Change Around the Block?
By Joey Berlin Texas Medicine April 2017

Medicine Has Questions, Concerns About Potential Medicaid Reforms

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Cover Story — April 2017 

Tex Med. 2017;113(4):20-27.

By Joey Berlin
Associate Editor

Athens family physician Doug Curran, MD, knows and understands Texans physicians' frustrations with Medicaid, including access to care, insurance limitations, and payments that have depressed Medicaid participation to less than half of the state's physicians. He calls the current Medicaid system "one hassle on top of another hassle."

"It's narrow networks; it's [the fact] patients can't get care," he said. "And access is not good at all. It's terrible."

In light of that reality, Medicaid reform starting at the federal level might sound like a highly attractive proposition for many physicians. It's also attractive for many lawmakers who see Medicaid as an expensive bureaucratic nightmare. And with a new administration in Washington, DC, promising to reboot health care in the United States ― exactly when remains unclear ― Medicaid reform is a real possibility.

President Donald Trump, new Health and Human Services Secretary Tom Price, MD, and lawmakers such as House Speaker Paul Ryan (R-Wis.) have championed turning Medicaid into a state block-grant program, in which states receive a capped amount of funding for Medicaid that legislatures would effectively distribute how they see fit. In early March, just before press time, congressional Republicans unveiled a health care overhaul proposal that included reforming Medicaid by way of a per-capita cap, another much-discussed method of capped funding. 

Proponents of a block grant trumpet it as a vehicle for the federal government to give the states the money and, in effect, get out of the way. In theory, each state can then take care of its own vulnerable, low-resource populations autonomously, administering and tailoring Medicaid dollars without today's hindrance of onerous federal requirements on such aspects as eligibility and coverage.

As with anything involving health care, though, a capped-funding system isn't that simple. Questions abound as to what a capped-funding system would look like and what effect it would have on the current Medicaid-eligible population, covered services, and physician payments.

TMA supports a Texas-run health care solution for the state's low-income families, seniors, and people with disabilities, but also considers it vital to protect coverage and access for the state's most vulnerable populations. Dr. Curran is chair of a Joint Block Grant Task Force the Texas Medical Association and the Texas Hospital Association (THA) have formed to study the issue. (See "Task Force at Work.") Right now, the prospect of block-granting Medicaid excites some invested observers and deeply concerns others, such as Edinburg internist Linda Villarreal, MD, who says a block grant would pose a problem in her vicinity, the Lower Rio Grande Valley.

"It's beginning to turn; it's beginning to get better, but we're still doing sick care more than we are doing health care," she said. "And in that realm, a block of money, it's kind of like … you going to the grocery store, you filling up the basket, and when you get to the checkout, you're not going to have enough money. So you put stuff back, and you just take what you need. But how do you do that in a health situation?"

Medicaid: the Good and the Bad

Texas physicians collectively offer mixed feelings on Medicaid. Dr. Villarreal calls it "a very good program" and stresses the importance of continuing to provide care for vulnerable populations. San Antonio pediatrician Ryan Van Ramshorst, MD, chair of TMA's Select Committee on Medicaid, CHIP and the Uninsured, says he likes to frame Medicaid as a success story for low-income children, children with special needs, and children in foster care. 

The program "is not without issues," Dr. Van Ramshorst acknowledges, but the changes TMA often advocates to improve it — decreased administrative red tape, improved physician payments, and streamlined credentialing and enrollment — aren't necessarily unique to Medicaid. For his patients, Dr. Van Ramshorst says, Medicaid is the reason children can get their asthma controlled, avoid diabetes, and receive feeding supplies if they have special needs.

The federal government matches certain percentages of each state's Medicaid expenditures based on a statutory formula that determine a state's need. The government's federal medical assistance percentage (FMAP) for Texas in 2017 is 56.18 percent, meaning it pays that percentage of the state's spending on "assistance payments for certain social services, and state medical and medical insurance expenditures," according to the Texas Health and Human Services website. No state's FMAP can be lower than 50 percent or greater than 83 percent. Mississippi gets the highest percentage of Medicaid assistance, with an FMAP match of nearly 75 percent for 2017.

Medicaid costs are a biennial point of concern for Texas lawmakers. In 2015, the legislature allocated $61.2 billion in state and federal funds for Medicaid for the 2016–17 biennium. A falling FMAP percentage for Texas from previous years resulted in the state picking up nearly $800 million more in general revenue costs for Medicaid, the Legislative Budget Board notes.

