Tom Joseph of Waterman and Associates produced this analysis for CSAC members.
First ACA and then the intertwined Medicaid block grant or per-capita cap
Every leaked draft and concept paper repeals, sooner or later, the Medicaid expansion under ACA. In the draft bill, for the 31 states which expanded Medicaid to cover uninsured individuals and families at 138 percent of poverty, the 95% federal match for expansion would end January 1, 2020 (a little under 3 years from now). Within that, there are some drafts that would allow states to continue to receive the enhanced match for those individuals that were enrolled by a date certain, until they dropped off the rolls, where other drafts would stop the enhanced match for everyone immediately. The takeaway at this point is that the enhanced match will disappear under any ACA replacement plan, with the timing of the phase-out to be determined.
However, there is a potential interaction with the Medicaid per-capita cap proposal and where the way in which the baseline is set may mitigate the fiscal benefits of this transition policy. And, there is an interesting sweetener for non-expansion states that would give them a temporary funding boost (amount not specified and at the expense of expansion states like CA) so as to not ‘penalize’ them for refusal to opt into the enhanced Medicaid benefits under the ACA.
Impacts on Taxes and Subsidies
All of the ACA drafts also end the tax penalties for individuals or small businesses who didn’t purchase insurance after Jan 1, 2016 – the mandate would still be there since that is a policy that can’t be touched under reconciliation, but the tax penalty would go away, essentially repealing the mandate – clearly a concern for insurance companies which will experience adverse selection since healthy millennials and others may choose to forego buying coverage while those who are sick or who have pre-existing conditions would continue to sign up.
The leaked bill and other drafts repeal the premium and cost-sharing subsidies targeted to low-to-moderate income individuals buying on the exchange. Currently, the size of the ACA subsidies depends on the individual’s income and the price of the premiums in their locality. Instead of subsidies, the replacement bills have tax credits – either advanceable or refundable. In some respects they are indeed a subsidy – but under a different name and structure. There are some significant differences, however.
Unlike the ACA, subsidies for low- to middle-income individuals and families, the tax credits would be available to everyone purchasing private plans, regardless of income level or the price of the premium in that locale. There would be no sliding scale for the credit tied to what the premium would be.
The bills and concept papers also repeal all of the taxes supporting the ACA - - most of them at the end of this year. Those taxes included increased Medicare tax on the wealthy, medical device tax, higher taxes on investment income of wealthy individuals and host of other taxes.
In the leaked drafts, those taxes would be replaced with a tax on high value employer-provided health insurance plans - -much like the Cadillac tax on high value plans, including a number of plans counties have developed and we successfully have delayed until 2020 with bipartisan support.
Individuals would have to pay taxes on the value of a plan which exceeds the 90th percentile of all group health plan benefits – so whatever the dollar difference is above the 90th percentile that benefit would be reported to the IRS and taxable as gross income. If it remains, how much money it raises and what the political opposition will be by employers and taxpayers is yet unknown.
Moving on to Medicaid block grant or per capita
Those tax mechanisms and the elimination of the enhanced Medicaid match are also enmeshed with a proposal to simultaneously cap the Medicaid program. Again, the details differ in each draft, but the key questions and concerns remain constant when evaluating them.
A consensus appears to be emerging among congressional Republicans and some Republican governors to change the Medicaid program from an entitlement to states to a payment mechanism that provides states with capped amounts of funding whose amounts differ among different groups of individuals served by the program – women and kids, persons with disabilities, and those in long term care. Enrollees under each category would be given a set amount of funding which would then be aggregated in a payment to the state. And, states could claim an allotment for a newly-eligible individual.
Additionally, how and whether dollars spent on Medicaid expansion populations would be built into the cap remains an outstanding question. Clearly as California is an expansion state, we are arguing expansion dollars should be built into the allocation, while the 19 non-expansion states argue that they would be disadvantaged in a new capped environment because they didn’t expand under the ACA.
Setting aside the cost-shifts that ultimately will occur, the key questions under this approach are:
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What will be the fiscal year used as a baseline to calculate the allocations for each state?
