The Senate Leadership has released a new version of a “repeal and replace” bill that may be considered by the full Senate next week. The new bill contains a few tweaks of the Medicaid provisions in the prior version, but these don’t fix the fundamental flaw in the bill for children and families: the cap on federal Medicaid payments to states.
Under this new bill, as under the old, federal payments to states for most of their Medicaid costs would be capped beginning in FY 2020. States would be on the hook for all costs above the cap. The fact of a cap itself would dramatically change the way in which states budget for and operate their Medicaid programs.
And, as my colleague Kelly Whitener recently explained, the state reactions to the ever-tightening caps would result in a massive cost-shift to providers, insurers, employers, and beneficiaries.
The cap in the new bill, like its predecessor, contains two federal budget dials.
Both of these are set, at least for the time being, at the same levels as they were in the previous bill. The main dial – the annual rate of increase in the cap – is still turned down to the rate of inflation (CPI-U) beginning in 2025. This would result in a historic shift of costs from the federal government to the states, with drastic ripple effects for state budgets, state and local agencies, providers, and children and families. It goes without saying that once these dials are in place, federal policymakers will inevitably use them to produce additional “savings,” leaving the states to pick up the pieces. Since Medicaid is far and away the largest source of federal funds for states, the implications for state credit ratings, much less state fiscal stability, are sobering.
The new bill does make two non-technical changes in the cap. One is a limited exemption for spending on public health emergencies. The other is an expansion in the “carve out” for American Indians and Alaska Natives (AI/ANs). Both are largely optical. The exemption for public health emergencies expires after 4 years, is limited to a total of $8 billion over those 4 years, and is entirely at the discretion of the Secretary of HHS. The cap, in contrast, is permanent, and promises ever-increasing “savings” to the federal budget. As for the AI/AN population, they have large health disparities and a special relationship with the federal government, both of which justify a “carve out,”, but they account for less than 2 percent of all Medicaid beneficiaries. Neither of these tweaks will make any significant difference in the scale of the federal cost shift to states, and neither touches the dials.
Of course, the proof is in the numbers, and we don’t yet have Congressional Budget Office (CBO) cost estimates on the new version. CBO estimated that the previous version would reduce federal Medicaid spending by 26 percent and Medicaid enrollment by 15 million in 2026; by 2035, federal Medicaid spending would drop by 35 percent. These estimates reflect both the effect of the cap and the phasing out of the Medicaid expansion for non-disabled, non-elderly adults.
Since the new bill makes no changes to the phase-out of the Medicaid expansion and largely optical changes to the cap, the CBO estimates on the new bill will likely be in the same ballpark. If that’s the case, policymakers should be think long and hard about how they will meet the health and long-term care needs of their states as the federal government cuts its spending by 25 to 35 percent in the face of skyrocketing prescription drug costs and a demographic wave of elderly Americans.
In a recent Op-Ed, George Will described the Medicaid cap as “this century’s most significant domestic policy reform.” He’s right about the cap’s significance for children and families, and he’s right about this century (think perpetuity), but he’s got it precisely backwards on “reform.” And the new optics do nothing to change that.