In 2015, Medicaid accounted for more than half of the total amount of federal funding in the state's budget. (See "Medicaid by the Numbers" and "Federal Funding Feeds Medicaid.")

"I think it's still important to recognize that many states, including Texas, still feel that Medicaid costs need to be contained, and there's not enough money in the world to cover the costs right now," Dr. Van Ramshorst said. "But I think the federal-state match works well."

But state Rep. John Zerwas, MD (R-Simonton), calls Medicaid "a very bureaucratic program" with difficulties for practitioners and a payment schedule that's "far from adequate" compared with commercial plans. Representative Zerwas, an anesthesiologist, chairs the powerful House Appropriations Committee, which helps to craft the state’s two-year budget.

"The current program is one that is difficult to continue," he said. "If we are able to transform it into a block grant type of a program, I think the state could do a better job of providing the program than having to deal with some of the federal constraints."

Meanwhile, according to Kaiser Family Foundation statistics for 2015, 16 percent of Texas' population was uninsured, significantly above the 9-percent national average. Texas is one of 19 states that opted not to expand Medicaid coverage under the Affordable Care Act, a move that would have reduced Texas’ uninsured rate. But Dr. Curran says the Texans whom the program currently covers have trouble obtaining the care they need, in part because far fewer physicians take Medicaid patients than can account for the state's need.

"And it's not because you don't want to take care of these people. It's because you can't keep your doors open if you do just that. You'll go broke," said Dr. Curran, chair of the TMA Board of Trustees. "You cannot cash-flow it if it costs you more than what [the return is] to deliver the service. Just to see a patient, it costs me $45 to $50 before I get paid anything, and a level 3 visit for Medicaid pays us about $30. So I can't do that. That's the problem for all doctors."

Beaumont anesthesiologist Ray Callas, MD, chair of TMA's Council on Legislation, agrees it's important for physician Medicaid payments to improve. TMA's 2016 Survey of Texas Physicians shows just 45 percent of respondents treat Medicaid managed care organization (MCO) patients. Among those physicians who don't see Medicaid MCO patients, inadequate fees were the most-cited reason why, with 60 percent of those physicians responding it was one of the reasons. Twenty percent of those physicians said they would accept more Medicaid patients if rates increased by 5 percent to 10 percent, and 35 percent said they possibly would. Just 41 percent of physicians accept all new Medicaid patients.

"Speaking from experience as an anesthesiologist, we are paid way below on Medicaid rates, so dismal that it costs me money to even take care of a Medicaid patient," Dr. Callas said. "But we are committed as physicians in our group, especially, and all physicians as a whole that, as an anesthesiologist, I don't have a choice or a clinic. When they come to the operating room, I've got to take care of them.

"I think that the solution is untying the parachute strings that allow that money to flow into Texas, allowing Texas legislators with the help of Texas physicians [to create] a very strategic plan … to improve health care for Texans related to this Medicaid population."

Reform Possibilities

Major proposals for reforming Medicaid have centered around two methods of capping federal funding for the program. With a block grant, the federal government distributes a fixed amount to each state each year. A new study by Manatt Health, "Capped Federal Medicaid Funding: Implications for Texas," notes block grant proposals usually base each state's allotment on its historical federal Medicaid payments in a given year. 

A proposed alternative is a per-capita cap system like the one congressional Republicans proposed in March, which would limit funds to a fixed amount per Medicaid enrollee. Tying federal funding to the number of enrollees would allow funding to increase based on per-person need, but it would have no relationship to states' overall health care expenditures. The study notes capped funding models essentially lock in a state's prior decisions regarding covered benefits, payment rates, and eligibility.

As states attempt to protect their Medicaid programs in the event of a federal cap, the study says, Texas would enter that discussion with fiscal disadvantages, such as a growing population, historically low Medicaid investments relative to its low-income population, and a high reliance on supplemental and waiver funding.

"If we look at existing populations covered by Medicaid, I think Texas could potentially have a lot to lose in block-granting, but it depends on the details of how it's constructed," said Mary Dale Peterson, MD, the chief executive officer of Driscoll Health Plan and a TMA representative on the TMA-THA task force. "The risk Texas has is that right now we are on the lower tiers of spending per beneficiary, and we have some of the lower eligibility levels of other states. So depending on how you determine a baseline, we're starting off pretty low."

