The AHCA’s Tradeoff: Giving Up Vital Care to Get Tax Cuts for the Rich

Out of all the interest groups involved in the American health system, the current Republican proposal focuses on rewarding the country’s highest earners.

Speaker of the House Paul Ryan holds a press conference about the American Health Care Act.
J. Scott Applewhite / AP

If the terminology of Republican Medicaid policy—“per-capita caps,” “block grants,” “inflation targets”—seems a bit arcane, Monday’s release of the Congressional Budget Office’s report on the GOP’s repeal-and-replace bill makes it pretty simple: The current health-care proposal is about rationing care to fund tax cuts for the U.S.’s highest earners.

In the past, accusations of care-rationing have been a favorite attack on the Affordable Care Act by Republican leaders such as House Speaker Paul Ryan and House Majority Leader Kevin McCarthy. Yet Republican efforts to cap and cut Medicaid make pretty clear that the strategy is to pay for tax cuts that largely benefit the highest earners by forcing governors to become rationers-in-chief—making painful choices regarding how to best ration or deny health care to those in nursing homes, with disabilities, and/or near the poverty line (and that’s in addition to the 14 million Americans who are projected to be completely denied Medicaid coverage over the next decade under the Republican proposal). As Ezekiel Emanuel, Aaron Glickman, and Emily Gudbranson recently wrote in The New York Times, the current Republican bill would lead to painful limits on treatment that would “force states to ration care and deny some Americans lifesaving treatments or nursing home care.”

Rationing care to fund high-income tax cuts is not just the byproduct of the Republican Medicaid plan, but rather at the heart of it. The motivation of nearly every GOP health-care proposal past and present—to end the guarantee of coverage for those eligible for Medicaid, and replace it with spending caps—has always had more to do with supply-side fiscal policy than health-care reform.

Other types of Republican reform—involving defense spending, tax cuts, or Medicare Advantage—often are deficit-neutral or deficit-expanding. Not Medicaid: The one thing every major Medicaid proposal over the last few decades has had in common—from the Newt Gingrich era in the 1990s to Paul Ryan’s budgets to the proposal put forward last year by then-Representative, now Secretary of Health and Human Services Tom Price—is the combination of deep cuts, ending Medicaid’s coverage guarantee, and helping to fund large and regressive tax plans. Price’s last proposal as House Budget Chairman cut $1 trillion in spending over 10 years. And these cuts get more extreme over time: It’s been estimated that Price’s proposal would have cut Medicaid funding per beneficiary by 50 percent by its 10th year, while the Congressional Budget Office found that a previous Ryan Medicaid proposal in 2012 would cut Medicaid spending by an expected 76 percent by 2050. While not as drastic as these previous plans, the current Republican proposal—the American Health Care Act, or AHCA—cuts a severe $880 billion from projected Medicaid spending over the next decade, with spending down 25 percent from projections by its 10th year.

Beyond those deep cuts, the AHCA seeks to accomplish the GOP’s long-sought goal of undermining Medicaid’s guarantee of necessary health care for all those eligible through an effort to artificially cap and constrain spending. This time, Republican congresspeople have modified the vehicle for capping Medicaid spending, opting for what’s called a per-capita-cap (PCC) over block grants, which are lump-sum transfers from the federal government to states. The PCC limits federal contributions to states based on the number of people in five different categories of health-care needs. Like a block grant, the per-capita cap offers no flexibility for unexpected costs, which will put governors in the position of having to ration care anytime there are spikes in health-care costs—even if they occur due to reasons beyond any state official’s control. For example, caps wouldn’t rise to accommodate epidemics like Zika or AIDS, or in instances of rising health-care costs in the private sector unrelated to Medicaid. In both of those cases, the money might just run out, and instead of having guaranteed necessary health care for those who need it most, states would have to in some way ration care to meet their pre-set budget cap.

