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May 01, 2017

The American Health Care Act Targets Medicaid Reform

Felicia Y Sze, Hooper, Lundy & Bookman, San Francisco, CA

The American Health Care Act (H.R. 1628)1 envisions a number of significant changes to the way in which states may operate their Medicaid programs.  These changes cover many aspects of the Medicaid programs, including changes to: (1) the structure of federal/state shared funding; (2) eligibility and enrollment changes; and (3) provider payments. While this article focuses on the changes proposed to the Medicaid program, the AHCA also proposes other significant changes to the private markets and exchanges, such as, without limitation, the elimination of the individual and employer mandates imposed by the Patient Protection and Affordable Care Act,2 a premium surcharge penalty for breaks in coverage, and the waiver of certain protections (e.g., preexisting conditions, essential health benefits, and age bands).  

Federal/State Shared Funding

State Financing: One of the most fundamental changes considered in the AHCA would be restructuring the way that Medicaid is financed as a whole.  Medicaid programs are joint-financed between the federal and state governments with a general federal matching assistance percentage (FMAP)3 between 50 and 83%, and with enhanced matching for certain services and/or populations.  Under the per capita cap structure in section 121 of the AHCA, states that expended more than a calculated target of expenditures each year would have the federal share of that overage withheld from the state’s federal financial participation in the following year.  The target would be calculated by multiplying a per capita cap for one of five enrollee groups (elderly, blind and disabled, children, expansion adults and other adults) by the number of enrollees in that category for the year.  The per capita cap for each of the groups is based on the 2016 costs per beneficiary in the enrollee group, and is adjusted based on the growth in the medical care component of the consumer price index for all urban consumers and to account for certain types of non-disproportionate share hospital (DSH) and other supplemental payments.4  Amendments to H.R. 1628 in the Rules Committee would fine-tune the way in which these non-DSH and other supplemental payments are accounted for in the per capita cap formula, and increase the inflation rate for elderly, blind and disabled beneficiaries to the medical care component of the consumer price index for all urban consumers plus one percentage point.

New York Per Capita Cap Provision:  Committee amendments also would reduce the per capita cap by the amount of expenditures required by political subdivisions of a state that are unreimbursed by the state, effective fiscal year 2020.  This amendment was drafted to address a specific issue in the State of New York.

Block Grant Option:  Committee amendments would also allow a state to opt to receive block grants for nonexpansion adults, or nonexpansion adults and children for a period of 10 years starting fiscal year 2020. This option may only be exercised by submitting and receiving approval for a plan to the Centers for Medicare & Medicaid Services (CMS).  Under this option, a state could set eligibility conditions, with some exceptions, and would have greater flexibility in establishing benefits, so long as they continued to provide hospital care, surgical care and treatment, medical care and treatment, obstetrical and prenatal care and treatment, prescribed drugs, medicines and prosthetic devices, other medical supplies and services, and healthcare for children under 18 years of age.  The initial block grant amount would be based on the per capita amounts for these groups multiplied by the number of enrollees in each of these groups, and would be increased based on the growth in the consumer price index for all urban consumers for future years.  Funds left over at the end of a fiscal year could be rolled over to future years as long as the state continues to opt for the block grant option.  Upon the expiration of the block grant option, the state would revert back to the per capita cap funding structure.

Eligibility and Enrollment

Medicaid Expansion:  With respect to the expansion of Medicaid allowed by the Patient Protection and Affordable Care Act, section 112 would eliminate the mandate that states expand Medicaid to childless adults up to 133 percent of the federal poverty level (FPL), but creates two optional categories for expansion enrollees and grandfathered expansion enrollees (i.e. those who are enrolled as of December 31, 2019 without a break in enrollment).  It would eliminate states’ option to expand Medicaid to childless adults above 133% of the FPL and receive enhanced FMAP for such enrollees, effective December 31, 2017.  It would repeal the enhanced FMAP for expansion enrollees, reverting back to the state’s traditional FMAP, effective January 1, 2020, but the enhanced FMAP would continue to be available for grandfathered expansion enrollees.  It also limits the expansion state enhanced match transition period to 80%, which was the amount applicable to calendar year 2017.

Eligibility Redeterminations: Section 116 would require states to redetermine the eligibility for expansion enrollees every six months.  It would also increase the civil monetary penalty by up to $20,000 per claim for certain claims in which: (1) the expansion enrollee was knowingly enrolled after October 1, 2017, but did not meet the income threshold; or (2) the claim was for an item or service furnished to an expansion enrollee whose enrollment was not made on the basis of the individual meeting the income threshold.  It would also provide enhanced FMAP by five percent for state expenditures for these redeterminations.

Reduction of Eligibility for Children between Ages Six and 19: Section 111 would limit Medicaid eligibility to children in this category to those with family incomes under 100 percent of the FPL.

