This issue brief from the Kaiser Family Foundation provides an overview of proposals to change the current funding for Medicaid to a formula based on the per capita number of residents in each state, with overall caps. To achieve federal budget savings, the per capita caps would have to be set below the projected rates of growth in spending under current law, in order to reduce the total amount of federal funding for Medicaid.

The key challenges in designing a per capita cap for the Medicaid program are determining the base per enrollee amounts to be awarded to each state, setting annual growth rates that would achieve reductions in federal spending, and authorizing what additional flexibility to the states to define or limit eligibility and benefits for Medicaid enrollees.

The primary difference between a per capita cap and a block grant funding formula is that a per capita cap does allow for increased future funding to a state that has increased Medicaid enrollment while a block grant would lock in a fixed allocation for each state, without consideration of increased enrollment. Per capita cap proposals have used various indices to determine the annual growth rate, including various inflation indices and increases to the Gross Domestic Product.

However, a per capita cap does “lock in” the current wide variation in per enrollee spending for Medicaid among the states, and among covered populations such as seniors, individuals with disabilities, adults under age 65, and chidden. It is not clear how a per capita cap would accommodate changes in overall per enrollee costs in a state, and the more likely changes in the proportion of these populations covered by Medicaid in any state over time, e.g. an increase in the number of seniors covered, who have among the highest per enrollee spending.

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