How Medicaid Per Capita Caps Will Affect those Needing Long-Term Services and Supports

By Marc A. Cohen, Ph.D., Michael Miller, MA, Leena Sharma, MPP

Earlier this week, the Republicans in the House of Representatives put forward their plan – the American Health Care Act (AHCA) — for the repeal and replacement of sections of the Affordable Care Act (ACA).  In addition to repealing the health-related tax and subsidy provisions in the ACA, replacing them with refundable tax credits, the plan also changes the Medicaid program from a federal-state partnership to a per capita cap program.  More specifically, Section 121 of the Act would use each State’s spending in FY2016 as a base year to set targeted spending for each enrollee category in FY2019 (and subsequent years) for that state.  Each state’s targeted spending amount would increase by the percentage increase in the medical care component of the consumer price index for all urban consumers from September 2019 to September of the next fiscal year.  The enrollee categories for which separate caps would be established include the: (1) elderly, (2) blind and disabled, (3) children, (3) non-expansion adults, and (4) expansion adults.

The likely impacts of changes to the structure of the program are straightforward to predict.  First and foremost, dollars will be taken away from states. While payments may be adjusted for population growth, other factors such as changes in health care needs, the cost of providing services and the availability of family support also drive Medicaid expenditures.  Sometimes we know those changes are coming. Other times, changes like the current opioid epidemic or the past H1N1 flu epidemic are more unpredictable. Because the proposed formula does not account for such changes, there will likely be a growing shortfall between what states receive from the federal government and the amount required to meet the needs of those eligible for Medicaid.  All of the potential financial costs associated with these risks will be shifted to the states, placing additional fiscal pressure on their budgets.  If the state decides not to pay for costs that exceed the cap, then individuals will likely have to forego needed care or go without other needed goods and services to purchase care.

This becomes particularly important for our frailest citizens, including those who need long-term services and supports (LTSS) due to functional and/or cognitive impairments.  Long-term services and supports include many non-medical services designed to help impaired individuals perform activities of daily living like bathing, dressing, and eating. This type of care is not covered by traditional health insurance or Medicare. Only a very small segment of the population has private long-term care insurance policies that may cover the expense. Medicaid is the largest public payer of LTSS in the U.S. Expenditures on home and community-based LTSS and institutional LTSS  already total 22% of Medicaid expenditures across the country, and they are roughly 30% in the Commonwealth.  As the primary public payer for LTSS, any changes to the program have important implications for people residing in nursing homes or receiving home and community-based care (HCBS). Smaller financial commitments to the program mean less care to those with LTSS needs.

The growing aging population means an increased need for LTSS

The need for LTSS increases with age and the country is clearly growing older:

  • As of 2014, there were 46.2 million older Americans  over the age of 65 and by 2060 that number is expected to reach 98 million. Even more striking is the expected increase in the numbers of the “super-elderly” (those who are over 85 years old). The age 85 and over population is projected to triple from 6.2 million in 2014 to 14.6 million in 2040.
  • The projected growth in the over age 65 Medicaid population, where a majority of LTSS dollars are spent, is almost 4 times higher compared to the growth in all Medicaid enrollees. Those age 85 and over are projected to grow at a rate that is twice as fast as the rest of the population. In Massachusetts, these figures are 10 times higher and 2.4 times higher respectively.

Studies on LTSS costs (including in the private sector) show a sharp rise in the need for LTSS for those who are 65 and older, in large part because this population itself is growing older. Because the proposed per capita cap is based only on specific eligible categories, say, individuals age 65 and over (elders), it does not account for the changes in the underlying age distribution within that group.  This trend in population age-composition alone will lead to significant shortfalls in service dollars. For example, a state that has 20 percent of its over-age 65 population in the 85-95 age range has a much greater need for LTSS services than a state that has only 10 percent of its population in this age range.

Long-term care costs for caring for an older population will increase

In 2013, an estimated $338.8 billion in public and private funds was spent on LTSS, with more than 60 percent of these expenditures going to the care of individuals age 65 and over.  Even more of the needed support was provided by family members and the economic value of family or unpaid care was estimated at $470 billion in that year. Those who have functional impairments cost the Medicare program 3 times more than do those without such impairments and almost a third of people ages 75 to 84 and more than half of those age 85 or older report functional limitations. While enrollment in Medicaid is dominated by adults and children, expenditures are dominated by seniors due to their complex health needs.

