Obscured by the largely phony debate over pre-existing conditions, the Obamacare rewrite passed last week by the House of Representatives would usher in the most significant changes ever to one of America’s largest entitlement programs.
The American Health Care Act faces almost-certain major changes in the Senate. But as passed by the House, it would phase out the Medicaid expansion created by the Affordable Care Act and change the funding formula. Proponents argue the changes would give states flexibility and inventive to make their programs more efficient. Critics contend it will force millions of people into the ranks of the uninsured.
“It would be a significant change in the financing of Medicaid.”
Both sides agree, however, that the impact would be large.
“It would be a significant change in the financing of Medicaid,” said Ed Haislmaier, a senior research fellow in health policy studies at the conservative Heritage Foundation.
Currently, the federal government and states share the costs of Medicaid. States pay a match based on their poverty rates. The richest states, such as New York and Connecticut, put up half of the money. The poorest state, Mississippi, pays less than 25 percent of the cost.
The federal government also pays 90 percent of the cost of newly qualified enrollees in states that expanded Medicaid under Obamacare.
The program costs state and federal taxpayers about $532 billion a year to cover about 74 million Americans.
The Republican health plan would continue to pay the costs of the expansion population but after Dec. 31, 2019, anyone who left the program could not sign back up unless he or she qualified under the old rules.
And instead of the federal-state funding formula, the federal government would offer states a choice — accept a lump sum as a block grant or get a specific amount of money for each recipient. A block grant would give governors maximum flexibility to deliver health care to low-income residents, free from federal rules and regulations. But states would risk running out of money if there is a sudden change in the number of enrollees.
“One of the effects is, for example, a recession might occur, and states would see an increase in enrollment as people lose jobs and income,” Haislmaier said.
Pros and Cons of Capping Funds
Under the per-capita approach, the federal government would pay a certain amount of money for each recipient. The state would have to cover the rest. That amount would be determined by each state’s historical spending patterns for five categories of recipients: children, adults younger than 65, the elderly, the disabled, and recipients in the expanded population. The per-capita amount for each category, which would be determined by the Department of Health and Human Services, would increase each year based on the medical inflation rate.
Haislmaier said the per-capita payments would protect states from sudden enrollment surges due to economic downturns or other reasons. But he said they could be squeezed if the cost of health care outpaced historical experience, and a state might find it hard to keep up with advances in medical technology.
“The federal government is bearing the risk of the number of people changing,” he said, meaning if there are additional enrollees federal funding would increase. The federal government though also transfers to the states the risk for “what it costs to pay for each person,” he said, meaning the federal reimbursement would stay static even if the cost of medical services rises.
The Congressional Budget Office in March projected that the pre-capita formula would spend $880 billion less on Medicaid over the next 10 years compared with current law. By fiscal year 2026, funding would be 25 percent lower than under the current rules. The budget forecasters projected that some states that expanded Medicaid would cut back and that some states would stop offering optional services in order to save money.
The end result, according to the Congressional Budget Office, is that Medicaid would have 14 million fewer enrollees in 10 years than it would with no changes.
Health and Human Services Secretary Tom Price pushed back Sunday on descriptions of the funding changes as a “cut.” He noted on CNN’s “State of the Union” that Medicaid funding would increase each year, albeit at a slower pace.
“Remember that there are no cuts to the Medicaid program,” he said. “There are increases in spending. But what we’re doing is apportioning it in a way that allows the states greater flexibility to cover their Medicaid and care for their Medicaid population.”
Critics note that Medicaid reimbursement rates to medical providers already are lower than for private insurance and the Medicare program for people 65 and older. Ohio Gov. John Kasich told CNN on Sunday that his Medicaid program already is efficient.
“The reason why a lot of doctors do not take Medicaid is because the reimbursement is low,” he said.
Some GOP Governors ‘Nervous’
House Majority Whip Steve Scalise (R-La.) expressed frustration on “The Laura Ingraham Show” last week with governors who for years have asked for more flexibility in Medicaid.
“Now we’re giving it to them, and some of them are getting nervous,” he said.
Joe Antos, a health care expert at the American Enterprise Institute, told LifeZette that the Republican bill would eliminate incentives to engage in “creative financing” related to the Medicaid program. He said states often impose taxes on health care providers. That pumps up the value of federal reimbursements at the same time that states collect revenue from the taxes.
“Even Republican administrations that have taken this seriously, in the end, basically did not aggressively try to push back on that,” he said.
Funding Medicaid at a capped per-patient rate would maximize incentive to keep costs low, Antos said.
“It completely eliminates that incentive to use creative financing to jack up list prices on this because it doesn’t get them anything, anymore,” he said.
Antos said the formula might limit the ability of Medicaid to respond a public health criss. But he said Congress likely would appropriate additional money to address such crises. He also acknowledged concerns about the funding formula in the bill. Some states have complained that the base year on which he rates would be based was an abnormally low-spending year.
Ultimately, the Department of Health and Human Services would have the ability to address those issues as part of the rule-making process, Antos said.
“Both of those things are legitimate concerns that are not addressed in the legislation, but they would be addressed in implementation,” he said.
The central tension in Medicaid is the same for health care, generally, Antos said. He said Americans want the best care from the best doctor at low prices.
“That’s not possible,” he said. “That never has been possible.”