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Analysis

Medicaid Block Grant Savings Varies from State to State

By John Commins  
   February 10, 2020

An new analysis estimates what savings states will need to generate in aggregate and per capita Medicaid models.

States participating in the optional block grant proposal for their expanded Medicaid populations would have to generate up to 8% of the total savings to keep below the aggregate cap over the five-year span of the model, a new study from Avalere suggests.

"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 said.

Reductions in total federal Medicaid funding over the life of the model vary from 0.1% in Nebraska to 8.1% in California, with 13 states seeing reductions of less than 2% over five years, and 10 states seeing reductions of more than 5%.

The Healthy Adult Opportunity, unveiled January 30 by the Centers for Medicare & Medicaid Services and created under a Section 1115 demonstration waiver, allows states to opt for capped aggregate model, also known as a block grant, or a per capita model for their expanded, non-mandatory Medicaid populations, under age 65.

The HAO models would give states the flexibility to reduce costs below the caps for the expanded populations through changes in eligibility and benefits, prescription drug formularies, provider reimbursements and managed care oversight. Any savings generated by the models would be shared with the federal government.

By comparison, states using a per capita cap model under the HAO proposal may need to generate up to 6% in savings over 5 years, a lower level of savings than under an aggregate cap, Avalere said.

"The analysis demonstrates that participation in an aggregate cap demonstration will generally create a lower federal funding cap for states than per capita caps; however, the variation between the funding approaches differs by state," Avalere said.

Per capital caps would also better protect federal Medicaid reimbursements during a recession, the analysis noted.

That's because the total reimbursement to states would rise with increased in enrollment, while aggregate caps, by comparison, do not rise during a recession, nor increase Medicaid enrollment.

The analysis also found that states that expanded Medicaid under the Affordable Care Act would need to generate the greatest savings under the proposal, because of the larger number of non-mandatory adults enrolled in each state.

However, the analysis noted that the expansion states, such as California, are also the least likely to pursue the HAO demonstration.

Conversely, Avalere found that several states that didn't expand their Medicaid populations – and are most likely to pursue the HAO model – don't cover enough non-mandatory adult beneficiaries to model the effects on federal funding.

"For these states, the HAO may provide an opportunity to expand coverage with additional flexibilities," Avalere said.

“Participation in an aggregate cap demonstration will generally create a lower federal funding cap for states than per capita caps; however, the variation between the funding approaches differs by state.”

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.


KEY TAKEAWAYS

States that expanded Medicaid under the ACA would need to generate the greatest savings under the proposal, because of their larger numbers of non-mandatory adult enrollees.

However, the analysis noted that the expansion states, such as California, are also the least likely to pursue the HAO demonstration.

Conversely, several states that didn't expand their Medicaid populations – and are most likely to pursue the HAO model – don't cover enough non-mandatory adult beneficiaries to model the effects on federal funding.


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