Block Grant Complexity, Vagueness May Limit Medicaid Uptake

March 03, 2020 - Healthy Adult Opportunity (HAO), a section 1115 Medicaid demonstration that creates a non-mandatory block grant for certain Medicaid populations, could require an expansion state to generate Medicaid savings of around eight percent in order for the state’s Medicaid spending to be under the demonstration’s threshold, a report by Avalere found. 

In response to the Trump Administration’s support for block grant funding, CMS recently released the Healthy Adult Option. Although the words “block grant” are found nowhere in the guidance, experts have identified it as a block grant for non-mandatory adults under the age of 65 in Medicaid programs.

Chris Sloan, associate principal at Avalere, contended that the block grant’s complexity and vagueness, among other factors, will discourage state Medicaid programs from implementing it.

The Health Adult Opportunity and Avalere’s analysis

“It's an optional program—that’s the first thing CMS highlights is that states don't have to do this,” Sloan explained in an interview with HealthPayerIntelligence. “Basically, what the administration is offering states is that for their non-mandatory adult population, the states can request capped funding from the federal government.”

The capped funding can be based on two metrics: an aggregate spending cap or a per capita spending cap.

READ MORE: CMS Releases Medicaid Block Grant With Drug, Benefit Flexibilities

For aggregate caps, states have to stay under a certain threshold for overall Medicaid spending and would receive federal funding for that amount.

In contrast, for per capita caps, states have to receive a certain amount of Medicaid reimbursement from the federal government per enrollee and must stay below a certain threshold of Medicaid spending per beneficiary.

Researchers at Avalere investigated what the new guidance would mean for states that decided to cover non-mandatory adults using block grant funding.

“To provide an estimate of magnitude of the savings states may need to generate to stay below an aggregate or per capita cap, Avalere assessed the amount of federal funding states would receive under the HAO funding formulas. For purposes of analysis, Avalere modeled the impact if states were to move all non-mandatory adult populations into HAO demonstrations,” the report clarified. “This analysis should be viewed as an estimate of the potential scale of required reforms for states considering this opportunity.”

Aggregate caps funding would create lower federal funding caps in most states, the analysis found. Only 11 states that qualified for this study, plus DC, would see better results by using an aggregate model than by using a per capita cap.

READ MORE: TN Is First State to Seek Block Grant to Lower Medicaid Spending

If states chose to opt for federal Medicaid reimbursement by aggregate cap, they may need to generate as much as eight percent Medicaid savings in order to keep the aggregate cap all five years.

States on the west coast would all likely see a reduction of five percent or more if they chose to receive reimbursement under an aggregate cap for five years. Most states that had a non-mandatory population and could qualify for an aggregate cap in the study would see reductions of three percent or higher in their federal Medicaid reimbursement.

A per capita cap is more recession-proof. In the case of an economic downturn, Medicaid enrollment can shoot upward. Per capita caps would adjust with this scenario whereas an aggregate cap would be less forgiving.

Under the per capita cap, states may need to see Medicaid savings as high as six percent in order to stay under the threshold of per capita Medicaid spending.

The majority of eligible states would likely see reductions in federal funding of zero to three percent with a per capita cap block grant. Twenty-five states could see reductions in that range whereas fifteen and DC might experience three percent or higher reductions.

Potential uptake of the Healthy Adult Opportunity

READ MORE: Trump Budget Proposes Medicaid Block Grants, Big Medicare Cuts

The goal of this guidance, Sloan explained, is for states to cut costs and increase savings. States that take up this offer—if any choose to do so—will most likely believe that by being allotted a certain sum of funds to use with their best judgement for their populations, they will have more flexibility to collect these savings.

For example, states might develop a closed formulary or make changes to eligibility levels, Medicaid reimbursement rates, or managed care oversight.

"Potentially, one of the benefits is that states that have not already expanded Medicaid could decide to expand Medicaid in exchange for having some of these additional flexibilities that they feel can keep the cost lower than if they just expanded without these flexibilities,” Sloan said.

Such states might fall into two categories: either they might have committed to Medicaid expansion under a previous governorship or legislature but now they want to cut back on expansion and the block grant provides a middle ground, or they may have never committed to Medicaid expansion and now, due to political turn-over, state officials now want to create a compromise to move closer to Medicaid expansion.

But such flexibility is a double-edged sword. As much as it can be used to help states save on Medicaid spending, it can also be used to the disadvantage of beneficiaries' healthcare quality.

“Things like a closed formulary reduction and eligibility reduction with prior provider payments. There is actually the potential that in some states, if they did this, they could reduce the number of people covered, they could reduce benefits, things like that,” Sloan expounded. “All of those would be negative for beneficiaries and providers participating in the program.”

Because the CMS guidance was vague on many particulars, researchers said, the report had to make major assumptions regarding:

• The size of the mandatory adult Medicaid populations and excluding them from the non-mandatory adult populations
• The lack of coverage for non-mandatory adults excluding non-expansion states from the analysis
• States’ enrollment growth rates
• The potential difference between current federal Medicaid funding and the potential federal funding caps

They also chose to present the final statistics as a percentage reduction of total federal Medicaid funding. This, the researchers argued, gives a better perspective on how much federal funding overall for the states would be impacted.

The vagueness of the block grant guidance that demanded these assumptions could also be a barrier to uptake, Sloan said.

“If I was a state and I wanted to pursue this, I would want more clarity about how the various formulas that go into calculating the cap would actually be implemented. Definitions of various things that may be included here are still somewhat vague,” Sloan continued. 

“With a demonstration of this size and of such a potential financial magnitude for some states, if I was a state, I would want clarity on exactly how it's going to be possible. And so, there are some key parts of this that are not as clear as you'd want it to be. I think that will impact a number of states considering this proposal.”

In the end, Sloan did not see much of a future for the block grant guidance.

“The most likely outcome is that no state does this. Just given the complexities, given you need somewhat of a unique political situation for this to make sense, that’s where we are right now,” Sloan concluded.

That being said, at least one state has already demonstrated an eagerness to shift toward block grant funding. Tennessee applied for a block grant in September 2019, long before CMS finalized the Health Adult Opportunity. That application is still under review.