Much of the speculation over Medicaid becoming a block grant program stems from President Trump's own words on Medicaid during his campaign and his selection of Secretary Price to run HHS. Secretary Price's background as a physician is encouraging to many in medicine; he's the first physician to head HHS since Louis W. Sullivan, MD, left the post at the end of the George H.W. Bush administration in 1993.

In 2015, as the chair of the House Budget Committee, then-Representative Price proposed a budget that would have converted Medicaid into a block grant program and slashed federal funding for the program by $913 billion over 10 years.

During his confirmation hearings for the HHS post in January, Secretary Price called Medicaid a vital but problematic program. He didn't directly answer when Sen. Claire McCaskill (D-Mo.) asked him repeatedly whether he wanted to block-grant Medicaid.

"I've worked with … now-Secretary Price at the Texas delegation to the AMA [American Medical Association], and just knowing what he knows related to the block grant program, I think he's more in favor of the block grant program," Dr. Callas said. "But we have to make sure that we mold it specifically per state, and we need to make sure Texas has physician leaders at the table whenever we decide what the ask is going to be related to a block grant."

Physician leaders such as Representative Zerwas and Sen. Charles Schwertner, MD (R-Georgetown), have expressed support for a block grant system. Representative Zerwas proposed legislation in 2013 for a "Texas solution" to Medicaid, an alternative plan that would have involved federal authorization for a block-grant system for Medicaid, such as through a cost-neutral waiver, to expand coverage for poor adults through private insurance. 

Health benefits under that legislation, House Bill 3791, would have been tailored to each enrollee and "emphasize personal responsibility and accountability" through wellness initiatives and cost-sharing requirements, "including through incentives for compliance with health, wellness, and treatment strategies and disincentives for noncompliance." The plan also included subsidies for people who purchase high-deductible plans using health savings accounts.

TMA supported HB 3791, but it never made it to a House floor vote.

"That was really a block grant model, if you will, for 1.5 million people that would've been included under that expansion situation," Representative Zerwas said. "I think what I would like to see if [a block grant] happened, is the ability of the state to craft an indigent health care plan that incorporated a lot of the free market principles that we know drive healthy behaviors and that we would be able to tailor the portfolio of benefits to the needs of the patients. And I think that we can deliver a better plan, a more cost-effective plan that would continue to respect access and promote high quality."

Representative Zerwas acknowledges that the issue of whether a block grant could cover the same number of people is "one of the devils in the detail." 

"I'm of the personal opinion that it has to be on some kind of per-capita basis because those states that did expand and made that investment, they certainly aren't going to want to see that go away. And likewise, if there are moneys to be laid out to support a Medicaid program, Texas doesn't want to be shortchanged because they didn't expand."

Dr. Callas says he's in favor of a block grant in and of itself if it doesn't come with a number of strings attached, such as obligations to the federal government.

"Our concern is that as we work with the governor and as we work with legislators on the federal side, we would like to have a block grant that is Texas-specific and allow Texas to decide how they would cover Medicaid expansion that will fit the state of Texas and be very precise for Texas only," he said.

History Fuels Apprehension

Many physicians are concerned about a block grant on several fronts. One is the prospect of the Medicaid entitlement — the right of anyone eligible to enroll — potentially disappearing. Also, under federal law, children receive additional protections through the Early and Periodic Screening, Diagnosis, and Treatment program, which guarantees children enrolled in Medicaid receive all medically necessary services in addition to preventive and primary care. That protection could disappear under a block grant or per-capita cap system.

Another major concern is that block grants have a reputation for resulting in funding decreases.

"I think many elected officials and other people in positions of power are very enthused about what I consider to be a guise of enhanced flexibility," Dr. Van Ramshorst said. "Sure, the state would have discretion to change benefits and change eligibility, which you could view as flexibility. On the other side of that argument is, arguably, states are less flexible because they're receiving a capped or maximized federal investment, and then the state is responsible for coming up with the remainder of the money to fund their Medicaid program. And that, to me, is not flexibility. That's a fiscal constraint."

A March 2016 study by the Center on Budget and Policy Priorities (CBPP) examined 13 major health, housing, and social services block grants initiated between 1982 and 1998. The study included such block grants as the one for Temporary Assistance for Needy Families (TANF), first implemented in 1998; the Substance Abuse Prevention and Treatment block grant, which began in 1994; and the Preventive Health and Health Services block grant, which began in 1982.

