February 17, 2017

Per Capita Caps: Been There, Done That, They Don't Work

History shows the pitfalls of transforming current open-ended federal funding of the Medicaid program into “per capita cap” financing. The program will inevitably shrink, requiring cuts to vital health care services and forcing vulnerable Floridians out of the program.

Governor Rick Scott has indicated his interest in radically changing the financing formula for Florida’s Medicaid program through “per capita caps.”

Florida currently has access to open-ended federal funding, which pays more than half (61 percent) of Medicaid costs. Using per capita caps, the federal government would no longer reimburse the state based on the full cost of care. Instead, the state would only receive a portion of the cost up to a capped amount per beneficiary.

Such a financing scheme is fraught with pitfalls, as highlighted in a recent New England Journal of Medicine article.  The authors looked at publicly financed medical care in the late ‘50s, prior to the adoption of the Medicaid program. At that time, states were directly reimbursing providers for care through per capita cap reimbursement called “medical vendor payments” (or MVPs).

With MVPs, the states had strong incentive to minimize per-enrollee spending. But what were the true costs of this funding scheme?

States kept spending low by excluding broad categories of vulnerable populations from medical care (e.g. millions of poor children) and either excluded or severely limited coverage for vital services (e.g. hospitalization, doctor visits and prescriptions). As a result, the sickest patients in need of the most care were shut out.  A House Committee on Ways and Means report from that time analyzed per capita cap spending and concluded that “a majority of the states are not spending enough through their assistance programs to provide adequate medical care…”

Florida lawmakers must not let history repeat itself.  Medicaid per capita caps would be an extremely “bad deal” for the state.

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