Follow the Money: CBO Shows House “Repeal and Replace” Bill is Really “Cap and Cut” Medicaid

Frightened Child

On March 13 the Congressional Budget Office (CBO) issued its estimate of the House bill to “repeal and replace” the Affordable Care Act. The House bill does far more than simply “repeal and replace” the ACA Medicaid expansion for adults. It would end the federal government’s 50-year, open-ended commitment to all Medicaid populations — the elderly, the disabled, children and others — by capping the amount the federal government pays to each state starting in FY 2020. It is impossible to overstate the threat that this change presents to the nation’s largest health insurer for children.

Because the bill was made available only 36 hours before the House Energy and Commerce Committee began its mark up last week, and because the Committee proceeded without a hearing on the bill, very little was understood about the bill’s implications for Medicaid beneficiaries, providers, and individual states. The CBO estimates – released four days after the Energy and Commerce Committee completed its work – shed some light on what the bill does. CBO also raised further questions for inquiring minds.

Here’s what we know:

  • CBO projects that the House bill will cut federal spending by $1.2 trillion over the next 10 years (2017-2026) and reduce federal tax revenues by $883 billion over the same period. The net effect will be to reduce the federal budget deficit by the amount by which the spending cuts exceed the revenue losses ($337 billion).   Of the $1.2 trillion in spending cuts, $880 billion – almost the same amount as the tax cuts and over 70 percent of the total cuts in the bill — are attributable to Medicaid.
  • The Medicaid cuts would have profound implications for coverage. CBO estimates that by 2026, 14 million Americans who would have been covered by Medicaid if the bill were not enacted will no longer be covered. In that same year the total number of uninsured Americans would increase from 28 to 52 million as a result of the bill.
  • The $880 billion in federal Medicaid cuts come from a number of provisions in the bill. The two most important are the termination of 90 percent federal matching payments for new Medicaid expansion enrollees in 2020, and the per capita-based cap on federal Medicaid payments to states, also starting in FY 2020.
  • CBO does not provide separate estimates for each of these provisions. Instead, the effects of these two changes, along with others (such as the repeal of the requirement that states cover “stairstep kids”) are rolled up into the $880 billion. The same is true for the projected 14 million drop in Medicaid coverage by 2026. It’s not clear how much of this to attribute to the cap, and how much to attribute to the reduction in matching rates for the costs of care for expansion adults (or other coverage-related provisions).

The bill’s way of “repealing and replacing” the ACA’s Medicaid expansion is to reduce the 90 percent federal matching rate for services to this population to the state’s regular matching rate (ranging from 50 to 75 percent, depending on the state) beginning in 2020. The regular matching rate would apply to expansion adults newly enrolled after December 31, 2019, as well to those currently enrolled with a break in coverage. CBO estimates that as a result, no additional states will take up the expansion, and by 2026 an average of 5 million fewer people would be enrolled in Medicaid annually. As Joan Alker and Kelly Whitener reminded us just last week, Medicaid expansion is very important to children and families because it extends coverage to many parents. We know that children are more likely to be covered and have their health needs met if their parents are covered, and that children also benefit from having healthier parents.

Which brings us to inquiring minds. The CBO estimates should be the start of a conversation in the Congress about what this bill would mean for Medicaid beneficiaries, providers, and states. In particular, the Congress needs to know what imposing the federal cap will do, because once the cap is put in place, it will never be unwound. If the cap changes at all, it will only be ratcheted down more tightly in order to generate more federal “savings.”

CBO is quite clear on the big picture:

“Under the legislation, beginning in 2020, the federal government would establish a limit on the amount of reimbursement it provides to states….With less federal reimbursement for Medicaid, states would need to decide whether to commit more of their own resources to finance the program at current-law levels or whether to reduce spending by cutting payments to health care providers and health plans, eliminating optional services, restricting eligibility for enrollment, or (to the extent feasible) arriving at more efficient methods for delivering services.”

By 2026, CBO projects that 36 million children will be enrolled in Medicaid. Here are some questions that need to be answered for America’s children before this proposal moves further:

  • How much of the $880 billion in Medicaid cuts will fall on children and the providers that now treat them?
  • What will happen to high-cost children with disabilities?
  • What effect will the cap have on their EPSDT benefits?
  • How will it affect the amount states pay their providers for furnishing covered services?
  • How will states be able to absorb price shocks from necessary drugs like EpiPen if federal Medicaid funding is capped?
  • Will children’s hospitals and other centers of excellence be able to continue to serve their all children in their communities?
  • How would the $880 billion in Medicaid cuts be distributed among the states?
  • Would some states and their residents be hit harder than others?
  • What happens to children in states with low per capita spending in 2016?
  • Are those states locked into their low spending base in perpetuity?
  • What if their base year spending is low because they are highly efficient in the delivery of care?
  • Will they have any practical option other than to narrow the scope of benefits they pay for and to reduce the amounts they pay providers?

As these questions suggest, the House bill is not “just a bill.” And the cap on federal Medicaid spending is not just a provision. States, providers, and beneficiaries have a right to know what such a fundamental structural change in Medicaid would mean 5, 10, 20 years and further down the road.  CBO will not have all the answers. But Senators and their staffs need to start asking all the questions, preferably in hearings where not just CBO but the voices of other stakeholders can be heard.

Latest