Four GOP Governors Call for New Approach to Medicaid Reform

Four GOP governors wrote congressional leaders Thursday saying that the American Health Care Act’s (AHCA’S) approach to Medicaid would not work for states and suggesting a different approach. “It provides almost no new flexibility for states, does not ensure the resources necessary to make sure no one is left out, and shifts significant new costs to states,” wrote Govs. John Kasich of Ohio, Rick Snyder of Michigan, Brian Sandoval of Nevada, and Asa Hutchinson of Arkansas.

The governors offer an alternative policy proposal that includes the following components:

1. States should be given a choice between the following options:

  • Enacting structural Medicaid reform by converting financing to a per capita cap or block grant model for one or more population groups. Regardless of which reform option a state elects, reform “must allow states an appropriate transition period and the opportunity to use a partial and/or multi-phase approach to implementation.”
  • Defaulting to the current structure, with reduced federal financial participation for Medicaid expansion programs. Under this option, Medicaid expansion enrollees would be funded under the traditional match rate for that population.

2. The nature of the current federal-state relationship “needs to fundamentally change.” Significant new state flexibility and control “will be required to effectively manage the financial risk associated with structural reform,” and “ will also enable states to design more innovative programs focused on achievement of state priorities and outcomes, rather than compliance with processes.”

Under either per capita caps or block grants, enrollment would be optional and could be capped for some populations. However, certain populations would be mandatory and excluded from any enrollment caps. These include aged, blind, and disabled individuals, as well as children and pregnant women up to pre-Affordable Care Act (ACA) federal mandatory minimum eligibility standards.

Under a per capita cap option, “states would assume the increased risk associated with capped funding for benefits per Medicaid enrollee, but would continue to share risk with the federal government for population growth. This option would be based on federal match of expenditures by the state up to the amount(s) determined by the per capita cap(s). The model must be built upon a financing base that takes the most current data/expenditures into account when building base funding levels…including all federal funding earned through, or supported by, state contributions, provider taxes, and other local arrangements.”

Each eligibility category would have its own per capita cap. A transition to this model would start “with the childless adult and parent populations for whom a state is receiving enhanced match, and could be followed by additional populations at the state’s discretion.” While states would be required to include any adult populations for whom they are receiving enhanced match, a state could choose to implement per capita caps for any of the following populations:

1. Childless adults;

2. Parents and caretaker relatives;

3. Children;

4. Pregnant women; and

5. Disabled and elderly.

The governors offer “several options for consideration in establishing per capita cap amounts and growth rates” and recommend that “the Congressional Budget Office (CBO) model each of the options below and provide estimated impact on a state-by-state and national level.” The per capita growth rate “should account for the lack of control that states currently have of certain underlying costs (e.g. pharmacy, RHCs, FQHC PPS, Medicare Parts B & D).” The proposal calls for an annual adjustment of medical CPI “plus an additional percentage adjustment to address those underlying costs.” However, the governors say, “reductions to this additional adjustment over medical CPI should be discussed as states receive additional flexibilities to adequately address underlying costs.” The governors also call for “an adjustment factor that would be triggered by specific national economic events.”

Under a block grant option, a state would be required “to convert financing for the adult expansion population into a block grant and could choose to phase in other populations.” Potential block grant populations are the same as those listed under the per capita cap model, “except for the disabled and elderly eligibility groups.” A state that chooses one or more block grant option “will switch from the current federal matching arrangement to a financial maintenance-of-effort (MOE) for the populations covered by the block grant(s), based on state expenditures in a designated base year.” States will be able “to access stable and predictable federal allotments by meeting a financial MOE based on a level of state spending. States that meet their financial MOE would be permitted to draw 100% of their available federal allotment. Therefore, as states become more efficient in the management of their Medicaid programs, they will be able to continue using federal dollars without committing additional state dollars.”

Under this option, Medicaid would be split into several parts, most of which would be block grant-eligible. States would have full control over the service delivery system “and would be permitted to impose conditions of participation on the adult populations.”

● Under a new Part A of Medicaid, the adult enhanced match populations, as well as other nonelderly, non-disabled populations a state chooses to include, would be served through a Children’s Health Insurance Program (CHIP)-like model. Allotments to states would be capped and indexed. The funding formula would consist of several variables, including a national federal minimum per capita amount for adults and children to promote equity among the states, a state-specific per capita amount that reflects variations among states, and adjustments based on population growth and relative state poverty levels, regardless of whether a state had previously expanded Medicaid under the ACA or through a Section 1115 Demonstration Project.

● Under Part B, Long Term Services and Supports (LTSS) would be delivered through a separate program that would level the playing field between HCBS and institutional care. Funding would be indexed for elderly population growth, low-income population growth, and inflation. States would be “assured of stable and predictable levels of funding as they transition to new service delivery models and accelerate towards person-centered planning and supports.”

● Under a new Part C, medical services for individuals with disabilities and low-income seniors, as well as any other populations whom a state does not include in Part A, would continue as under current law, regardless of which other block grants a state chooses to take. Federal funding would remain an open-ended match with no change in benefits for individuals with disabilities and low-income seniors, including the Early Periodic Screening Diagnosis and Treatment (EPSDT) benefit for children with disabilities.

The proposal would also allow states to retain the current financing structure of Medicaid. Under this option, “Medicaid expansion enrollment at the enhanced federal match rate would be frozen, grandfathering all current enrollees at the enhanced rate for a period of time.” All new enrollees would be funded under the traditional match rate for that population.

The governors also discuss redefining the federal-state partnership. As examples of “federal regulatory overreach” they include the new Medicaid managed care regulations, access requirements, mental health parity requirements, and the home and community-based services (HCBS) settings rule, and “strongly recommend that Congress suspend these rules and bring states to the table to best determine how to modify and operationalize the requirements being imposed upon states.” The proposal suggests that “the federal rule-making and promulgation process should be reworked to incorporate the following two steps: 1. Engage states during the pre-conceptual phase of work. 2. Establish a distinct process for state Medicaid leaders to review federal regulation and guidance prior to finalization to ensure the policies proposed are operationally sound.” The governors call for “a shift from the focus on process to a focus on outcomes” wherein “states and the federal government should agree to a set of performance standards and the federal government should only intervene when those standards are not being met.”

Some of the additional state authorities the governors feel are necessary to enable states to manage reform include:

  • Enrollment Limits: As populations transition into per capita caps, “states should be given additional authority to freeze or reduce enrollment, with exceptions for certain population groups (aged, blind, and disabled individuals, as well as children and pregnant women up to mandatory minimums described above).”
  • Conditions of Eligibility: States should “have the authority to impose conditions of eligibility to prevent the ‘crowd-out’ effect.” This would include work requirements.
  • Cost-Sharing: States should “have the authority to implement enforceable financial participation of enrollees,” with higher limits “for the adult groups versus children, pregnant women, ABD, and duals, as well as tiered cost-sharing to discourage inappropriate use of higher cost services and settings.”
  • Benefit Redesign: States “should be given the authority to design outcomes-based benefit packages,” including “flexibility around LTSS services,” such as “optional coverage of EPSDT, except for children with disabilities and children in custody” and restructuring or eliminating the requirement for statewideness and comparability “to allow states the flexibility to design and test pilot programs or target benefits to a specific population.”
  • Mandatory Managed Care: States “must have the option to mandatorily enroll all populations in managed care, with the exception of American Indians and Alaska Natives.”

FMI: The letter and proposal can be found at