AHCA would slash Medicaid while giving tax cuts to the rich

House Republicans have released –and rushed through two committees—the American Health Care Act, which would result in destabilized individual insurance markets and millions of people losing health insurance. The Congressional Budget Office hasn’t yet released its estimate of the likely impacts, but an analysis from authors at the Brookings/USC Schaeffer Initiative calculates it would result in 15 million people losing coverage. The AHCA contains provisions addressing both private and public insurance; I’m most concerned about the impacts on Medicaid, which would shift substantial healthcare risks from the federal governments onto states and low-income families.

The AHCA allows the Affordable Care Act’s Medicaid expansion for adults up to 138% of the federal poverty level to continue until 2020, at which point states would get less federal money for any new enrollees and for former enrollees who experienced temporary increases in income (as hourly and seasonal workers often do). The bill would also undo the financing structure under which the federal government shares the risks of higher healthcare costs with states, and replace it with fixed annual federal contributions that are likely to become increasingly insufficient with each year that goes by. The Center on Budget and Policy Priorities calculates that the states would lose $370 billion in federal Medicaid dollars over the next 10 years. These cuts, plus less-generous subsidies for lower-income individuals buying insurance from state marketplaces, would allow for the what the Committee for a Responsible Federal Budget tallies as nearly $600 billion in tax breaks for wealthy individuals and corporations over the next decade.

For the past five decades, Medicaid has been an essential source of healthcare coverage for low-income infants, children, pregnant women, seniors, and people living with disabilities. It allows infants from low-income families to get a healthy start in life and covers long-term services and supports for those with disabilities. Medicaid covers one-fifth of the US population, and helps boost states’ economies. Yet the members of Congress who drafted the AHCA evidently consider tax cuts to be more important.

Undoing the Medicaid expansion

The ACA’s main goal was to reduce this country’s shameful rate of uninsurance, and it did that: CDC’s National Center for Health Statistics found the percentage of the US population without insurance dropped from 15.4% in early 2010 to 8.6% in early 2016. Lawmakers could have made changes to the ACA to address its shortcomings and allow the uninsurance rate to fall even further, but Republicans had other goals in mind.

One of the main ways the ACA achieved these dramatic gains in insurance coverage was to expand Medicaid coverage to adults with incomes of up to 138% of the federal poverty level. (The limit is technically 133%, but there's a 5% income disregard for an effective limit of 138% FPL.) Medicaid is a federal-state partnership in which the federal government pays for 50-76% of the healthcare expenses for each state’s enrollees; the average federal share is 57%, and states with lower per-capita incomes get a greater share of their enrollees’ costs covered with federal tax dollars. Rather than ask states to pay their usual share of the healthcare costs of millions who’d stand to gain coverage under the ACA, the law specified that the federal government would pay 100% from 2014 through 2016, with the federal share gradually decreasing and ending up at 90% in 2020 and thereafter. The ACA required all states to undertake this expansion as a condition of continuing to participate in the Medicaid program, but the Supreme Court decided it should be optional.

The Republicans’ bill doesn’t undo the Medicaid expansion entirely; it just makes it harder for states to continue it. People with incomes of up to 138% of the federal poverty level could continue to enroll in Medicaid, but for anyone enrolling after the end of 2019, the federal government would only cover healthcare expenses at the percentage they do for traditional Medicaid enrollees – 50-76%, instead of 90%. The pre-2020 pool of enrollees for which the 90% federal match still applies would shrink, because those beneficiaries can’t go more than a month without being covered by Medicaid (if they do, they’ll be part of the pool that gets a smaller federal payment). Because marriage changes household income and because many low-income people have hourly and/or seasonal jobs and their wages can fluctuate from one month to another, temporary loss of Medicaid eligibility is not uncommon. Under the AHCA, states would have perverse incentive to discourage Medicaid recipients from getting married, taking on an additional job around the holidays, or picking up extra hours when they’re offered.

States that have seen positive economic outcomes from the Medicaid expansion might work to find the money to cover this expansion population, but it won’t be easy. The CBPP estimates these Medicaid expansion changes would increase state costs by $253 billion over ten years. Seven states that adopted the Medicaid expansion made their expansions contingent on the federal government continuing to pay the share of expenses specified in the ACA, so their Medicaid expansions would be automatically undone if the AHCA were to become law.

Shifting risk to states

The Republicans’ bill doesn’t just undo the steps the ACA took to increase insurance coverage – it fundamentally changes the federal-state Medicaid model we’ve had for more than 50 years.

Having the federal government pay a portion of the healthcare costs for all eligible Medicaid beneficiaries helps insulate states from cost spikes due to epidemics and high rates of expensive-to-treat health conditions. For instance, if Florida ends up being the home of a large number of Zika-affected babies who require millions of dollars worth of care, the state won’t have to cover all those costs on its own. When thousands of people in Kentucky and West Virginia need treatment for opioid use disorders, the federal government picks up much of the tab.

In the AHCA, House Republicans have proposed a system under which federal per-capita payments are fixed and states bear the risks from epidemics and other forces that cause healthcare costs to grow faster than we’d like. Based on each state’s spending in 2016, the federal government would calculate an amount it would pay annually beginning in fiscal year 2020 for enrollees in each of the Medicaid eligibility groups (children, the elderly, adults, and people with disabilities). Those amounts would grow based on the medical component of the Consumer Price Index. However, CBPP estimates that per-beneficiary costs will rise about 0.2 percentage points faster than the capped amounts do, resulting in $116 billion less in federal Medicaid payments than states would receive under the current system.

In the New York Times, Haeyoun Park maps the potential impacts on different states, and writes:

Under the Republican plan released on Monday, federal funding for every Medicaid beneficiary would essentially freeze, rising only with the medical component of the Consumer Price Index, or the price of medical care. That change would allow funding to grow if more people sign up for Medicaid, but not if the cost of care for Medicaid patients spikes, or states want to offer new benefits or increase payments to doctors.

Some health experts worry that over time, states would be unable to respond to changes in the health care needs of their population unless they use their own money, potentially risking the survival of a program that has been a critical source of health coverage for the poor.

“I think of it as essentially putting states behind bars,” said Sara Rosenbaum, a professor of health law and policy at George Washington University. “Whatever you were doing circa 2016 is what you’re going to do forever.”

Virginia, where the governor has declared its opioid crisis a public health emergency, recently decided to significantly expand the scope of its Medicaid benefits to spend more on drug treatment for patients.

States that can't afford to pay all of the additional amount when costs increase will likely have to cut Medicaid enrollment or benefits.

Former Centers for Medicare and Medicaid Services administrator Andy Slavitt warns in the Washington Post, “If the federal government retreats on its commitment to Medicaid, the repercussions will be felt quickly — by our neighbors and by our care providers and hospitals.”

There are other concerns about the AHCA (see here, here, here, and here, for instance). These massive cuts to federal Medicaid contributions are what I find most striking, though, because they threaten to roll back health gains not only from the ACA but from the past five decades, and because they signal priorities that I don’t think most people in this country share. The AHCA pays for tax cuts by cutting funds for Medicaid, and in doing so shifts risks from those who are wealthiest to those who can least afford it.