Outlook for 2017: Republicans target Medicaid, Medicare for big changes

The Trump administration and the new Republican Congress are primed to make big changes in Medicaid and Medicare in 2017.

GOP leaders such as House Speaker Paul Ryan and HHS secretary-nominee Dr. Tom Price have announced they will target the two huge healthcare programs for major restructuring and budget savings. Medicare spending grew 4.5% to $646.2 billion in 2015, while Medicaid spending grew 9.7% to $545.1 billion that year, with states contributing about 40% of that sum.

Republicans are likely to try to convert Medicaid from an entitlement program for low-income, elderly and disabled Americans to a capped program of fixed federal contributions to the states, either through flat block grants or per-capita contributions. They have not yet offered details on how those payments would be calculated or whether they would keep pace with medical inflation.

Ryan and other supporters of that approach argue it would encourage states to provide better healthcare at a lower cost by giving them greater flexibility in setting eligibility and benefits. Critics, including some state officials, fear it would force states to push poor people out of the program, eliminate important benefits, and cut already-low payment rates to providers.

Conservatives have signaled that they see overhauling Medicaid's structure as a big federal cost-saver that could finance tax cuts and/or new healthcare tax credits to replace Obamacare's premium subsidies. Meanwhile, Ryan's ACA replacement proposal would phase out the law's enhanced federal payments to the states to cover low-income adults, which would leave the future of the Medicaid expansion in grave doubt.

It's widely expected that the Trump administration will be receptive to states' Medicaid waiver proposals to impose more patient-responsibility requirements on beneficiaries, including premium payments, participation in work activities, and even benefit time limits. The Obama administration had taken a restrictive view of such requirements.

At the same time, Ryan and Price want to turn Medicare into a “premium-support” system by 2024. That means the program would pay private plans and the traditional fee-for-service program a fixed amount per beneficiary. They also want to raise the eligibility age to 67.

The idea is to have traditional Medicare compete with private plans on equal terms and let beneficiaries choose between them, paying out of pocket for premiums that exceed the voucher amount. Federal payments would be based on a competitive bidding process, though no specific proposal has been released.

Conservative lawmakers and policy experts say the premium-support model would make Medicare more efficient and improve quality of care, while critics deride it as a “voucher system” that would impose higher costs on seniors and reduce their benefits.

But even some Senate Republicans have balked at pushing ahead in 2017 with this proposal to change the highly popular Medicare program while also taking on the challenging task of repealing and replacing the ACA.

The future of the CMS Innovation Center is in doubt under the GOP's plan to repeal the ACA. Some Republicans favor eliminating it. But others caution that it's needed to lead the rollout of the new Medicare value-based physician payment system, and that it could be useful in testing conservative healthcare models, including premium support.