Analysis Finds Capped Medicaid Payments Would Significantly Reduce Federal Spending

On February 6, Avalere Health released a new report (attached) which concludes that restructuring Medicaid from an open-ended entitlement program to one using block grants or per capita caps would significantly reduce federal Medicaid spending. According to the analysis, block grants would receive $150 billion less in federal spending over five years, and per capita caps would result in a $110 billion reduction over the same period.

Avalere modeled what the impact of these programs would have been on states had they been implemented from 2001 to 2008. Under a block grant structure, only one state would have seen an increase in funding, with more than half of states receiving spending cuts between 15 and 30 percent. Some states would have fared better under per capita caps, with more states receiving increased funds. However, critics of per capita cap proposals are quick to point out that such systems generally do not include a mechanism to ensure that the capitated rate will keep up with increased costs, resulting in a deficit that states must absorb, or else cut enrollment, limit benefits, or reduce payment rates moving into the future.

The executive summary and a link to download the full report are available here.