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Capped Funding Policies Could Reduce Funding for Children Covered by Medicaid

Summary

New research from Avalere finds that capped funding policies could reduce federal funding to states, specifically for children, by $89B to $163B nationally for FY 2020–2029.

Recent policy activity, including CMS Administrator Seema Verma’s stated support for block grant policies, the President’s fiscal year 2020 budget request, and state waiver action, has brought a renewed focus to potentially transitioning Medicaid to block grant or per capita cap funding models. Nationally, children are the largest beneficiary group covered by Medicaid.

“Capped funding models such as block grants or per capita caps could significantly reduce the amount of federal funding provided to states for children’s medical care,” said Richard Kane, associate principal at Avalere. “While much of the policy activity is yet to be fully defined and will depend on the details of implementation, coverage and access for low income children is shaped by federal funding, and reductions to that funding could impact this population.”

A Tennessee law passed in May directs the state’s Medicaid agency to submit a waiver request to CMS to convert nearly all Medicaid federal funding to a block grant. The waiver will index funding levels to inflation and population growth, though the law does not outline other parameters or related flexibilities. Avalere modeled a national block grant policy, instituted by 2020, based on the Tennessee law and assumed that funding for all eligibility groups would be provided in a single block grant per state. Avalere modeled the 10-year budget projection for 2 different measures of inflation. Nationally, the total reduction in federal spending would range from -16% to -24%. States would see federal funding reductions for children ranging from 6% to 33% (see the full report for state-by-state impacts).

Table 1. Change in Federal Medicaid Spending for Children* Under Block Grants, 2020-2029

In Utah, the state Medicaid agency released a request for public comment on a 1115 waiver that would use a per capita cap funding mechanism for most adult Medicaid beneficiaries. Though Utah’s policy specifically would not impact funding for children in the state, Avalere modeled a per capita cap policy for all eligibility groups, including children, in case other states should decide to pursue this path. Notably, the per capita cap policies described in the 2017 American Health Care Act (AHCA) and the Graham-Cassidy bill, which were reprised in the President’s 2020 Budget, include the option for a per capita cap that includes children. Avalere assumed the policy would be instituted nationally in 2020 and modeled the 10-year budget impact using 2 different measures of inflation. Nationally and on a state-by-state basis, reductions in spending would range from -14% to -22%.

Table 2. Change in Federal Medicaid Spending for Children* Under Per Capita Caps, 2020-2029

“Block grants and per capita caps would provide states a capped amount of funding for their Medicaid programs in exchange for greater flexibility,” said Tiernan Meyer, associate principal at Avalere Health. “Depending on allowed flexibilities, states may reduce eligibility for coverage, limit access to covered benefits or services, increase beneficiary cost sharing, or reduce spending elsewhere in the state budget to make up for lost funds.”

The Children’s Hospital Association provided funding for this analysis. Avalere maintained full editorial control.

Methodology

Avalere used its proprietary Medicaid forecasting and simulation model to estimate the national- and state-level effect of Medicaid block grant and per capita cap policies, focusing specifically on funding for children in the Medicaid program. Avalere’s forecasting and simulation model uses a combination of CMS’ Medicaid statistical information system and Medicaid budget and expenditure system data to estimate recent and historical Medicaid spending and enrollment. To estimate future Medicaid spending and enrollment, it relies on the most recent CMS Medicaid actuarial report (2017) for future per enrollee spending growth and a combination of US Census Bureau state population projections and each state’s historical enrollment to estimate future state-specific enrollment by basis of eligibility group. Avalere uses Congressional Budget Office (CBO) assumptions for national federal Medicaid spending under current law and future overall inflation (CPI-U). Avalere forecasts medical inflation (CPI-M) by looking at Bureau of Labor Statistics data showing the average difference in CPI-U and CPI-M from 2010-2019 and applying that different to CBO forecasts of CPI-U. Direct changes in federal Medicaid spending exclude the effect of any resulting changes in Medicaid enrollment. The simulation assumes Medicaid funding policies start in 2020 (using 2019 as the base year for federal spending levels) and that states do not alter enrollment or benefits. Avalere’s forecast period for this analysis aligns with the most recent CBO budget window, 2020–2029.

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