Medicaid: Welcoming Americans with Pre-existing Conditions since 1965

The White House and the Republican Leadership in the House are continuing to look for enough votes to pass a bill to “repeal and replace” the Affordable Care Act (ACA). A number of Republican Members opposed to the bill have expressed specific concern about new amendment that would allow states to undo the ACA’s protections for Americans with pre-existing conditions such as asthma, cancer, depression, and diabetes. They are right to be concerned.

The ACA contains two protections for people with pre-existing conditions. It requires health insurers to cover essential health benefits, and it prohibits them from charging individuals with a poor medical history more than those who are healthy. Under the new amendment to the bill, states would be allowed to waive both the ACA’s benefits standards as well as the prohibition against raising premiums for those with pre-existing conditions. As explained by the Center on Budget, insurers would be able to eliminate coverage for expensive services needed by those with pre-existing conditions and to charge them unaffordable premiums.

But the amendment is not the only threat to individuals with pre-existing conditions. The underlying bill contains another provision that would dramatically undercut protections for millions more Americans with pre-existing conditions: the cap on federal Medicaid payments to states.

For over 50 years, the Medicaid program has covered all eligible Americans who want to enroll, regardless of whether they have a pre-existing condition. And for over 50 years, the federal government has shared in the cost of caring for those individuals, whether they need medical care, long-term care services and supports, or both.

The underlying bill would radically restructure Medicaid by capping the federal government’s contribution to each state’s Medicaid program each year beginning in 2020. To avoid exceeding the cap, and thereby paying the entire amount of any excess costs with their own funds, states would have to decide whether or not to “follow the money” by targeting high-cost enrollees. These would include enrollees with pre-existing conditions that are expensive to treat, as well as the high-cost providers and high-cost medications that treat those conditions.

Children offer one example of this dynamic. A new report by the Kaiser Family Foundation compares Medicaid spending in FY 2011 for children with disabilities—by definition, children with pre-existing conditions like cancer, cerebral palsy, or HIV infection—with spending for children without. That year, children without disabilities accounted for 48 percent of total enrollment in Medicaid (68 million Americans) and 21 percent of total Medicaid spending ($398 billion, federal and state). In contrast, children with disabilities represented 2 percent of total enrollment but accounted for 7 percent of total spending. On a per child basis, Medicaid spending on children with disabilities ($16,802) was nearly 7 times the spending on children without disabilities ($2,463).

If a state wants to cut Medicaid spending on children (who don’t vote) in order to stay under a federal cap, will it target the smaller but far more expensive subset of children with disabilities, or will it target the less expensive but larger subset of children without disabilities, or both? Using the numbers above, it’s clear that, on a per child basis, reducing spending by, say 5% will yield more savings on average among children with disabilities ($840) that among children without ($123). There would be some logic in policymakers focusing on this high cost population, which accounts for about 25 percent of all the Medicaid spending on children but represent only about 4 percent of all the children enrolled in the program.

However, the calculus is not that straightforward. Assume a state spends $100 on Medicaid for all children—$25 on children with disabilities and $75 on other children—and wants to reduce that spending by $5. It could hit its savings target by reducing spending for children with disabilities by $5—a 20 percent cut—or by cutting total spending for other children by $5—a 7 percent cut. It could also reduce spending on both populations.

The point, of course, is that there is no right answer; all of these choices are bad. But these are precisely the kinds of choices that a cap on federal Medicaid payments would force upon every state with respect to all beneficiary groups—elderly, disabled adults, and non-disabled adults as well as children and pregnant women.   Beneficiaries with pre-existing conditions would no longer have the protection that comes with the guarantee of federal matching funds for the costs of the treatment they need. And for those with pre-existing conditions that require expensive treatment, their high per-person spending could put them at higher risk for state cost containment efforts.

In theory, a state could decide to raise revenues or redirect existing state spending in order to make up for the shortfall in federal Medicaid funds. In practice, most states are likely to respond by reducing payments to providers, cutting optional services, and narrowing eligibility. While it’s not possible to predict how each state will respond, high-cost populations, including those with pre-existing conditions, are clearly at risk, as are the providers who treat them. Opponents of the House bill have it exactly right. It does not protect Americans with pre-existing conditions, either in the individual insurance Marketplace or in Medicaid.


Andy Schneider is a Research Professor at the Georgetown University McCourt School of Public Policy.