Those who favor block grants or per-capita caps on healthcare spending claim that Medicaid—in its current form—is more wasteful than other parts of the health-care system, and that the AHCA is about making the system more efficient. Yet the facts suggest just the opposite: On virtually every measure, Medicaid is far more efficient than any other part of the American system. A study from the Kaiser Family Foundation found that, after adjusting for differences in health status, Medicaid costs 22 percent less per adult beneficiary than does private insurance. And its growth rates have also shown an effective use of funds. From 2000 to 2015, while private-sector health spending had inflation-adjusted growth of 3.8 percent per enrollee (and Medicare grew at a rate of 2.13 percent) Medicaid had zero real spending growth per enrollee over this 15-year period, including an actually negative real growth rate per enrollee over the last 10 years. Moreover, the Affordable Care Act (ACA), which I advised on throughout my years on the Obama economic team from 2009 to 2014, included strong anti-fraud and program-integrity provisions—including better screening and compliance protocols, as well as new penalties—which push back against the myth that program administrators do not have the tools to target waste and abuse.

So, it’s misleading to suggest that Medicaid should be targeted because it’s inefficient. A likelier motivation is that while Medicare and Social Security have more funding and thus are larger spending-cut targets for supply-siders, many Republicans (perhaps including Donald Trump) fear a middle-class backlash if either of those programs are tinkered with. But many Republicans seem to believe they can mislead middle-class families into believing that Medicaid is only for the poor, and cuts to it would not impact them. Perhaps that is why Donald Trump pledged during the campaign that he would not cut Medicaid, Social Security and Medicare, while he now pledges only to protect the latter two.

Yet those making such a cynical calculation might come to regret it. First, there has already been significant backlash against pulling back from the Medicaid expansion included in the Affordable Care Act. Second, even beyond that expansion, Medicaid is a lifeline for about 70 million Americans—a little more than 20 percent of the population—many of whom rely on it for long-term health services. For instance, nearly two-thirds of all Americans in nursing homes are covered by Medicaid. And Medicaid covers 44 percent of all children with special health-care needs, as well as half of all women with serious disabilities. Third, the program has made care more equitable for children: Under Medicaid, over 40 million children are eligible for guaranteed comprehensive health coverage—including access to physical and mental-health therapies, dental and vision care, and medical equipment—so that childhood health conditions can be discovered and treated before they become serious or disabling. And finally, many, many Americans care deeply about the hardship such Medicaid cuts would bring to their country’s poorest citizens.

Which leads to the question: Since Medicaid is already among the most efficient uses of health-care dollars, what crucial services will be rationed to cut projected spending by 25 percent in 2026?  Throw all the millions off who were going to be covered under the ACA Medicaid expansion? Eliminate coverage for 7 to 8 million children to reduce projected spending by 5 percent? Reduce prescription benefits for those with the most serious diseases, like cystic fibrosis or hepatitis C, for which some drug treatments can cost nearly 20 times the average spending of a beneficiary with a disability? Will there be waitlists? Lotteries for coverage? Higher and higher deductibles for those already pressed financially by the status of their health? When spending on Medicaid is capped or cut in a way that works out to nearly $900 billion less in spending, that can mean withholding critical care from a lot of people.

This new era of rationing will not be compelled by some form of shared national sacrifice to lower the deficit. The Trump administration and its Republican allies in Congress desire these savings for a simple reason: because they are intent on providing large tax cuts for the wealthy as part of tax reform. And the repeal of the ACA would help them accomplish that.

The ACA has tax provisions that would generate $594 billion in revenue, and getting rid of those provisions would overwhelmingly benefit the most well-off.  Indeed, the two main tax cuts—together costing $275 billion over 10 years—apply only to those making over $200,000 a year, with 80 percent of the tax savings going to those making over $1 million. Those in the top tenth of 1 percent would get an average tax cut of about $197,000, while the top 400 earners in the country—a group of individuals who average $300 million in annual income—would receive an average tax cut of $7 million each. It is hard to see why these supply-side priorities should take precedence over keeping in place the ACA’s Medicaid expansion.

