Ask the Advisor: November 2019

Ask the Advisor: November 2019

How Would “Capping” Medicaid Payments Affect Seniors?

Q:  At a recent townhall I heard my Senator say that he supported reforming Medicaid’s payment structure to provide a capped amount per person enrolled.  Can you tell me how this would work?

A:  In addition to Medicare, state Medicaid programs are a major source of medical insurance for 15% of adults age 65 and up — more than 7.2 million low-income seniors.  Because the federal government matches a portion of state Medicaid spending, some proposals have been debated in recent years that would fundamentally change the structure and financing of Medicaid in order to cut federal spending.   The proposal would cap payments, or provide a fixed amount of money to spend on Medicaid beneficiaries.

Most low-income people who receive Medicaid have incomes lower than the federal poverty rate, which is $12,490 for individuals and $16,910 for a 2-person household in 2019.  State Medicaid programs help older Americans afford Medicare by paying the monthly Part B premium, co-pays, and most out-of-pocket drug costs for those with very low incomes.  This is a substantial benefit.  The Part B premium in 2019 is $135.50 per month.  This expense alone (not counting co-pays or drug costs) represents 13% of the household budget of the low-income retirees who qualify for Medicare Savings Programs benefits which are paid by Medicaid.

In addition, Medicaid’s biggest expenditures on older Americans include long term care — benefits that are not covered by Medicare.  Given that the average cost of assisted living or nursing home care can range from $48,000 to more than $100,000 per year, even middle-income families find they must spend down most if not all of their remaining retirement savings on long term care.  Medicaid programs step in to provide nursing home and other types of long-term care that would otherwise be unaffordable.

According to the non-partisan Kaiser Family Foundation, in 2017, the federal government paid more than 60% of total Medicaid costs, with states paying about 40%.  The proposal to reform Medicaid would shift federal financing for the program from one that pays a percentage of funding for those whose income is low enough to qualify, to one that pays a fixed amount per person, or a block grant that would give a fixed amount of money to states.

Under this system of funding, Medicaid spending would rise at a rate specified by the legislation, irrespective of the actual rise in medical costs or increase in the number of people needing assistance.  Limits on federal spending are expected to put pressure on the states to limit enrollment, particularly if Medicaid spending increases faster than the growth in federal portion of funding.  States with costs that exceed the cap would need to find other revenues to maintain coverage, or to reduce other costs in other ways— such as states opting to cover fewer seniors requiring long term care.

Medicaid rolls are expected to grow as more people over the age of 65 have difficulties affording their healthcare costs and retire without adequate savings to last a retirement that can extend 25 to 30 years.  For a capitated system to work for older Americans, Medicaid payments would need to keep up with rising medical costs, as well as the rising need as people age and require more care.  Inadequate per capita payments could create great challenges for states in meeting the need for care, bigger burdens for working families, and leave low income seniors at risk of going without basic living essentials.

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Sources:  “What Could A Medicaid Per Capita Cap Mean for Low Income People on Medicare?” Kaiser Family Foundation, March 2017.