A view from the Center

Deloitte's Life Sciences & Health Care Blog

As Congress pushes for Medicaid change, could a version of Reagan’s grand bargain simplify the program?

Medicaid is in the eye of a political hurricane – encircled by swirling forces that could dramatically reshape the program. The Republican-led Congress is pushing to roll back the Affordable Care Act’s (ACA) Medicaid expansion and fundamentally change the nature of the program’s state/federal partnership by placing limits on the federal government’s contribution to the program. At the same time, many states are struggling to balance budgets, and are looking for ways to more effectively manage Medicaid costs through a variety of strategies. Some states, for example, are placing more emphasis on value-based purchasing or are encouraging beneficiaries to be more involved in making decisions about the health care services they receive.

After initially planning to hold a vote on the Better Care Reconciliation Act of 2017 (BCRA) before the Fourth of July holiday, Senate leadership opted to pause while it modified the legislation in response to lawmakers who oppose it. The Senate bill aims to unravel key elements of the ACA – including Medicaid expansion. As my colleague Anne Phelps recently noted, the Senate bill calls for continued funding for the Medicaid expansion population over the next two years (see the June 27, 2017 Health Care Current). It would then limit funding for future years by introducing caps on per capita spending for the broad Medicaid population and allowing the growth rate of those caps to rise with the Consumer Price Index (see the May 9, 2017 Health Care Current).

Medicaid is nation’s largest public insurance program

With an estimated 74.6 million beneficiaries, Medicaid is the nation’s largest public insurance program. Its enrollment dwarfs Medicare, which covers about 55 million people. While typically viewed by the general public and legislators as a program for low-income people and children, Medicaid also is the nation’s largest payer of long-term care for seniors and the disabled, including those dually enrolled in Medicare and Medicaid, “the dual eligibles.”

If Medicaid is truly going to be reformed, it may require digging into some of the underlying structural issues, including dual eligibles as a crucial structural component. Surprisingly, however, duals are generally not part of the conversation at either the state or federal level. Instead, most of the discussion revolves around the Medicaid expansion called for by the ACA. While the ACA certainly pushed Medicaid enrollment numbers higher in states that opted to expand, most of the program’s costs aren’t tied to those who gained coverage.

Newly eligible adults made up 13 percent of Medicaid enrollment and accounted for 11 percent of expenditures in 2015, according to data from the Medicaid and CHIP Payment and Access Commission (MACPAC). By contrast, the elderly and disabled who qualify for both Medicare and Medicaid make up less than a quarter of the Medicaid’s population, but consumed 55 percent of the program’s spending, according to 2015 MACPAC data. Moreover, these dual eligibles have to navigate two government-run health care programs to get their health care needs.

In some respects, Medicaid acts as a means-tested supplemental insurance program for Medicare because it covers copays and deductibles for low-income seniors. In addition, Medicare covers inpatient hospital and rehabilitative nursing home stays while Medicaid pays for institutional nursing home and home and community-based services (HCBS) for people who need long-term care.

It’s confusing for consumers, and it’s complicated for states because the difference in benefit packages can result in misaligned financial incentives between the two programs. Several states, along with the US Centers for Medicare and Medicaid Services (CMS), are involved in a Dual Eligible Financial Alignment Demonstration Project. While early results show promise, only 390,000 duals are enrolled, and CMS has no plans to expand the program.

Would a version of Reagan’s “Grand Bargain” work today?

Per capita caps and block grants are being discussed by lawmakers as they look to restructure Medicaid. One idea policy makers have discussed in the past, which might be interesting to examine again, would be to restructure Medicaid so that states take complete programmatic and financial control for certain populations, while Medicare assumes responsibility for the dual eligibles.

In this scenario, the states would gain more control over their Medicaid programs, and would no longer be financially responsible for one of the program’s most costly populations. The federal government would gain more predictability and an ability to drive cost reductions to meet their objectives without having to navigate state concerns. More specifically, doing this sort of a deal gets the federal government completely out of one part of the Medicaid program, and allows it to treat Medicare holistically without having to fight with the governors.

That concept goes back to the early ’80s, when President Ronald Reagan offered the states a deal sometimes referred to as “the Grand Bargain.” His idea was to have the federal government assume the financial responsibility for Medicaid, and have the states take full responsibility for a number of jointly funded social programs. At the time, Reagan’s proposal faced strong opposition from some of the nation’s governors because they didn’t think the “bargain” was balanced and thought it posed too much potential risk in the future.

Two decades later, Congress did take a step toward consolidating benefits for dual eligibles when it created the Medicare Prescription Drug Plan (Part D) as part of the Medicare Modernization Act of 2003. Under the law, if you’re enrolled in Medicare, regardless of whether you are also eligible for Medicaid, your drug costs are paid through Medicare. Prior to that law, Medicaid covered drug costs for dual eligibles.

Through Part D, the states reimburse the federal government for their share of the duals’ costs through a “clawback” process. In a block grant-style model, instead of making payments to reflect their historical share of costs for the duals, the states would “trade” financial responsibility for the financial and programmatic responsibility of another population group. For example in fiscal year 2013 states spent $58 billion dollars on Medicaid for children and non-disabled adults, while spending $60 billion on dual eligibles.

This type of restructuring might simplify the lives of the dual eligibles by allowing them to access benefits from a single program. It might give states the programmatic control to effectively manage the financial risk of their Medicaid program and help alleviate the long-term risk tied to an aging population. Though this type of arrangement could allow the federal government to holistically reform Medicare without having to balance in the financial needs of the states, there are still many considerations that would need to be addressed such as financing, oversight and patient protection. But I think it’s an idea worth exploring.

Read the entire Health Care Current here and subscribe to receive weekly updates

Author bio

Jim is a Specialist Leader for Deloitte Consulting LLP’s State Health Transformation Services. He has over 30 years of experience working in both the private and public sectors. He focuses on implementing strategies that promote value creation within the health care system.