In trying to sell these plans to the public, some Republicans have tried to put a kinder face on them by arguing that Bill Clinton once proposed something like them while in 1995. (Full disclosure: I was Clinton’s deputy national economic advisor at that time). But that’s disingenuous for at least three reasons. First, while Republicans have always used strict caps—block grants or per-capita caps—to make deep cuts to Medicaid, President Clinton’s response to Speaker Newt Gingrich’s aggressive block-grant proposal in 1995 included a generous per-capita cap as a means to prevent deep cuts at a time when the program had far more obstacles to face. Indeed, it was Clinton’s refusal to budge on the Republicans’ efforts to cap and cut Medicaid that was the triggering event that led him to end negotiations, and shut down the government, in 1995.

Second, Clinton’s plan allowed for far more generous spending increases, which, if Republicans applied this spending path to their current proposal, would lead to no projected cuts at all.

Third, in Clinton’s first term, there was still a legitimate concern that Medicaid’s per-capita spending growth was rising too fast. In the years running up to 1995, Medicaid’s per-beneficiary costs were only just starting to slow after eight years of spending growth, averaging 7.5 percent annually—a rate faster than that of Medicare, GDP, and inflation. After Clinton resisted the deep Medicaid cuts proposed by Gingrich, Clinton never supported, nor put forward, such per-capita caps again, and instead began instituting a series of reforms (expanded by his successors and taken up by the states) that caused the annual average growth rate of Medicaid spending per enrollee to drop from 5.9 percent between 1991 and 1999 to 2.8 percent between 1999 and 2005.

Today, there’s no reason to consider per-capita caps to be anything other than a means to bring about the very things Clinton avoided: ending the guarantee of care, and scaling back Medicaid to pay for tax relief for high earners.

And as deep as the Medicaid cuts in the AHCA are, once Trump and Congress succeed in moving Medicaid from a strong guarantee to a program subject to artificial caps, there will likely be little to stop the further tightening of such caps any time the White House or Congressional leadership sees the need to fund additional tax cuts, or meet spending-cut targets.

Furthermore, block grants or per-capita caps don’t just shift costs and hard decisions to the states—they shift all the risks as well. As mentioned above, if anything drives health-care costs higher than they were projected to rise, it’s the states and hospitals—not the federal government—that will be left covering the extra costs. Governors will be the ones dealing with much of the fallout from these cuts and risk-shifting, as it becomes clearer that these Medicaid cuts would threaten the viability of many hospitals (particularly rural ones), forcing them to raise prices and provide less care in order to cope with increased uncompensated treatments.

All of this makes it truly puzzling why any governor would support the AHCA. The entire Medicaid approach smacks of the president and Congress’s desire to fund their high-income tax cuts by whatever means necessary, while choosing to delegate painful health-care rationing choices to the states. It is the federalism equivalent of the old Life Cereal commercial in which the two older brothers are too afraid to try a new cereal, until they seize on the idea of getting their little brother Mikey to try the new cereal for them. Here, Congress seems to have discovered that it can get the governors to try out the harsh rationing for them.

Even the one claimed win for governors—increased flexibility in choosing how funds are distributed—does not hold up under even light scrutiny. Through so-called Section 1115 waivers, governors already have an avenue for significant flexibility in how to implement the Medicaid programs in their states. While Republican governors certainly want more flexibility than they received under President Obama, they are likely to get that anyway from a Health and Human Services Administration run by a Trump appointee, whether the AHCA is enacted or not. So it is hard to see how they have gained anything from having to accept the role of rationer-in-chief, and losing the expansion of Medicaid for millions and millions of their constituents at only the slightest additional cost to state budgets. For Republican governors, the rule of thumb should be pretty obvious: If someone asks you to introduce significant pain into the lives of hard-pressed workers, poor children, and those with disabilities or in nursing homes in exchange for something that they were going to give you anyway, that is not a very good deal.

In the end, two aspects of the AHCA stand out. First, out of all the special and powerful interests in the American health-care system, it is striking that the only group from whom the AHCA would extract funding from are those who rely on Medicaid and those who most rely on subsidies to afford health care for their families. Two, all of the painful rationing of vital health services that governors will impose on millions could be avoided if Trump and Congress were willing to give up the tax cuts that only benefit the most well-off Americans. Rather than stemming from any kind of health or fiscal imperative, this rationing is a disappointing value choice that privileges faith in trickle-down economics over the guarantee of necessary health care for tens of millions of the most medically vulnerable Americans.