The Stealth Cut to Federal Funding That Would Undermine Medicaid Efficiency, Integrity, and Innovation: Tech Bros Take Note

Editors: Amanda Eisenberg and Patti Boozang
Author: Kevin McAvey

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tl;dr

As the GOP considers significant federal budget cuts, a lesser-known proposal to cut Medicaid funding could severely impact Medicaid’s ability to invest in information technology, and ultimately undermine Medicaid program efficiency, integrity, and innovation – as well as states’ health data ecosystems.

The 80 Million Impact 

As the GOP eyes cutting $2 trillion to $2.5 trillion of the federal budget, one under-the-radar health care cut could threaten Medicaid program integrity, efficiency, and innovation – and potentially unwind many state health data ecosystems.

Medicaid Administrative Claiming is the mechanism the Centers for Medicare and Medicaid Services (CMS) uses to reimburse state Medicaid programs for their administrative and technological investments include, though extend well beyond:

• Medicaid enterprise systems capable of managing millions of eligibility determinations and adjudicating billions of provider claim payments annually;

• IT and workforce capabilities to monitor program impacts and detect and control for Medicaid fraud; and

• Technological infrastructure for health data collection, exchange, and analytics to support population health management.

Medicaid Administrative spending totaled over $35 billion in Federal Fiscal Year (FFY) 2023. The federal government splits these costs with states, with Federal Financial Participation (FFP) rates ranging from 50% to 100%, depending on the type of investment. Though all state Medicaid programs benefit from aggregate administrative reimbursement rates well in excess of 50% – with CMS-64 data indicating many of nation’s smallest states benefit most – Congress is now considering a change that would leave states financially hamstrung in supporting core program activities.

Select Federal Match Rates Above 50% for Medicaid Administrative Activities

Source: Medicaid and CHIP Payment and Access Commission

In early February, a GOP-issued House Ways and Means Committee budget menu estimated that by capping Medicaid administrative FFP for states at 50%, the federal government could save $69 billion over 10 years. The proposal’s savings, while modest compared to the GOP’s overall target, could be seen as an easy add-on to a reconciliation bill, with low Congressional awareness of the significant implications these cuts could have on states’ abilities to manage, monitor, and oversee their Medicaid programs.

For example, most state Medicaid programs take advantage of “enhanced” FFP rates – federal matching rates in excess of 50% – to cover the costs of:

• Implementing Medicaid Fraud Control Units (90%);

• Designing, developing, and installing more modern and efficient eligibility and claims payment systems (90%);

• Designing, developing, and installing technology to facilitate health information exchange between mental health (MH) and Substance Use Disorder (SUD) treatment providers and other health care, school, and criminal justice settings (90%);

• Establishing eConsent Management Systems, capable of supporting the exchange of MH and SUD treatment information (90%);

• Maintaining and operating the core state Medicaid agency systems (75%).

According to MACPAC, national spending on Medicaid enterprise systems and investments that qualified for enhanced FFP match totaled over $15 billion in FFY23. If FFP is capped at 50% for these core expenditures moving forward, it would result in state Medicaid programs facing direct cost increases of 100% to 400% as contracts come up for renewal.

State Medicaid programs would not be the only programs impacted by a Medicaid Administrative Claiming FFP cap of 50%. Many health information exchanges (HIEs) and most state All Payer Claims Databases (APCDs) are now direct or indirect recipients of Medicaid administrative dollars, as they have matured to support Medicaid programs’ operational and population health monitoring needs. HIEs have been particularly integral in supporting state Medicaid programs in responding to natural disasters and the nation’s SUD crisis, locating vulnerable and dislocated Medicaid-eligible populations, and supporting Medicaid managed care plans in delivering effective care management.

The Bottom Line

Congressional proposals to cap Medicaid Administrative Claiming might seem like an easy bright line to draw but would limit states’ ability to invest in more efficient programs, improve operational integrity, and leverage new technologies to support innovation that has the potential to make management of Medicaid more effective and cost less. Such action would likely result in unintended and counterproductive consequences given the Administration’s goals of advancing a more effective and efficient health care delivery system.

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