Trump administration takes aim to overhaul Medicaid

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(CNN) — The Trump administration on Thursday took another significant step in overhauling Medicaid, allowing states to ask for a set amount of federal financing for part of their programs in exchange for more local control.

Titled “Healthy Adult Opportunity,” the guidance permits states to apply for so-called block grants to cover certain low-income adults, particularly those who gained benefits under the Affordable Care Act’s Medicaid expansion provision. Federal funding, which is now open-ended, would be capped, with states receiving either a lump sum or a specific amount per enrollee.

The plan is the latest move by the Trump administration to inject conservative ideals into the 55-year-old health program for low-income people, coming two years after it allowed states to require certain beneficiaries to work, an effort that’s largely been halted by the courts.

Republicans have long wanted to implement block grants as a way to curtail Medicaid spending, but its inclusion in the GOP bills to repeal and replace Obamacare helped doom the legislation in 2017. The description of the guidance given to journalists doesn’t mention the words “block grant.”

A group of House Democrats, led by Massachusetts Rep. Joe Kennedy III, sent a letter Wednesday to Health & Human Services Secretary Alex Azar and Centers for Medicare and Medicaid Services Administrator Seema Verma opposing the plan, saying it defies Congress and the federal Medicaid statute.

“Medicaid block grants necessitate cost-cutting measures like restricting enrollment, decreasing provider reimbursement and limiting eligibility and benefits through managed care,” the letter said. “The actions endanger the lives of the most vulnerable patients, the population Medicaid was created to protect.”

The guidance would like to encourage states to undermine coverage, said Aviva Aron-Dine, vice president for health policy at the left-leaning Center on Budget and Policy Priorities.

“Medicaid’s coverage guarantee means that coverage is there when you need it,” she wrote in an online post.

“Weakening that guarantee — or eliminating the federal standards and oversight that ensure that states, health plans, and providers comply with it — would worsen access to care, health, and financial security for beneficiaries and likely increase providers’ uncompensated care costs,” she added.

Among the main concerns about block grant funding is that the lump sum model cannot adjust to economic downturns, when enrollment typically increases, and that both the fixed annual amount and the per person cap versions would have difficulty handling spikes in health care treatment costs.

The agency could work with states to readjust the funding levels under those circumstances, Verma said.

Medicaid covers more than 70 million Americans, or roughly one in five people, particularly low-income children, pregnant women, the elderly and people with disabilities. Some 36 states, plus the District of Columbia, have opted to expand benefits to low-income adults under the Affordable Care Act, adding about 15 million recipients to the program.

Total Medicaid spending in fiscal 2018 was $593 billion, with 62.5% paid by the federal government and 37.5% shouldered by states, according to the Kaiser Family Foundation.

Funding is now open-ended. Conservatives complain that the financing formula encourages states to spend more so they can secure more federal money, while a block grant would prompt them to better control costs. Medicaid is typically one of the top two expenditures for states, and governors and lawmakers often complain that the state contribution eats up money that could be spent on education, infrastructure and other needs.

The newly issued guidance is targeted at working age, able-bodied adults and does not apply to most of Medicaid’s traditional beneficiaries, including children, seniors or the disabled. However, states that did not expand Medicaid could apply for fixed funding to cover certain low-income adults in their programs.

Also, states that opt to receive a set annual amount could keep a portion of any unused funds, though they must show that access to and quality of care has not declined and they must reinvest that money into the Medicaid program. And they could request to add new conditions for eligibility for these recipients, change their benefits, require them to pay more and limit their drug coverage by implementing a list of approved medications.

States will be required to report quarterly on enrollment, retention of beneficiaries, complaints, financial management and several other metrics.

“Our focus with our Healthy Adult Opportunity program is to change the whole paradigm and to reset the framework of how we’re working with states,” Verma said.

Thursday’s notice comes four months after Tennessee unveiled a plan to shift most of its Medicaid program into a block grant-type model. The state, which did not expand Medicaid, is seeking to exclude certain costly expenses from the block grant and to allow federal funding to increase if enrollment rises.

Another provision: If the state spends less than the block grant amount, it gets to keep 50% of the federal share of those savings.

However, Tennessee’s proposal does not fall into the parameters of the new guidance because it would move many of its traditional Medicaid enrollees into the block grant, which is wider than the federal program would allow. The Centers for Medicare and Medicaid Services is working with the state, Verma said.

Other states are also looking to change how their Medicaid programs are funded. Alaska has commissioned a study of block grants, and Oklahoma Gov. Kevin Stitt has expressed interest.

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