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What type of inflator will be used to grow the capped federal allocation over time?
Which year is chosen as a baseline will be critical, especially for states that have expanded coverage and the type of inflationary increase – CPI, Medical Care Index, or a blend of the two will be really important since even under a capped environment, the first few years will not appear to be a big deal to governors currently in office and their legislators – it’s the compounding of small cuts over time which will be problematic for future governors and legislatives to deal with. And, it remains an open question whether built into this base will be revenues generated by DSH payments to hospitals or IGT’s to match federal funds.
It will be the responsibility of the Congressional Budget Office (CBO) to calculate the federal costs and impact on the uninsured rate when analyzing the how the replacing the ACA and a Medicaid per-capita cap interact with each other.
So what might we know in terms of impact? Both nationally and more specifically for California?
Assuming the starting point for the GOP is total ACA repeal and block granting Medicaid, the GOP has to build a new health system that would start with the following calculations made by CBO which, again, is the entity they must use when determining impacts of bills.
With an ACA repeal (again this would be the baseline) according to CBO 18-32 million people lose coverage due to loss of Medicaid and/or subsidies.
Under a Medicaid block grant – CBO estimates that an average state will experience a cut of 25% to its Medicaid budget averaged over the next ten years – the cuts compound and are relatively small in the early years, but would exceed 33% in the out years.
The Centers for Disease Control and Prevention (CDC) states that the uninsured rate in Medicaid expansion states is now 9.3% -- cut nearly in half since 2013 (18.4%), and the uninsured rate in non-Medicaid expansion states 17.5% -- down from 22.7% since 2013 but not declining any more.
Further California-specific ACA and Medi-Cal statistics are impressive:
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Since ACA law took effect, the state’s uninsured rate has been cut in half, with 91 percent of all Californians currently insured.
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Approximately 1.2 million residents have purchased healthcare plans thru Covered California. The vast majority of these individuals – roughly 90 percent – are receiving subsidies to help pay their premiums.
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If the ACA is dismantled, $5 billion would be lost in health insurance subsidies and cost-sharing for individuals who obtain health coverage through Covered California.
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According to a study by the University of California Berkeley Labor Center, 209,000 jobs would be lost if Congress eliminates the ACA. While the majority of job losses would be in healthcare, other industries would be affected due to the impact on local economies. All told, repealing the ACA could cost California’s economy over $20 billion in GDP and another $1.5 billion in lost state and local tax revenue, according to the study.
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Since the ACA was enacted, Medi-Cal enrollment has grown by 62 percent. More than 5 million have gained coverage. From 8.6 million to over 14 million, a 62 percent increase.
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That includes 3.7 million due to CA taking advantage of the expansion funds.
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If the Medicaid expansion is repealed, $15 billion would be cut from the state’s annual $100 billion Medi-Cal budget.
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And, a Medicaid per-capita cap would financially disadvantage California much more than other states, by locking it into low allocations due to the state’s historically low per-beneficiary spending rate. This is due, in part, to the state’s use of managed care (10.3 million individuals are in such plans) and its low provider reimbursement rates.
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As the Legislative Analyst's Office (LAO) notes: "There is substantial federal uncertainty about the future of the ACA including whether and which components of the ACA might be repealed, when any repealed components of the ACA would become inoperative, and what policies could replace those in the ACA. Some of the components most at risk for repeal include federal funding for the ACA optional expansion, federal funding for premium subsidies and cost-sharing reductions through Health Benefit Exchanges, enhanced federal funding for other health care programs and services in Medicaid, and the individual and employer mandate tax penalties. If these components are repealed without replacement, there would be significant consequences for California, including the potential loss of substantial annual federal health care funding, the uncertain survival of Covered California, a potentially considerable increase in the number of uninsured Californians, and a possible disruption of the commercial health insurance market.
Given the uncertainty around the future of the ACA and the substantial federal funding at risk, we recommend the Legislature maintain fiscal prudence in preparation for changes at the federal level, and consider how changes to the ACA could require a reevaluation of the state-local health care financing relationship."
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