Work Requirements: Section 117 would allow states to apply work requirements for certain adults as a condition to receiving Medicaid benefits.  Such a work requirement could encompass a variety of work activities, as are currently defined for the Temporary Assistance for Needy Families program.5  Exceptions include: (1) pregnant women during pregnancy through the 60 days after her pregnancy ends; (2) individuals under 19 years of age; (3) an individual who is the only parent/caretaker for a child under the age of six or with disabilities; and (4) an individual who is either married or the head of a household under 20 years of age who maintains satisfactory attendance at a secondary school or equivalent or participates in education directly related to employment.  This section would enhance the FMAP by five percent for activities to implement such a work requirement.

Presumptive Eligibility:  Section 111 would sunset the hospital presumptive eligibility program, by which hospitals were able to assist individuals who were presumptively eligible for Medicaid coverage on a temporary basis, and presumptive eligibility for expansion individuals, effective January 1, 2020.

Retroactive Eligibility:  Section 114 would make eligibility effective the first day of the month in which the application for Medicaid was made, instead of retroactive to the third month before the month in which such application was made, effective for applications made on or after October 1, 2017.

Other Eligibility Changes:  Section 114 would also permit states to consider lottery winnings as income in determining eligibility for Medicaid.  It would additionally permit states to require proof of citizenship or nationality for aliens declaring to be a citizen or national of the United States.  It would also repeal the exception for states to exclude homes valued at $750,000 or less, and applies a limit of $500,000 or less, effective 180 days after enactment. 

Provider Payments

Safety Net Funding for Non-Expansion States: Section 115 would create a safety net funding mechanism for non-expansion states with 100 percent FMAP for calendar years 2018-2021, and then 95 percent in 2022.  The section limits the funding to $2 billion per year and payments to providers may not exceed the costs of providing healthcare services to Medicaid and uninsured patients.  States would be disqualified for such safety net funding in a fiscal year if they adopt expansion during any fiscal year during which the safety net funding program is in effect.

Elimination of Medicaid DSH Reductions:  Section 113 would sunset the Medicaid DSH cuts enacted by PPACA, which enacted cuts to Medicaid DSH funding based on the assumption that uncompensated care would decrease after the enactment of PPACA.  Starting fiscal year 2020, section 113 would eliminate the Medicaid DSH reductions altogether, and the AHCA would not apply the DSH reductions altogether to non-expansion states. 

Other Provisions

Repeal of the Essential Health Benefits Baseline for Alternative Benchmark Packages: Section 112 would repeal the PPACA requirement that states establishing alternative benchmark packages for Medicaid ensure include at least the essential health benefits.

Home and Community Based Services: Section 111 would eliminate the six percent increase to the federal matching percentage for home and community based services that had been enacted by PPACA, effective January 1, 2020.      

What Happens Now?

The AHCA has now gone to the Senate for consideration.  At this point, it appears that the Senate Republican leaders have convened a special working group to consider whether to amend the AHCA or to draft a separate healthcare bill anew.  While it is difficult to predict what will be forged in the Senate out of this process, it is likely that the speed of this legislation may slow a bit as the Senate considers how to move forward with the proposals passed by the House. 

  1.  The full text of H.R. 1628 is available at
  2.  The full text of PPACA is available at
  3.  The FMAP is the percent that the federal government contributes to Medicaid spending.
  4.  Examples of non-DSH and other supplemental payments likely include “upper payment limit” payments, typically funded by provider taxes, as well as targeted payments such as delivery system reform payments.

Felicia Y Sze

Hooper, Lundy & Bookman

Felicia Y Sze is a recognized expert in Medicaid and Medicare reimbursement matters, focusing on both the managed care and fee-for-service programs. She advises healthcare providers, including hospitals, clinics, post-acute providers, pharmacies, durable medical equipment suppliers, and others, on a wide array of compliance and reimbursement matters and in disputes with managed care entities and government payors. She regularly reviews, revises and negotiates managed care contracts with a focus on those using alternative payment models. Ms. Sze earned her B.A. in Molecular and Cell Biology/Genetics from the University of California at Berkeley in 1996. She was the 1996 winner of the Kenneth Priestley award for outstanding student leadership and contribution to student welfare. Ms. Sze earned her M.P.H. degree specializing in Community Health Sciences/Health Policy from the University of California at Los Angeles in 1998. After graduating from the University of California at Los Angeles, Ms. Sze served as a Presidential Management Intern for the U.S. Department of Health and Human Services. In this capacity, she acted as the Regional Affairs Specialist to the Regional Director, Region IX.  Ms. Sze received her J.D. from the University of California at Berkeley, Boalt Hall School of Law in 2004. In 2002, Ms. Sze was awarded the Barbee Legal Research Fellowship for healthcare law. In addition, Ms. Sze served as Research Assistant to Professor Marjorie Shultz for three years, during which time she researched and edited publications related to medical mistakes and racial disparities in health. She may be reached at [email protected].