Medicaid Administrator Verma Blames Ballooning Costs on Structural Problems

Seema Verma, the CMS Administrator of the Centers for Medicare & Medicaid Services in Washington on March 14, 2017. (NICHOLAS KAMM/AFP/Getty Images)

Systemic flaws in the Medicaid program have contributed to rising health care costs for the federal government, mostly due to rules created under the Affordable Care Act, according to Medicaid’s administrator.

Seema Verma, the administrator for the Centers for Medicare and Medicaid Services (CMS), said the open-ended nature of the program, combined with it paying at least 90 percent of the costs for certain Medicaid patients, has put the program on an unsustainable path. She spoke Aug. 21 at a Senate homeland security committee hearing on combating Medicaid fraud.

Last year, the federal government spent about $430 billion on the program, according to the Congressional Budget Office. That’s about 72 percent of the program’s entire cost, which it shares with the states. An estimated $37 billion of that was for improper payments, a mix of clerical errors and fraud, which was the subject of the hearing. And the Congressional Budget Office estimates that expenditure on the program will grow about 5.5 percent a year, making the federal government’s portion about $655 billion by 2028.

With roughly 73 million people on the program last year, the federal government spent about $6,000 per person, on average.

That’s in part due to a change under the ACA, which allowed states to open Medicaid coverage to anyone whose household income was 138 percent of the federal poverty level. Previously, the program was only open to certain low-income people, children, parents, pregnant women, and people with disabilities.

The ACA offered incentives to states to expand their programs to all people who meet the income threshold by promising to pay a higher proportion of their bills than for other Medicaid recipients (initially, the federal government tried to mandate the expansion, but the Supreme Court ruled that states could decide).

For “expansion” states, the federal government agreed to cover 100 percent of newly eligible patient costs from 2014 through 2016. In 2017, it agreed to cover 95 percent of their costs, and this year, will cover 94 percent. The match rate will decline to 90 percent starting in 2020, where it will remain indefinitely.

There is no limit on how many people can enroll, so the government, both state and federal, will be left to pick up the tab, no matter how large. Verma said these new enrollees alone are estimated to cost the government $806 billion between 2016 and 2025.

“I think that diverts the program from the most vulnerable populations,” she said. “We’ve always had program integrity efforts with the Medicaid program. Given the change with the match rate, and it’s not only the 90 percent, but it’s a completely open-ended entitlement, the incentives aren’t necessarily in place for states to focus on program integrity.”

She said it’s also possible that states are taking advantage of this higher match rate. The federal government pays at least 50 percent of the cost for traditional Medicaid patients, but with a minimum 90 percent match rate for “expansion” enrollees, she said this creates an incentive for states to shift traditional Medicaid patients into the “expansion” population.

High Risk List

The Medicaid program has been on the Government Accountability Office’s “High Risk List” since 2003 due to lack of federal oversight.

U.S. Comptroller General Gene Dodaro, who also testified at the hearing, recommended that CMS double down on gathering data from states and using state auditors to fill in where CMS couldn’t. He chided the previous administration for dropping the ball on their data-collection efforts, which he said have been lax for the last four years

“I’m very pleased that after, you know, a four-year hiatus, they’re back doing the beneficiary eligibility audits. ... I really didn’t agree with the postponement of that,” he said. “When you make changes like we made under the Affordable Care Act, you should increase your internal control audits in the beginning, not step away and allow people to have extra time.”

While CMS plans to step up its data collection, Verma said that isn’t going to solve the program’s financial woes.

“At the end of the day ...  states are going to figure out new ways [to game the system]. Until we change the dynamic of the Medicaid program, where the states are responsible for fixed amount of dollars, we'll have this problem with integrity,” she said.

President Donald Trump’s 2018 budget proposed moving to a per-capita block grant system that would give states a fixed amount of money, instead of sharing a percentage of Medicaid costs.

In the short term, CMS is advising states to be looking for ways to cut costs. It sent out an advisory to states on Aug. 22 saying that if they want their applications for Medicaid demonstration projects, which are waivers to ACA requirements, to be approved, they must demonstrate that the project won’t increase costs for the federal government. CMS estimates that between 2013 and 2016, it spent an extra $100 billion on these demonstration projects.

“CMS welcomes smart new approaches to coverage and delivering care through Medicaid demonstration projects, but we won’t approve them without a careful analysis of their impact on taxpayers,” Verma said in a statement. “Today’s guidance is a comprehensive explanation of how CMS and our state partners can ensure that new demonstration projects can simultaneously promote Medicaid’s objectives and keep federal spending under control.”