Of particular focus in the coming year will be Medicaid, the federal/state health care program for low-income Americans. The program, which cost the federal government $334 billion in FY15, is a frequent target of congressional Republicans who aim to slow escalating costs and provide states with more flexibility to implement the program. Flexibility could include allowing states to implement a cost sharing requirement, work requirements or drug testing. Relatedly, Republicans are pushing to transform Medicaid into either a block grant or per capita grant program. If successful, the reforms would have a significant and potentially transformative effect on the Medicaid program.

Under a block grant program, in lieu of Medicaid's open-ended matching structure, the federal government would set an amount of spending for each state based on aggregate, historical spending levels and then would allow it to grow at a predetermined rate. Speaker Paul Ryan's (R-WI) Better Way proposal gives states the option of either shifting to a block grant or a per capita cap. Under the per capita cap, payments are set to a fixed amount per enrollee instead of the aggregate, as is the case with block grants. This amount then increases annually by a predetermined rate. The per capita cap can be more responsive to varying levels of Medicaid enrollment than a block grant – which remains static except for annual increases – as total spending under a per capita cap increases and decreases with enrollment numbers from year to year. However, a per capita cap proposal can take two forms, one in which each Medicaid recipient in a state is set to a single state-wide payment level, or one in which payment levels are set for each recipient within a given enrollment group, such as the aged. Whether policymakers elect to move forward with an "across the board" per capita cap or an enrollment group-specific per capita cap will have a significant impact on total Medicaid payment levels. Of course, one of the most important issues will be the base upon which the block grant or per capita cap is set. For example, will states that expanded Medicaid under the ACA be treated different than those that did not? Also at issue will be the current matching formula which arguably favors some states over others.

Takeaway: With unified Republican control of the federal government for the first time since 2006, Medicaid and other entitlement programs are likely to be the target of reform efforts aimed at lowering long term costs to the federal government and providing additional flexibility to states. However, it remains unknown how much traction this proposal will get and whether it will be a priority for congressional Republicans in this busy year.