So the Senate introduced its “Better Care Reconciliation Act” (BCRA) last week. If you have not yet read through all 145-pages, we have already put out a number of blogs and issue briefs highlighting certain factors. But I want to draw your attention to the interplay of three separate provisions because, taken together, the impact of BCRA on states’ budgets is significantly multiplied.First, BCRA imposes a per capita cap (PCC) on states to operate their Medicaid program. The PCC destroys Medicaid’s 50-plus year guarantee of federal funding based on actual health care costs. Whether the PCC’s growth rate ends up being the “regular” Consumer Price Index (CPI) or the medical component of the CPI, using either virtually always results in lower-than-Medicaid cost growth and thus restricts states’ ability to provide comprehensive health care to Medicaid enrollees. So each year, the state starts in the hole by having less money to spend than actual health care costs to provide care. And then, if a state happens to overspend its PCC, HHS will claw back overspent funds the following year. A state will not even know if it overspends until the end of the year when the CPI is finalized, and it could be penalized for overspending due to factors beyond its control.
Second, BCRA penalizes “high spending” states by lowering its aggregate per capita cap as much as 2 percent per year. Myriad reasons exist why some states may spend more on care than others – geography, an aging population, high costs of care, outbreak of a new virus, etc. The penalty applies to any state that spends more than 25 percent above the average of all states for any per capita cap “group” (seniors, people with disabilities, children, Medicaid expansion adults, other adults). It is even worse in 2020 and 2021 when the entire Medicaid enrollement is counted as one group. If in effect in 2014, 24 states would have faced the penalty. And because the determination is based on the average spending of all states, a state would not necessarily know it faces a penalty until after the end of the year. Where a state falls is beyond its control since other states’ spending determines whether any one state may be subject to a penalty. And since low spending states can get an increase in their aggregrate per capita cap of up to 2 percent for spending more than 25 percent below the average, states have a huge incentive to reduce costs, restrict access, and race to the bottom of the pack to avoid penalties.
Third, just when a state is trying to claw its way out of this deepening fiscal hole, BCRA also limits its ability to use “provider taxes.” All but one state use provider taxes to help the state pay its share of Medicaid costs. Cutting or eliminating provider taxes is a substantial cost shift to states and will make it harder for them to sustain, let alone increase, their Medicaid spending. It also undermines state flexibility to administer the Medicaid program without doing anything to achieve programmatic efficiencies or improve quality.
So compound the stingy growth rate of per capita caps with a penalty for overspending and a penalty for high spending and then hamstring a state’s ability to ask providers to help pay the state’s share of costs. BCRA calls a strikeout for states before they even get up to bat.