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2019 Medicaid Trends: State Medicaid Financing Strategies

Medicaid's impact on the national healthcare system is hard to overstate. As of June 2018, Medicaid provided coverage to about one in five Americans, or approximately 73 million people. In 2017, total Medicaid spending was $557 billion, 62% of it being paid by the federal government and the other 38% by the states. Medicaid accounts for one in six dollars spent in the healthcare system, with more than 50% of this going to long-term care spending.

As of September 2018, 34 states including DC have adopted the ACA's Medicaid expansion provisions. Over the next 12-24 months, several financing trends are emerging, including the use of Section 1115 Waivers to creatively amend Medicaid operations, new proposals to push Block Grant Waivers, and impacting expenses for dual-eligibles and D-SNPs through a series of test programs among several states.

Remodeled 1115 waivers in many states

States such as California and Washington are employing Section 1115 waivers to set up innovative whole person care programs that improve coordination between health providers and agencies that address patients’ social, behavioral and physical needs. States now use waivers to promote policy innovation; in the past, waivers mostly extended coverage, offered new delivery options or funding through policies such as expanding coverage for adults, implementing managed care, establishing DSRIP programs, and uncompensated care pools. New 1115 waivers impose new conditions of eligibility for the expansion group of beneficiaries and, in some cases, even for traditional Medicaid populations through policies such as work requirements, lockouts and enrollment caps, premiums, and health risk assessments as a condition of eligibility. 

Additionally, earlier this year, North Carolina included SDOH components in their Managed Care Request for Proposals. There will likely be an increase in SDOH initiatives from both states and the private sector.

More discussion around Block Grant Waivers

In addition to revamped 1115 waivers, the Trump Administration is considering Block Grant Waivers. States seeking a waiver would receive an annual fixed amount of federal matching funds for Medicaid, possibly for selected populations. Under the current Medicaid program, federal funding has no cap and is guaranteed to be responsive to changes in costs/enrollment. Federal funds are provided as a “match” to state spending, and coverage is guaranteed if beneficiaries are eligible and there are no waiting lists or enrollment caps. There is considerable flexibility on the delivery system and payments, and federal minimum standards combined with state flexibility broaden eligibility and benefits.

In contrast, with a Block Grant Waiver, federal funding dollars are capped, with no adjustment based on actual costs/enrollment. State spending requirements would likely still apply, with no federal dollars for state spending above the cap. States might allow enrollment caps, closed enrollment periods, and other coverage limits, and may leverage new state flexibility on eligibility benefits, cost-sharing, and oversight on managed care.

Some implications of Medicaid Block Grant Waivers include:

  • Significant impacts to states from major financing changes and new flexibilities.
  • Reductions in the overall amount of Medicaid funding available and no automatic adjustment to account for unexpected increases in costs and enrollment.
  • Constrained enrollment, benefits, provider payment rates, and access to care from capped funding.

New opportunities to advance care integration for dual-eligibles

Dual eligibles are among the most costly and complex enrollees in both Medicaid and Medicare. Duals account for 15% of Medicaid enrollees and 20% of Medicare enrollees, but account for about one-third of the total spending in both programs. As a way to alleviate this disproportionality, CMS invites states to test new care integration models for dual-eligibles.

CMS Administrator Seema Verma stated that, “less than 10% of dually eligible individuals are enrolled in any form of care that integrates Medicare and Medicaid services, and instead have to navigate disconnected delivery and payment systems.” She also said that CMS has “heard from many states that want opportunities to develop, revise, or continue the approaches to serving dually eligible individuals that work best for the unique needs of your state.” States will be able to take advantage of:

  1. The capitated financial alignment model, which allows states to prospectively share in the savings from integration.
  2. The managed fee-for-service model, which allows states to share in Medicare savings resulting from Medicaid FFS interventions.
  3. State-specific models, which are proposed by state Medicaid departments that aim to better serve dual-eligibles.

New federal flexibilities will accelerate the growth of Dual-Eligible Special Needs Plans (D-SNPs). D-SNP enrollment has grown steadily since 2006, and the Bipartisan Budget Act of 2018 (BBA) permanently reauthorized D-SNPs, providing long-term stability to the market and continuity of care for D-SNP members. Going forward, D-SNPs will likely be the primary vehicle for Medicare-Medicaid integration. States will have three D-SNP options to meet the requirement to integrate Medicare and Medicaid benefits starting in 2021:

  • Option 1: Contract with states to coordinate Medicaid LTSS and/or behavioral health benefits by meeting contract requirements, such as notifying the state of hospitalizations and ED visits or assigning one primary care provider for each enrollee.
  • Option 2: Integrate Medicaid benefits by becoming a Fully Integrated D-SNP (FIDE-SNP) or provide LTSS and/or behavioral health benefits under a capitated Medicaid contract.
  • Option 3: Assume clinical and financial accountability for all Medicare and Medicaid benefits for dual-eligibles enrolled in D-SNP and Medicaid Managed LTSS or behavioral health plan offered by the same parent company.

Moving Forward

Thirty-six states had state-level elections that impacted state-level Medicaid policies in November 2018, and three states (Idaho, Nebraska, and Utah) had ballot initiatives to newly adopt the ACA Medicaid expansion. Therefore, 2019 continues to be a bellwether year to watch how Medicaid’s role evolves on the ground in the 50 states and DC.


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