In May 2013, Senator Orrin Hatch (R-Utah) and Representative Fred Upton (R-Mich.) released a report, Making Medicaid Work, which included a proposal to change federal Medicaid funding to a “per capita cap” system.  Under this plan, the federal government would no longer cover a fixed share of each state’s overall Medicaid costs, and, instead, would provide a specific dollar amount for each beneficiary, divided into four groups — aged, blind and disabled, children, and adults. 

Supporters believe that per capita caps would control federal Medicaid costs, allow for greater flexibility, and ease states’ financial burden.  Opponents, including the National Committee, are concerned that per capita caps would undermine Medicaid by shifting costs to the states, resulting in cuts to the health coverage of millions of vulnerable Americans.  Per capita caps would: 

Lead to Higher Costs for States

  • Shifts Costs to the States.  The federal government would save money because, with per capita caps, annual federal Medicaid payments would increase at a slower rate than the projected rate of growth under the current program.  States would be required to pay for any costs above the cap level.  Over time, states would face large funding shortfalls, especially as the Baby Boomers age and need more Medicaid services in later life. 
  • Creates Administrative Burden.  Under a per capita cap system, states would be required to administer new funding formulas for the different groups of beneficiaries.  This could lead to more administrative burdens and higher administrative costs.
  • Disregards Health Care Innovations.  Per capita cap do not take into account the development and cost of new medical technologies, treatments, or medications.  States would end up paying for any additional costs exceeding the cap.

Hurt Vulnerable Americans

  • Hits Seniors and People with Disabilities Hardest.  Seniors and people with disabilities account for nearly two-thirds of all Medicaid costs.  As a result, funding reductions due to per capita caps would likely hit seniors and people with disabilities the hardest.
  • Pits Beneficiary Groups Against Each Other.  Dividing beneficiaries into separate groups, as proposed in the Hatch-Upton plan, would force groups to battle each other for resources.  This could pit children, older adults, and people with disabilities against each other.
  • Jeopardizes Medicaid Expansion.  States have the option to expand their Medicaid programs under the Affordable Care Act.  Establishing per capita caps during the initial years of Medicare expansion would set state funding caps in place before policymakers can establish a baseline of the costs for newly eligible beneficiaries.  If the per beneficiary costs turned out to be higher than federal policymakers had estimated when setting the state’s per capita cap, the state would have to bear an even larger share of the cost of covering those beneficiaries. This could discourage states from expanding their Medicaid programs, leaving millions of low-income adults without health coverage.

NATIONAL COMMITTEE POSITION

The National Committee believes Medicaid per capita caps are a bad idea.  They would undermine Medicaid and hurt millions of vulnerable Americans by shifting costs to states, cutting benefits for seniors and people with disabilities, jeopardizing Medicaid expansion, and pitting beneficiaries against each other for funding.  Medicaid is a critical lifeline to over 66 million low-income Americans, and Congress must not pull out the rug from under them by imposing a per capita cap system.

                                                                                  Government Relations and Policy, December 2013