Understanding State Innovation Models for Medicaid

Health Insurance

December 20, 2017

The synergy that can sometimes occur between opposing factors in politics can be interesting to watch. Donald Trump spent a lot of time on the campaign trail telling everyone that he wants the states to bear more of the responsibility for funding Medicaid because it was designed to be a state-run program in the first place. Of the $509 billion spent in all state Medicaid programs in fiscal year 2015, the states only paid 38 percent of the costs. The federal government picked up the rest of the tab. With the population growing and getting older, Republicans know that the federal government cannot continue this path.

The synergy comes in when you talk about State Innovation Models (SIM) for Medicaid. The SIM program was part of the Affordable Care Act (ACA) and went into effect in 2013. The program is made up of two parts of grants to certain states to spur innovation on delivering and paying for state-funded health care. The goal for the program is to create lower costs, better health care and take more of the burden off of the federal government. The Republicans did not create the SIM program, but it is obvious they support it.

The Purpose of the SIM Program

The U.S. Government Accountability Office(GAO) released a study that explains precisely why the SIM program was necessary. The study identified five major problems Medicaid faces heading into the future. They are:

  • An aging American population that will require more health care coverage in the future
  • A lack of fiscal stability when it comes to the federal government funding Medicaid
  • An inability to track critical analytical data that could better assist in keeping costs down for health care programs
  • Difficulty in making specialty health care such as dental and vision care available to state residents
  • A growing amount of wasteful spending and improperly allocated funds for procedures that were either not performed or were overcharged by providers

The Inner-Workings of the SIM Program

The basic premise of the SIM program is to provide states with funds to experiment on ways to solve the five issues outlined by the GAO. For example, some of the states chosen in the first round experimented with a payment system that rewards providers for the quality of their care and their comprehensive follow-up to prevent future health needs. Other states are working on more efficient ways to streamline the information gathering process to make it more comprehensive.

As each state develops its ideas, they submit those ideas to the Department of Health and Human Services (HHS) for evaluation. As ideas are approved, they are moved into a development stage where the HHS determines the feasibility of altering each state’s Medicaid administration method to accommodate the new changes.

Just in Time

Donald Trump has said that he will preserve Medicaid, but he and the GOP are definitely going to be pushing more responsibilities for funding the program through the states. While the SIM program was developed by the Democrats, it appears to have been put in place just in time to help states adjust to the changes that will be made by the Republicans.

The Republicans want to either fund Medicaid using block grants for each state that only go up based on the rate of inflation, or per-capita caps that fund states based on their enrollment but puts a cap on how much the federal government will help fund certain types of groups. For example, the cap on how much the elderly would get would be higher than healthy adults.

The Republicans have no target percentage in mind when it comes to federal funding of Medicaid, but it is obvious that the amount of federal money available to states will decrease over time. The states will become more responsible for funding their own Medicaid programs, and that is what makes the SIM program so valuable.

The Options for the States

As the Republicans lower federal funding for Medicaid, the states will be forced to alter the way they administer their programs. This would also affect the CHIP program that offers health coverage for children in each state. While the states are not expected to make any changes to the CHIP programs, they may have to raise the income level for non-disabled adults to qualify for Medicaid.

The Republicans tried to put through the ideas of making non-disabled adults pay premiums and co-payments while on Medicaid, and they also wanted non-disabled adults to go through vocational training while they are on Medicaid in the hopes of getting those adults onto employer-sponsored health insurance. The Obama administration blocked both ideas, but Vice President-elect Mike Pence used those ideas in his state of Indiana where he is governor with what he considers to be a high level of success. Now that the Republicans have a track record to look to for Medicaid reform, citizens can expect changes similar to what happened in Indiana.

Medicaid is meant to be a state-run program where states use their intimate knowledge of their internal systems and their residents to create programs that make sense. The SIM program was created to help prepare the states for drops in federal funding that, under the ACA, were not supposed to occur until the middle to late 2020s. With the Republicans taking over every branch of the federal government in January 2017, states can expect those programs developed using the SIM initiative to help save them money as they take on more financial responsibility in the administration of Medicaid.