Medicaid Enrollment and Capitation Rates: Evidence from Medicare Part D

Medicaid is one of the most expensive items in a state’s budget, averaging 29 percent of total expenditures. Because the federal government matches a portion of state Medicaid spending, a number of recent proposals to limit the growth of federal spending would replace the current matching arrangement with a fixed transfer per enrollee. This new financing structure, known as capitation, would likely affect the number of people that states are willing to enroll in Medicaid, so determining the appropriate amount of the payment requires estimates of how states would react to different levels of capitated payments. However, little empirical evidence exists on this question. This brief, based on a recent paper, provides some insight into the issue by isolating a setting within Medicaid where the opposite of capitated federal transfers exists: the Medicare Part D “clawback.” The clawback provision requires states to pay the federal government a lump sum for each Medicare-eligible individual who is also enrolled in Medicaid (known as a “dual-eligible”). The dual-eligible population includes people over age 65 and younger individuals with disabilities; this study focuses on the over-65 group because they comprise the majority of dual-eligibles. Importantly for the analysis, the amount of the clawback payment varies by state and is determined by a rigid formula that does not reflect changes in the cost of providing services to dual-eligibles in that state. The discussion proceeds as follows. The first section provides background on the clawback policy. The second section describes the methodology. The third section presents the results. The final section concludes that a $100 increase in a state’s per-capita clawback payment decreases the fraction of elderly dual-eligibles enrolled in Medicaid by 2 percentage points. Of course, the magnitude of this result is setting-dependent; the clawback currently exists alongside a federal match, and eliminating that match could affect the response to changes in capitation. While the analysis does not show what would happen were the federal match eliminated and replaced by a per-capita transfer, it does show that states would respond to changes in the generosity of capitated transfers by adjusting Medicaid enrollment.