Fundamental Change to Structure of Medicaid Would Gradually Yield Deep Cuts

A new analysis of the House Republican plan to repeal and replace the Affordable Care Act (ACA) projects that the changes relating to the health insurance Marketplace will cause more than 15 million people to become uninsured. And in my opinion, that’s the second worst thing about the bill.

The part of the bill that will probably have a much larger effect over the long haul is a fundamental change in Medicaid. Without so much as a public hearing, the House has slipped into the ACA bill a provision that is likely to permanently constrict federal support for Medicaid and gradually lead to rationing of services for low-income seniors, children and families, and people with disabilities. It does that by capping increases in the federal portion of Medicaid financing, which will shift more and more of Medicaid costs from the federal government to the states.

An analysis by the Center on Budget and Policy Priorities (CBPP) concludes that the proposed cap in spending per Medicaid beneficiary would cut federal cost-sharing by $116 billion over the next 10 years, and the cut would climb to $20 billion per year by the end of that time period. The basic problem is that setting a limit that links the caps to a price index would not accommodate changes in health care utilization over time. For Wisconsin, caps based on current spending levels are especially problematic because our Medicaid spending per enrollee is far below the national average. That means our state would be penalized for being a leader in controlling costs through strategies such as implementing more cost-effective ways to deliver long-term care.

The CBPP analysis notes a couple of other factors that could increase the magnitude of Medicaid spending cuts. For example, advocates and providers think the initial cuts could be modest but would set the stage for deeper cuts. As the CBPP report explains:

Converting Medicaid to a per capita cap would also make it highly vulnerable to additional cuts in the future.  With federal Medicaid funding delinked from the actual cost of providing health care to vulnerable Americans, it would be easy for policymakers to come back and ratchet down the already arbitrary per-beneficiary caps to pay for other priorities in the future.

In the shorter term, the largest effects of the bill would come from significant changes to the Marketplace insurance plans and subsidies and to the Medicaid expansions for low-income adults. In Wisconsin, those effects would include the following:

• reducing premium assistance for all or nearly all of the 200,000 Wisconsinites who currently get premium tax credits to reduce the cost of insurance plans purchased through the health insurance Marketplace;
• eliminating the cost-sharing assistance for 129,000 low-income Wisconsinites who also get federal financial support to lower the cost of copays and deductibles for Marketplace coverage;
• allowing insurers to substantially increase premiums for older people who are buying individual insurance plans; and
• ending the employer and individual mandates, but in their place allowing insurers to impose a 30% surcharge on people who have a gap in their coverage.

A I explained in a recent Wisconsin Budget Project blog post, the combination of those changes will almost certainly cause many of the healthier participants in the Marketplace to drop their coverage. That is likely to cause what insurance experts refer to as a “death spiral” – which is the cycle of rising costs leading to reduced participation in the insurance pool, leading to further increases in costs for those who remain, which causes even more people to drop their coverage. In short, it means that an unhealthy pool of people buying insurance creates an ongoing cycle of cost increases until the insurance plan collapses.  A commentary by the Century Foundation explains five aspects of the House plan that increase the likelihood of a death spiral.

The ACA repeal and replace bill was voted on in two different House committees Wednesday night or in the wee hours of Thursday morning. What’s particularly alarming is that those votes were taken before the Congressional Budget Office (CBO) completed an estimate of the effects on the federal budget and on the number of Americans who have health insurance.

Although we won’t have the CBOs estimates until next week, and committee members broke with tradition to vote on the bill without knowing whether it even adds up, there is a lot that is quite clear: The House plan will yield a huge tax cut for the richest Americans, will cause millions of Americans to lose their health insurance and millions more to have to pay far more for health care, and will threaten the economic viability of the private insurance Marketplace that about 240,000 Wisconsinites rely on for their health insurance coverage.  And then it will only get worse — as the radical changes to the structure of Medicaid constrict federal Medicaid spending for seniors, people with disabilities and low-income children and families.

Jon Peacock