Reduce Medicaid spending? Look at Puerto Rico

Capping Medicaid Funding — Lessons From Puerto Rico

By Krista M. Perreira PhD, David K. Jones PhD, and Jonathan Oberlander PhD
American Journal of Public Health, December 2017 (Online November 8, 2017)

The United States already has experience with the consequences of limiting Medicaid funding. The federal government’s contribution to the Medicaid program in Puerto Rico, a US territory with 3.5 million residents, 46% of whom are enrolled in Medicaid or CHIP, is capped and grows with the medical consumer price index. When introduced in 1968, the statutory cap was set to cover 50% of the program’s costs. By 2010, it covered only 18% of Puerto Rico’s Medicaid expenditures. If Puerto Rico’s federal Medicaid payments instead were based on per-person income, as is currently the case in the 50 states, then the federal government would pay 83% of the commonwealth’s Medicaid bill.

The erosion of federal funding for Medicaid in Puerto Rico reflects a fundamental problem with block grants and spending caps. Under such arrangements, payments typically are neither sufficiently indexed to account for rising medical costs nor adequately responsive to changing economic circumstances that can increase the number of poor individuals eligible for benefits. Consequently, the share of Medicaid costs paid by the federal government can decline substantially over time, as it has in Puerto Rico. Puerto Rican officials have responded by setting low income-eligibility levels, based on a commonwealth-specific poverty measure, that covers pregnant women and children only up to 50% of the federal poverty level. Additionally, Puerto Rico provides only 10 of the 17 federally mandated Medicaid benefits. It does not cover nonemergency medical transportation and lacks the infrastructure to cover and regulate long-term care and nurse midwife services.

Puerto Rico’s circumstances are especially dire, but its experiences with capped federal Medicaid funding highlight the quandaries that states would face under Republican proposals to cap spending. Such plans would dramatically curtail the federal government’s role in financing Medicaid. States cannot afford the steep cuts in federal Medicaid financing — about $800 billion over 10 years, amounting to a 24% reduction that would increase to 35% in the following decade — that House and Senate Republicans have proposed. Capped funding inevitably would force states to make painful decisions about reducing Medicaid eligibility and benefits. Medicaid funding caps would unravel the program in many states, leaving millions of low-income persons without any health insurance.

Although the ACA repeal campaign stalled in the Senate, proposals to cap Medicaid spending are likely to resurface. Efforts to limit the federal government’s role in financing Medicaid will not stop, regardless of the ACA’s future. Medicaid is an inviting ideological and fiscal target. Indeed, pressures to reduce the federal budget deficit and pay for tax cuts could soon lead Congressional Republicans to reconsider block grants. Puerto Rico’s experiences with capped Medicaid funding are a warning of the dangers that such plans hold for the states.



By Don McCanne, M.D.

The Republicans want to cap Medicaid spending. Some of their proposals for doing so already apply to Puerto Rico. As this report indicates, it has been a disaster.

The Democrats are not without blame since they have been content with leaving Medicaid as a chronically underfunded program. It's just that the Republican proposals would make it much worse.

The most important touted success of the Affordable Care Act has been the expansion of Medicaid, but as long as it remains chronically underfunded and a target for budget cuts, care for low-income individuals and families is at risk of falling below a standard acceptable to most of us - a lower tier of care than what we are capable of providing.

It does not have to be that way. We are spending enough now to provide top-tier health care for everyone - a level in which optimal care becomes the standard. Yes, top-tier care is affordable because it includes eliminating administrative waste, reducing excessive prices, reducing excessive capacity that drives overuse, and reducing care that is of no value.

Rather than expanding to low-income populations the disastrous level of care being experienced in Puerto Rico, we should be bringing Puerto Rico up to the standard of a high performance system that we should all be experiencing. All we have to do is enact a well designed single payer national health program.

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