Of those 13 block grants, 11 had lost funding since inception when adjusting for inflation, with funding cuts ranging between 5 percent and 73 percent. Only three of the 13 block grants had seen funding increases since 2000. After adjustments for population growth, the funding trends for the block grants, as a group, were even lower.

A study that consulting firm Avalere Health released in February showed block grants would reduce federal Medicaid spending by $150 billion over five years. A per-capita cap would save the federal government $110 billion over that time frame.

Avalere examined each approach's impact on individual states by modeling state Medicaid funding from the federal government between 2001 and 2008 using block grants and per-capita caps. Avalere found that with a block grant, only North Dakota would have experienced a federal funding increase; all others would have seen their funding cut. Texas was one of nine states that would have seen a reduction greater than 30 percent, Avalere found.

The study's modeling for a per-capita cap system painted a better picture for state-by-state Medicaid funding. Texas was one of 24 states that would have received a federal funding increase, according to the study. All 26 other states would have seen federal funding decreases of less than 30 percent.

"The Medicaid block grant model is more limiting to states because it constrains both spending growth and enrollment growth," Caroline Pearson, senior vice president at Avalere, said in the final report. "The per capita cap model allows for greater flexibility and better absorbs marketplace fluctuations like financial downturn; however, it can still result in an overall loss of federal funding for state Medicaid programs. States may respond to block grants or per capita caps by cutting enrollment, limiting benefits, or reducing payment rates to providers and plans."

Dr. Curran says a block grant with flexibility for Texas to add more federal dollars as it grows would be "somewhat attractive."

"But I guess the hardest part for me is that the group of people that's cared for under Medicaid is really poor children and poor pregnant women and folks who are disabled and poor older people. So where do you cut? Who's going to take the brunt of it?"

The 2015 Texas Health Care Spending Report, which Texas Comptroller of Public Accounts Glenn Hegar released in January, states Medicaid costs had risen during the past 15 years "primarily because of rapidly increasing client enrollment." The 2017 expected Medicaid caseload will have increased by nearly 50 percent in the preceding 10 years, says the report.

Dr. Van Ramshorst says he's far more concerned about the prospect of a block grant program than about a per-capita cap. A per-capita cap proposal would still concern him because, like a block grant, it would eliminate the federal entitlement and take away federal matching dollars. But he says the discussion around per-capita caps has at least included talk of a mechanism to adjust for the likes of inflation, the gross domestic product, or the consumer price index. That would help states absorb some of their Medicaid costs.

"But what neither of those proposals does is account for public health emergencies, increased poverty levels, or other natural disasters where you might have larger segments of the population qualifying for services or needing services," he said.

Dr. Villarreal has similar concerns about fixed funding not accounting for unforeseen shifts.

"Individuals who may be needing extended care, individuals who can't do for themselves, like our disabled children who actually require round-the-clock provider services in the hospital setting, there's just so many unpredictables that a block of money isn't going to take care of," she said. 

Anne Dunkelberg, health and wellness program director for the Texas-based Center for Public Policy Priorities, says CHIP, which the federal government funds through block-granting, is "really the only positive example we have" of a successful block grant program. According to a Center for Budget and Policy Priorities analysis, CHIP has "overcome the serious shortcomings of its financing structure because it differs substantially from typical block grants."

Ms. Dunkelberg says one example of a block grant proving to be a detriment to Texas was the TANF grant, which replaced the Aid to Families with Dependent Children program during 1990s welfare reform.

"One of the dangers it exemplifies is that the block grant allocation for Texas was based on our historical spending," she said. "And since we had been extremely stingy, essentially, with welfare cash assistance benefits in Texas, we got a really small TANF block grant. So it wasn't based on our need, on our poverty level. It was based on how much we spent before the welfare reform act was passed."

Ken Janda, chief executive officer of Community Health Choice, which offers health plans for Texas' Medicaid program and CHIP, as well as federal Health Insurance Marketplace plans, warns not to confuse a block grant with flexibility, which he says Texas needs through an easier Section 1115 waiver process. 

In January, the Texas Health and Human Services Commission asked the U.S. Centers for Medicare & Medicaid Services for an extension of the 1115 waiver, which has allowed the state to expand Medicaid managed care beyond what Medicaid normally allows. The extension would run through Sept. 30, 2019.

