On March 6, House Republicans revealed The American Health Care Act. It is their plan to repeal and replace the Affordable Care Act. The bill changes the structure of Medicaid financing from the Federal Medical Assistance Percentages (FMAP) system in which states and the federal government each pay a percentage of Medicaid funding to a per capita system.

Under current law, states get paid by the federal government for their Medicaid programs based on the amount of services they provide. As we stated in a previous post, that has created an incentive for states to use supplemental payment streams to maximize per service revenue. Under a per capita cap, states will be paid based on population. They get paid for every person on their Medicaid rolls regardless of the amount of services the individuals use. Therefore, states will now have an incentive to maximize their rolls.

This creates what we will call “The Walking Dead problem.”

John Doe is a Medicaid beneficiary. He passes away. Under current law, the state stops billing for services (insert cynical joke to the contrary here). Under a per capita cap, the state gets federal funds until John Doe no longer shows up on the state’s Medicaid rolls.

Now to be clear, the American Health Care Act creates civil monetary penalties for knowingly seeking payments for someone who is not eligible. But what does that mean? When does the state Medicaid program know John Doe passed away? Is the state responsible for refunding two months of payments for John Doe being on their rolls if it took the state two months to find out about his death?

Let’s say Jane Doe, Medicaid beneficiary, moves out of the state. As we all know, Medicaid beneficiaries dutifully let the state know when they move away, right? Of course that’s laughable. When does the state figure this out? Or when does the state know that Jane Doe gets a better job and is now covered by private insurance? It is likely that states will be getting revenue based on people not eligible numerous months of the year, even with the new requirement to re-determine the expansion population’s Medicaid eligibility every six months.

The states will absolutely have an incentive to maximize the numbers on their Medicaid rolls. Adding to the problem is that Medicaid data and state reporting of data have significant challenges and limitations, which is only becoming more complex with states’ movement towards Medicaid managed care. Take this example. In 2015, Tennessee reported that 3.4 million individuals were enrolled in Medicaid managed care in 2013. One year later that figure was corrected to show that only 1.2 million individuals were enrolled in Medicaid managed care in 2013 (CMS 2016). That is only one state and only referring to the managed care population. And let’s not forget the time lag between reporting data and the current year of enrollment.

Oversight of states by CMS to discern what is knowing versus lackadaisical with regard to their Medicaid rolls will become a critical challenge in a Medicaid per capita cap world. CMS will have to devise a way to audit states to ensure that states are, to the best of their ability, reporting accurate enrollment numbers. Without improved data reporting, CMS will likely be spending a lot of time reading the obits searching for the Walking Dead on Medicaid rolls.