.

Cassidy also condemned supplying additional funding to Medicaid, citing poor reported outcomes. He also touted the Trump administration’s economic development, arguing it has led to higher numbers of insured Americans.

“We have an economy where people were formerly uninsured because they were unemployed and are now on commercial insurance because they are fully employed. With wage growth disproportionally among those who are in the lower income strata, we have an economy which is working, we need a healthcare system which is working for them as well,” said Cassidy.

However, according to a September Kaiser Health News article, “For the first time in a decade, the number of Americans without health insurance has risen — by about 2 million people in 2018,” citing the annual US Census Bureau report.

“Census officials said most of the drop in health coverage was related to a 0.7% decline in Medicaid participants. The number of people with private insurance remained steady and there was a 0.4% increase in those on Medicare,” according to the article.

Previous Medicaid reform attempts included a provision to impose work requirements on those covered. The measure was blocked by a federal judge, who argued that “the health department failed to consider whether the work rules would meet a statutory program goal of improving patient health,” according to POLITICO.

The implementation of the “Healthy Adult Opportunity” may have a similar fate, as Medicaid advocates are likely to challenge the policy in court.

“Groups like the National Health Law Program, which sued over work requirements, said they’ll closely review the block grant plan,” POLITICO reports.

Reactions to the measure from provider groups and consumer organizations were largely negative.

"Enacting a cap on Medicaid funding leaves states unprepared to respond quickly to potential public health crises. In the event of an economic downturn, states would be unable to quickly accommodate people who might be unexpectedly and suddenly dealing with a loss of insurance and employment...Further by restricting federal funding available to states, they may reduce payments to physicians under Medicaid," said Robert McLean, MD, president of the American College of Physicians.

"AARP is deeply concerned that new guidance released today by CMS letting states cap funding in the Medicaid program could put at risk the health coverage for millions of vulnerable Americans. Capping the program’s funding structure and limiting benefits and services could leave millions without the coverage and care they need," said AARP Senior Vice President for Government Affairs Bill Sweeny.

The annoucement will also have significant impacts on states moving forward, should they opt into the program.

"CMS’ Healthy Adult Opportunity program, a new Section 1115 demonstration initiative, will allow state Medicaid programs to move toward capped financing models for some non-disabled adult beneficiaries with an opportunity for shared savings and additional flexibilities. One of the most significant changes is how state Medicaid programs can manage prescription drugs. States would be able to develop closed formularies and exclude drugs from coverage, while continuing to receive full manufacturer rebates," explained Margaret Scott, associate principal at Avalere, a healthcare consulting firm.