Mr. Janda says he's concerned about the cost-shifting that could result from a block grant. The Manatt Health study concluded capped financing carries the risk of significant cost-shifting to the states.

"I don't worry much about insurance companies. Insurance companies will always figure out how to make a buck," Mr. Janda said. "But I worry that a block grant could then mean more cuts to physician fee schedules. It could mean saying that people who are currently eligible are not eligible, or people are not eligible for certain benefits that they're eligible for now. I don't see it as a panacea." 

Calling for Collaboration

Mr. Janda says for the people it covers, Texas has the nation's best Medicaid program. But he says it should follow the lead of other states and cover more people. 

"If you look at the per-capita costs in Texas, we're already doing damn good," he said. "And at the same time, even though there's still not enough doctors who participate in Medicaid and we don't pay doctors enough in Medicaid, we still actually have improved access through Medicaid managed care, and we've improved outcomes to the point now that people on Medicaid, children and pregnant women, have pretty close to the same clinical results as people covered by commercial insurance.

"We should be proud of that, and we ought to be figuring out how to do more of that health plan/provider collaboration that's going on right now and less trying to figure out ways for one funder to dump more expense on another funder."

Dr. Villarreal stresses the importance of physician involvement but says physicians in the Rio Grande Valley specifically need to become more interactive with their legislators and "communicate what we are living through day to day, what our patients are going through day to day, and how any decision they make, financially, can have a potentially disastrous effect on a patient population that ends up being their constituents."

Dr. Van Ramshorst says in the current political climate, it's important to be collaborative and forward-thinking. To that end, he says, the way for health care leaders to approach the coming discussions is to come up with a "wish list" of protections for patients and physicians to maintain benefits and eligibility and to avoid hurting vulnerable populations. The TMA-THA task force, he says, is a way for medicine to form a united front and come up with a Texas proposal for how to administer a block grant or per-capita cap. 

"I think digging your feet in and saying block grants and per-capita caps are a nonstarter is not the right way [to go] about being collaborative," he said. "I think we need to recognize that there is a very large appetite both at the state and the federal level to contain costs. And whether someone likes it or not, block grants and/or per-capita caps are going to be the way that things go. So physicians and leaders in health care need to be prepared to have a seat at that table."

Joey Berlin can be reached by phone at (800) 880-1300, ext. 1393, or (512) 370-1393; by fax at (512) 370-1629; or by email.


Task Force at Work

TMA and the Texas Hospital Association (THA) have formed a joint task force to study the issues surrounding a potential block grant or per-capita cap for Medicaid. The TMA-HA task force has drafted key questions and principles to consider. Below are some of those questions and principles, which are subject to change after further input from TMA and THA members. 

Key Policy Questions   

  • How will the block grant/per-capita cap base year be calculated?
  • Will new financing include growth for medical inflation, innovations in medical care, caseload growth, recessions, natural disasters, or public health emergencies?
  • Would states be required to continue matching payments to receive federal funds?
  • Will a block grant or per-capita cap apply to all Medicaid populations and services or exclude some?
  • Will the Centers for Medicare & Medicaid Services maintain federal minimum standards for Medicaid managed care regarding factors such as network adequacy, benefits, and quality improvement?  

Principles for Consideration   

  • Establish a funding baseline and trend rate related to the need for services and ensure competitive, annually updated payments for physicians, hospitals, and other health care providers.
  • Reward Texas with additional dollars to account for its existing low per-patient costs and high poverty rate, which drives Medicaid enrollment.
  • Avoid cost-shifting for uncompensated care to physicians, hospitals, and local taxpayers.
  • Consider piloting block grants with the expansion population to test feasibility. 
  • Maintain the current Children's Health Insurance Program, including historical federal matching levels.  
April 2017 Texas Medicine Contents
Texas Medicine Main Page


Last Updated On

July 02, 2017

Originally Published On

March 27, 2017

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Joey Berlin

Associate Editor

(512) 370-1393

Joey Berlin is associate editor of Texas Medicine. His previous work includes stints as a reporter and editor for various newspapers and publishing companies, and he’s covered everything from hard news to sports to workers’ compensation. Joey grew up in the Kansas City area and attended the University of Kansas. He lives in Austin.

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