The annual growth in current Medicaid spending, coupled with the aging of the population, will present states with very difficult choices, made even more challenging by an approach that ignores major determinants of need. A state like Alaska, for example has had Medicaid spending grow at an annual rate of 6.4 percent (between 2000 and 2011) and its population age 85 and older is projected to grow at an annual rate of 5.2 percent between 2015 and 2025 compared to the national rate of 1.6 percent. If the baseline for per capita caps is tied to average state spending or spending per beneficiary, the needs of the population simply will not be met.  Even in Massachusetts, where the growth rate in the over age 85 is below the national average, the slow shift toward older elders will make it more difficult to meet their needs as cap levels lag.

Per capita caps will bring back or reinforce the LTSS institutional bias in the Medicaid Program

Per capita caps may also force states to cut back on optional services such as HCBS – precisely the ones people value most since they support aging in place. The pressure on states to cut services will shift costs to more expensive institutional settings and increase burdens to family caregivers.  It will also force individuals to receive care in nursing home, something that the vast majority prefer not to do.

Historically Medicaid expenditures were heavily weighted toward nursing home care.  It is worth noting the program is the primary payer for low-income seniors needing nursing facility care. Nearly 63 percent of residents in nursing facilities are covered by Medicaid. Institutional LTSS accounts for nearly 11.2 percent ($59.5 billion) of the total Medicaid benefit spending. Inadequately funded per capita caps would force states to cut back on their commitments to HCBS since these are optional services while coverage for nursing home care is mandated. Over the last 25 years, institutional bias has greatly diminished and the Medicaid program has become far more responsive to elders needs and desires to receive care in the community.  (See Figure 1).  With per capita caps in place, institutional settings could again become the primary site for LTSS service delivery.

Figure 1: HCBS Expenditures as Percentage of Total Medicaid LTSS Expenditures

In Massachusetts, HCBS comprise 64% of Medicaid expenditures on LTSS. In the presence of per capital caps, adequate levels of these services would be difficult to maintain. Nineteen other states also spend more on HCBS than institutional care and would face similar situations. Per capita caps would immediately restore the institutional bias of the Medicaid program, and force older adults into a type of care that they typically do not want.  This would occur in an environment where many people who have met the eligibility requirements cannot access needed care immediately and are placed on waiting lists.

Per capita caps would need to account for an expected decline in family caregivers

There are over 17.7 million family caregivers in the U.S. providing assistance and support to individuals age 65 and older with significant impairments. Yet, smaller family size, the increasing employment mobility of adult children, and strains associated with “sandwich generation” caregivers, are all trends that portend less and less available family-provided care in the future, even as the overall amount of caregiving needed balloons. Thus, at the same time that per capita caps would diminish Medicaid’s ability to support those with LTSS needs, the family caregiving system is under increasing strain. The implication is that more caregivers will need to make workforce accommodations to care for aging parents – thus leading to declines in productivity and diminished contributions to economic growth – or more people with LTSS needs will go without needed care. Already, roughly 36% of individuals residing in the community with LTSS needs report having an unmet need.

Finally, when faced with sharp Medicaid cuts, states will likely need to cut payments to providers. That would diminish the capacity of providers to deliver high quality care. It may also result in fewer providers willing to participate in Medicaid and could induce providers to raise private pay rates.

Conclusion

The currently proposed changes to the structure of Medicaid will have a disproportionate and negative impact on our most vulnerable individuals, those with LTSS needs.  The per capita caps envisioned by the legislation will likely undermine access to all LTSS services in general, and home and community based care in particular, reverse the twenty year trend toward rebalancing HCBS and institutional-based spending, increase waiting lists for services, jeopardize the fiscal stability of states, add strains to already over-burdened caregivers, encourage conflict between eligible groups battling over limited funds, and lead to significant quality declines in LTSS services.  Rather than providing states with “flexibility”, the approach will severely constrain their ability to meet the growing LTSS needs of their most vulnerable citizens.

Marc Cohen is Director of the Center on Long-Term Services and Supports at the Gerontology Institute, McCormack Graduate School, UMass Boston, and Research Director of the Center for Consumer Engagement in Health Innovation at Community Catalyst. Michael Miller is Director of Strategic Policy at Community Catalyst. Leena Sharma is Project Manager/Senior Policy Analyst at the Center for Consumer Engagement in Health Innovation at Community Catalyst.

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