On June 19, a coalition of conservative think tanks unveiled a very brief outline of their plan to repeal the Affordable Care Act (ACA). Like similar 2017 repeal proposals from Senators Cassidy and Graham, the Health Care Choices Proposal would convert funding for the Medicaid expansion and marketplace subsidies into block grants for states. The think tanks have been urging Congressional Republicans to enact their repeal plan later this year using budget reconciliation.
While the plan outline includes virtually no details, it seems very likely that this repeal plan would provide sharply less federal funding for health coverage than under current law and, as a result, would add many millions to the ranks of the uninsured.
- The block grant amounts each state would receive would likely be well below what is now being spent on the Medicaid expansion and marketplace subsidies. Each state’s block grant would be generally based on the amount of federal spending on the expansion and subsidies as of a fixed (likely future) date. But that would incorporate the impact of repeal of the individual mandate and continuing sabotage by the Trump Administration to raise premiums and destabilize the marketplaces (and potentially Medicaid waivers imposing onerous work requirements), all of which would significantly reduce enrollment and spending in the expansion and subsidies, relative to what is being spent today under the ACA’s coverage expansions. Moreover, a substantial share of the funding will instead be diverted to offset the cost of expanding tax breaks related to Health Savings Accounts for high-income individuals.
- The block grant amounts would likely fail to keep pace with rising health care costs and expected growth in enrollment. While the outline does not specify the annual adjustment for block grant amounts, previous repeal plans set annual adjustments that fall considerably below expected growth in spending on the Medicaid expansion and the marketplace subsidies. That means the funding cuts under the block grant would grow even larger over time.
- Expansion states would be particularly hard hit. Over time, the formula for setting block grant amounts would no longer be based on Medicaid expansion and subsidy spending in the state but instead be based on the number of low-income residents in the state, irrespective of whether the state has adopted the Medicaid expansion. That would result in a substantial shift of federal funding from expansion states to non-expansion states, making the federal funding cuts for coverage disproportionately larger in expansion states.
- The increasingly inadequate block grant amounts are fixed, irrespective of changes in states’ actual needs. Like other block grants, the block grant amounts do not adjust for higher-than-expected costs resulting from greater enrollment due to a recession or a natural disaster or increases in per-beneficiary costs due to a new drug or treatment, an epidemic or public health emergency or faster health care cost growth systemwide. That is unlike the Medicaid expansion and marketplace subsidies, under which federal funding automatically increases in response to higher coverage needs and costs. This would result in even more inadequate federal block grant funding to sustain coverage in the states over time.
- States could use the limited federal funding for coverage inefficiently. States are required to use the block grant funds for health care but like other repeal proposals, may be able to use the funds to supplant existing state spending on other health care programs that have nothing to do with health coverage. Moreover, they are required to use at least 50 percent of the funds for subsidizing private insurance, even though private insurance costs more on a per-beneficiary basis than Medicaid, such coverage could include large gaps in benefits and unaffordable out-of-pocket costs, and the plan would repeal the requirement that insurers spend a minimum amount of premium revenues on benefits. In other words, particularly relative to the Medicaid expansion, states would be required to make less efficient use of their already limited funds to subsidize private insurance. In addition, states would be required to use some of their block grant funding on high-risk pools or reinsurance to support the overall individual market and would have to spend only 50 percent of the block grant on coverage for low-income individuals. As a result, states may end up using the limited block grant funding to provide coverage to higher income individuals who are less likely to be uninsured, rather than targeting those funds to the lower-income individuals and families who are less likely to have other affordable health coverage options.
The plan would also explicitly eliminate key market reforms and consumer protections that now apply to the individual and small group markets under the ACA. Insurers would no longer have to cover the “essential health benefits” meaning they can drop coverage of maternity care, mental health treatment, prescription drugs and therapy services as they did before the ACA. They also could charge older people well more than three times what they charge younger individuals. Moreover, while the plan purports to leave in place the ACA’s prohibition against denying coverage or charging higher premiums based on health status, insurers would no longer have to set premiums based on all their enrollees in all their plans (under the so-called single risk pool requirement). This would allow insurers to charge lower premiums for skimpier plans, which would primarily attract younger and healthier people, while charging much higher premiums for more comprehensive plans that better meet the needs of those in poorer health or with chronic conditions. That would drive up premiums for sicker people to potentially unaffordable levels, especially with the increased availability of other non-ACA-compliant plans like short-term plans that cherry-pick the healthy and destabilize the overall market, which the Administration is promoting. In other words, the plan would likely effectively gut protections for people with pre-existing conditions over the long-run.
Finally, unlike the Cassidy-Graham plans from last year, the plan does not convert the rest of the Medicaid program to a per capita cap. But such a per capita cap could be easily added to the plan at some future point, as the cap is strongly supported by many Congressional Republicans. For example, the House fiscal year 2019 budget plan announced this week assumes enactment of the Medicaid per capita cap including in last year’s House-passed repeal bill. (It also includes budget reconciliation instructions that could be used to repeal the ACA and institute a Medicaid per capita cap.) Moreover, just as the House budget plan does, Congressional Republicans are likely to use large federal budget deficits as far as the eye can see — even though they are due in large part to the substantial revenue losses resulting from last December’s tax legislation — as justification for major cuts to Medicaid achieved through a per capita cap or block grant.