By 2036, Senate bill would cut Medicaid by more than one-third

The Congressional Budget Office’s initial score of the Senate’s “Better Care Reconciliation Act” calculated that 22 million people, 15 million of them Medicaid beneficiaries, would lose health insurance by 2026. For Medicaid recipients, though, the picture worsens steadily after that ten-year window, due to per-capita caps on how much the federal government would contribute. At the request of Senate Budget Committee Ranking Member Bernie Sanders and Finance Committee Ranking Member Ron Wyden, CBO has also estimated Medicaid spending for the post-2026 decade under current law vs the BCRA. They report that, relative to current law, the BCRA would cut federal Medicaid spending by 35% by 2036.

Since the Medicaid program was established, it has involved the federal government paying a portion of all the costs the states incur for covering low-income residents. This means the federal and state governments share the risks that costs will spike due to increased enrollment or to rising costs of treating beneficiaries. Treatment costs can increase when more enrollees have expensive-to-treat conditions, like opioid use disorder, or when a costly new treatment becomes available, like a drug to treat hepatitis C more effectively. Under the per-capita caps in House and Senate bills, the federal government would shift that second kind of risks to states.

Denver home care worker Brenda Lozada came to the US Capitol to tell Senators that her clients rely on Medicaid to survive.

Under the BCRA, the federal government would set separate caps for five Medicaid populations (the elderly, adults with disabilities, nondisabled children, adults eligible for Medicaid due to the ACA, and all other adults) and limit the growth in how much it would spend on each group. Per-enrollee payments would be capped from 2020 onward for nondisabled children and nondisabled adults, and for all groups starting in 2025. From 2025 onward, per-enrollee payments for all groups would grow only as much as the consumer price index for all urban consumers (CPI-U) – which is far slower than the growth of actual healthcare costs.

Without caps and under current law, CBO projects Medicaid spending would account for 2.4% of GDP by in 2036. Under the BCRA, it would account for just 1.6%.

The 36% reduction in federal contributions could, in theory, be balanced out by increased state spending. This seems unlikely to happen, though, especially given that Republicans’ proposed rollbacks of healthcare coverage are projected to cause severe job losses that lead to declines in state tax revenue. Instead, states will respond by covering fewer healthcare services for Medicaid beneficiaries and/or reducing provider reimbursements, which will make it harder for providers to keep seeing Medicaid patients.

States can also respond by reducing the number of Medicaid enrollees. Some enrollment reduction is likely because of BCRA changes to enrollment rules, as Emma Sandoe and David Grabowski explain in the New York Daily News:

BCRA will require states to make enrollees "redetermine" their eligibility for Medicaid at least twice a year. Further, it allows states to have enrollees prove they are eligible for a "shorter number of months as the state may elect." In other words, a state could choose to have beneficiaries prove their eligibility monthly.

This means that — in order for a cancer patient on Medicaid to maintain their treatment — they may have to fill out an application and prove their finances monthly. A person living with early Alzheimer's would now be asked to fill out complicated paperwork monthly.

Individuals with employer-sponsored insurance aren't required to do this. Individuals with Medicare aren't required to do this. Yet the new Senate bill could require this of Medicaid beneficiaries. We know from past experience that onerous eligibility policies such as these will reduce the number of people with insurance.

Under per-capita caps, states will also face intense financial pressure to avoid covering eligible residents whose annual costs exceed the per-capita amount – in other words, those who need the most healthcare. Timothy Layton, Ellen Montz, and Thomas McGuire write at the Health Affairs Blog:

The within- and across-category incentives for a state are clear—a state can limit its risk of breaching the caps by enrolling healthier individuals and avoiding those most in need. It is not a stretch to imagine that states may be enticed to act on these incentives, either directly or indirectly, to reduce their financial risk. States have both direct and indirect methods for selection even in the elderly and disabled populations. First, some states require a separate Medicaid application from Social Security Disability Insurance. Second, but to a greater and more important extent, there are benefits and providers that can be tweaked that will make using such Medicaid coverage more or less attractive to healthy versus unhealthy disabled or elderly individuals.

The incentives are especially stark for individuals with a number of chronic conditions, such as mental illness. Individuals with mental health and substance use diagnoses, particularly those with serious mental illness or an opioid disorder, represent some of the most expensive Medicaid recipients. This holds within each of the eligibility categories. Under a per capita spending cap scheme, states will thus clearly have an incentive to avoid enrolling these individuals. This may be fairly straightforward for the states to do. States could easily limit enrollment of the mentally ill by making enrollment more difficult at psychiatric facilities, limiting payments for mental health services even lower than they already are and driving more mental health providers out of Medicaid or lowering payments to specialty behavioral health managed care organizations.

If Congressional Republicans think it’s appropriate for millions of this wealthy nation’s neediest individuals to lose Medicaid coverage in order to deliver tax cuts that will disproportionately benefit the wealthy, they should say so openly. As the CBO reports make clear, that’s what would be happening under their proposals.

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