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Fitch: Medicaid Block Grants, MFAR Threaten States, Providers

Medicaid block grants and the proposed Medicaid fiscal accountability regulation (MFAR) pose new financial threats to providers and states, according to Fitch Ratings, the financial rating company.

MFAR poses the greater threat, Fitch believes, noting in a new analysis that it could

…reduce total Medicaid spending nationally by $37 billion and $44 billion annually…and by $23 billion to $30 billion for hospitals alone.  States, and to some extent providers, would respond to MFAR’s implementation with measures to mitigate the negative fiscal implications.

Block grants, through what has been named the Healthy Adult Opportunity program, also pose a threat, with Fitch explaining that

Capping federal Medicaid contributions, even for a subset of beneficiaries, poses risks to state budgets and those entities reliant on state funding, including local governments and providers.  States would need to find revenue or cost savings, either in Medicaid or elsewhere, to offset reduced federal contributions.

Because private safety-net hospitals care for more Medicaid patients than the typical hospital, both proposed policy changes have a potentially greater impact on them.

Last month NASH conveyed its opposition to the proposed MFAR regulation in a formal comment letter to the Centers for Medicare & Medicaid Services in response to the regulation’s publication late last year.  While NASH has not commented publicly about the Healthy Adult Opportunity program, it has long been concerned about a block grant approach to Medicaid funding, writing in its 2019 advocacy agenda that

Block grants, whether based on individual states’ Medicaid enrollment or on their past Medicaid spending, could impose unreasonable limits on Medicaid spending that could potentially leave private safety-net hospitals unreimbursed for care they provide to legitimately eligible individuals. NASH will work to ensure that any new approach that involves Medicaid block grant continues to give states the ability to pay safety-net hospitals adequately for the essential services they provide to the low-income residents of the communities in which those hospitals are located.

Learn more about the potential impact of the proposed Medicaid fiscal accountability regulation and Medicaid block grants in the Fitch Ratings analysis “Fitch Rtgs: Medicaid Changes Will Affect States, NFP Healthcare Providers.”

CMS Introduces New Approach to Medicaid Block Grants

States would be able to convert part of their Medicaid programs into block grants under a new program introduced by the federal government.

The program, which the Centers for Medicare & Medicaid Services calls “Healthy Adult Opportunity,” would encompass services only for adults under the age of 65 who are not eligible for Medicaid because of disability or the need for long-term care, services, and supports and who are not otherwise eligible for the pre-Affordable Care Act Medicaid program.

Under the program, states can develop either a total expenses model or per enrollee model for their block grants and would have expanded opportunities to introduce co-pays and deductibles, impose work requirements, expand eligibility criteria, and waive retroactive coverage and hospital presumptive eligibility requirements.  To save on the cost of prescription drugs, they would be empowered to implement limited drug formularies.

The new program appears to be targeting states that did not expand their Medicaid programs under the Affordable Care Act.  It also appears to be CMS’s attempt to introduce the block grant concept in a limited way in the hope that it will be successful and lead to demand to expand block grants to the entire Medicaid program and not just the Medicaid expansion population.

In the past NASH has viewed Medicaid block grants with a degree of skepticism, maintaining that its possible support or opposition to them would be based on how a block grant program is structured and how new block grants might affect the ability of private safety-net hospitals to serve their communities.

Learn more about CMS’s new Healthy Adult Opportunity program in this CMS news release, this fact sheet, and a letter the agency sent to the nation’s state Medicaid directors.