This is the sixth article in our series on the effect of a “slow repeal” of the ACA. This week’s discussion focuses on the potential impact on post-acute care providers.

The term “post-acute care provider” encompasses a large and diverse group of healthcare providers that includes nursing facilities, home health agencies, hospice agencies and assisted living communities. While each group has its own very unique industry characteristics, they all have at least one thing in common: none of them rely, to any great extent, on private insurance as a form of payment. This is because the vast majority of the patients served by post-acute care providers are older than 65 and, accordingly, are covered by Medicare. So, any repeal efforts relating to the private insurance exchanges that expanded healthcare coverage for more than 30 million Americans will have minimal impact on post-acute care providers. Instead, the key issue facing post-acute care providers relating to the slow repeal of the ACA is the threatened conversion of Medicaid into a block grant program.

With the exception of hospice, most post-acute care providers serve the long-term, chronic healthcare needs of America’s seniors and disabled communities, and the major payer for such long-term services and supports, by default, is Medicaid. Nationally, long-term care insurance covers less than 5 percent of the cost of current long-term care services. By contrast, in 2011, Medicaid was the primary payer for more than 63 percent of nursing facility patients. Though the assisted living industry relies primarily on direct payments from residents, Medicaid is the industry’s second-largest revenue source, accounting for 19 percent of payments for care.

The landmark 1999 Supreme Court decision of Olmstead v. L.C. directed state Medicaid programs to serve the long-term needs of beneficiaries in the “least restrictive setting possible,” echoing more than a quarter century’s demands by seniors and disability advocates. As a result, states have greatly expanded home healthcare programs covering the long-term care needs of seniors, offering a home-based alternative to nursing facilities and assisted living communities. In all, about two-thirds of all Medicaid spending goes toward coverage of healthcare for the disabled and for people age 65 and older, and approximately 25 percent was spent exclusively on the long-term care services and supports provided by post-acute care providers.

Currently, Medicaid covers approximately 72 million enrollees and is jointly funded by the federal government and several states. State spending is currently automatically “matched” with federal funds in accordance with federal Medicaid assistance percentages, or FMAPs. So, federal Medicaid spending by state generally increases when states spend more money. FMAPs vary by state and by Medicaid program type, but are always at least half of Medicaid expenditures. The current Medicaid expenditure growth is about 4.5 percent, or nearly double the general rate of inflation.

With many predicting that Speaker Ryan’s “A Better Way Health Plan” will likely form the basis for Republican negotiations on the Hill, Congressman Ryan’s proposal allows states to choose between two funding options: per capita allotment of funds similar to managed care plans or a block grant so that the state can create a customized program.

Under block grants, states would receive a fixed amount of federal Medicaid funding, as opposed to the increased federal allocation states now receive when their own spending rises. The types of block grants currently under discussion are an absolute cap on all federal spending per state, or placing a federal cap on spending per Medicaid beneficiary.

From a federal perspective, the financial advantage is clear: by placing limits on these caps, federal Medicaid expenditures can be more easily controlled. However, placing such caps also threatens to reduce total Medicaid expenditures and, depending on whether Congress chooses a “per capita” or “single lump sum” approach, potentially puts states that did not choose to expand their Medicaid programs at a disadvantage. States would have limited options for absorbing federal Medicaid cuts:

• Changing eligibility rules to reduce the number of eligible Medicaid beneficiaries;
• Limiting or eliminating services covered by Medicaid; and,
• Cutting already deeply discounted reimbursement rates to service providers.

Any of these changes would have a negative and disproportionate impact on post-acute care providers and the populations they serve.

As has been discussed in past articles in this series, Congress and the administration continue to wrestle with the details of a slow repeal of the ACA, so it is not clear when, how, or even if Medicaid block grants will be implemented. Post-acute care providers are advised to remain vigilant and active at both the state and federal levels to help minimize the impact of any such change to the Medicaid program.