July | August 2017







ACA Repeal and Replace Restructures
Medicaid Program

by Debra Miller, CSG director of health policy
After more than 60 attempts to repeal the Affordable Care Act, the proposal released March 6 by House Republicans appears to be on a fast track for passage. House Speaker Paul Ryan has predicted House passage before the congressional Easter recess.
The American Health Care Act would repeal the ACA taxes and the individual mandate, as well as provide advanceable, refundable tax credits  to help low- and moderate-income people buy individual insurance. But, by far, of most interest to state policymakers is the restructuring of the Medicaid program.
The House plan implements a per-capita cap in Medicaid funding, beginning in 2020, based on fiscal year 2016 spending levels. The House Republican plan has not been scored by the Congressional Budget Office, or CBO, so there are no publicly available data on how much this change would cost states and save the federal government or how many individuals might lose health care coverage.
The Center on Budget and Policy Priorities, or CBPP, has estimated that the federal government would spend $116 billion less over the decade of the 2020s than it would have under the current matching formula. This loss in federal funding to states is a result of the difference between the inflation factor allowed under the bill and the inflation calculation that CBO uses for Medicaid program projections. 
Also of great interest to states, funding for the ACA Medicaid expansion, taken up by 31 states and the District of Columbia, will continue at current expected levels until 2020. At that time, states’ funding will be reduced for those who enroll in Medicaid under the expansion eligibility for the first time or who have not maintained continuous enrollment prior to 2020. The new proposal will take the federal share from 90 percent (under the ACA) to states' regular matching formula. CBPP has estimated the loss in funding to be $253 billion in the 10 years after 2020. Some policymakers in states that did not expand Medicaid eligibility under the ACA questioned all along whether the promise of 90 percent matching funds was just a bait and switch tactic by the Democrats in Congress who passed the ACA.
For the 19 states that have not expanded Medicaid eligibility, the AHCA creates a $100 billion Patient and State Stability Fund intended to help states design new ways to meet the needs in their state and help low-income Americans afford health care. 
Medicaid expenditure growth is a very real fact of life for states. According to the National Association of State Budget Officers, state governments currently bear 39 percent of Medicaid expenditures with the other 61 percent paid by the federal government. Federal budget hawks are looking to reduce the federal obligation. Federal Medicaid expenses have nearly tripled since 2000, from $116 billion to $344 billion in 2015, according to the Centers for Medicare and Medicaid Services.
In restructuring the Medicaid financing system, the federal government would provide a set amount of funding to states. States would then decide how best to use those funds to cover eligible recipients’ health care. The American Health Care Act sets a per-capita payment, allowing for different budget allocations for certain population subgroups by age and disability.  State officials also would be given more control over program implementation.
“It would provide us the flexibility to drill down and focus on appropriate utilization of services and assure that the funds are used in a more effective and efficient manner,” said Kentucky state Rep. Addia Wuchner, chair of the Health and Family Services Committee as well as a former nurse and hospital administrator.
“In Kentucky we have horrific substance abuse issues,” Wuchner said. “More flexibility in Medicaid would allow us to respond to that more effectively, allow us to make the proper connections to services immediately after an overdose, for instance, to restore health and nurture productive lives.”
Pennsylvania Gov. Tom Wolf provided feedback in February to members of the U.S. Senate Committee on Finance regarding Medicaid restructuring. He expanded Medicaid in his state when he took office in 2015, covering 700,000 Pennsylvanians.
“Pennsylvania is facing a $3 billion structural deficit, which does not factor in potential shifts or reductions in federal funding for health care,” his letter said. “A move to end federal cost sharing relative to Medicaid expansion could quite literally devastate our state from a financial perspective or force us to make impossible decisions about which Pennsylvanians are entitled to quality health care.”
Like Wuchner, Wolf pointed to the opioid epidemic, noting that in his state Medicaid expansion has opened the door to treatment for many. By the beginning of 2017, 124,000 Pennsylvanians were in treatment, according to Wolf.
As federal officials continue to work on proposals, a key question for state leaders is how any reforms will handle surges in demand. States that are havens for retirees or those with working populations in industries such as tourism that are highly vulnerable to economic recessions will want clarity on how funding will address retiring baby boomers and any large-scale employment dislocation. For instance, during the Great Recession, the counter-cyclical nature of the Medicaid program was enhanced by bumping up the federal matching percentage for all states.  
A second question for states is how per capita caps would keep pace with rising health care costs. The House proposal uses the medical inflation calculation, but this still leaves a gap estimated to exceed $100 billion between 2020 and 2029. Health care costs in general increase faster than federal inflation calculations. The details around both the baseline calculations for states and the ongoing inflation allowance are not trivial to states, considering that Medicaid spending topped $10 billion in fiscal year 2015 for 14 individual states. Wuchner pointed to the trade-off of expanding one part of Medicaid and facing budget issues in the other areas.
“Models we are under now aren’t sustainable, especially with the incredible rate of growth we have experienced under expansion,” she said. “While we celebrate that people have coverage…I am concerned that the vulnerable populations under ‘traditional’ Medicaid are put at-risk.”
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