Republicans' New Plan to Gut Public Insurance

A proposal from the House GOP to dismantle Obamacare would also fundamentally alter the way Medicaid works.

J. Scott Applewhite / AP

Medicaid has essentially functioned the same way for half a century. Eligibility for the program has changed, most notably when Obamacare extended an option to states to expand coverage to all low-income adults. But once they are enrolled, beneficiaries are entitled to guaranteed coverage, with their home states and the federal government splitting costs with no upper limit. This open-ended, shared funding structure is vital for covering the kinds of people Medicaid tends to cover. Almost two-thirds of Medicaid costs come from low-income elderly and disabled people with serious—and thus expensive—health-care needs.

Republicans have long hankered to change that structure to cut costs to the federal government, and a new plan from House GOP leadership shows that they might use the debate over Obamacare repeal to do so.

The new policy brief for their Obamacare repeal plan was presented Thursday by Speaker Paul Ryan, flanked by House committee leadership and the new secretary of health and human services, Tom Price, who indicated the plan had the seal of approval from President Trump. It came after the House Freedom Caucus revolted against dithering among Senate Republicans about the specifics and drawbacks of a repeal. Accordingly, the House brief—which outlines a collection of policy ideas Republicans want to achieve with repeal—neatly sidesteps some of the issues that have bedeviled Senate Republicans: namely, how to balance the market-destabilizing effects of keeping Obamacare’s pre-existing conditions ban while eliminating the individual mandate to purchase insurance.

The plan is short on specifics, including the mechanics of its implementation, and looks like a watered-down combination of some existing Republican repeal plans, including Ryan’s and Price’s. It would repeal Obamacare’s taxes and mandates, and replace the tax subsidies for purchasing insurance on the exchanges with tax credits and incentives for health-savings accounts. The details of those tax credits are not provided, save that they would be age-rated and refundable but not adjusted by income. In order to control some costs, the plan mentions “state innovation grants” for creating high-risk pools of sicker individuals and for funding preventative care. The plan would also roll back enhanced federal funding to states for the Medicaid expansion, although there would be an unspecified “period of stability … to ensure we are not pulling the rug out from underneath states or patients.”

The exact effects of the House repeal plan on coverage and costs won’t be known until more details are unveiled and the policy is rated by the Congressional Budget Office. It does appear likely to sharply reduce the number of people covered, since it rolls back funding for the Medicaid expansion, ends subsidies, and eliminates the mandate to purchase insurance. Their tax-credit policy would invert Obamacare’s progressive financing scheme. Under current law, subsidies increase as income decreases, but the Republican plan would flatten that tax advantage, thus no longer proportionally increasing affordability for low-income people. It would age-rate the credits, granting more affordable coverage to older people, who tend to be sicker than younger Americans, but would not control for costs among poorer individuals, who also tend to be sicker and more prone to disability than their middle- and upper-class counterparts.

The House brief is somewhat clearer when it comes to Republicans’ plan for changing the fundamental funding structure of the Medicaid program. Some specifics are still elusive—the policy start date, for example, is listed as “at a year in the future.” But, in general, it would establish a per capita cap on federal Medicaid funding for individuals based on state economic and health factors, as well as the category of beneficiary (whether they are aged, blind and disabled, children, or otherwise able adults). That reform erases the open-ended funding of Medicaid and essentially replaces it with a set annual allotment of federal funds to each state. The brief would allow states to receive that funding as a block grant, provided that they “transition” people covered under the Obamacare Medicaid expansion to other programs. That block grant appears to come with rather significant relaxation on states’ requirements to meet eligibility standards and provide comprehensive services for Medicaid enrollees, so long as certain required services for the “most vulnerable elderly and disabled individuals” are covered.

The per capita cap and block-granting scheme would certainly save the federal government money. The main appeal of universal spending caps is not only that they promote thrift among states, but that pegging them to economic factors, at the start of a prescribed “base year,” basically underfunds them in the future. But this scheme might also work against the ability of Medicaid to effectively cover people. A report from the Kaiser Family Foundation shows that such a policy could “lock in” funding to states based on their position in the base year, and would create long-term “winners” and “losers” in states. States would no longer be able to react in real time to crises like drug epidemics, disasters, or job crunches, and funding would not respond to demographic changes. In essence, people might be blocked from receiving care simply based on where they live. That this problem recreates the geographic incoherence of the current Obamacare Medicaid expansion—where people covered under the expansion in some states will lose coverage if they move to non-expansion states—is no small irony.

The logic behind block grants and per capita caps on federal funding is that they force states to be efficient with Medicaid dollars since they’re on the hook after that money is gone. But there are no guarantees that states wouldn’t simply create that “efficiency” by dropping people from coverage, diminishing the services covered, or reducing payments to providers. In fact, the House plan appears to encourage just that, as it only specifies coverage of mandatory services for disabled and elderly people in its requirements for block grants. The ensuing system, then, would no longer be a safety-net entitlement for all people who need care, but one where many of the riskiest patients with the most pressing issues might simply be forced to do without. That’s a strong departure from the underlying logic of the program, outlined when President Lyndon Johnson railed against “the injustice which denies the miracle of healing to the old and to the poor” when he signed the amendment to the Social Security Act, which gave the country Medicare and Medicaid in 1965.

The prospects of the House Republican plan are murky at the moment, as the Senate still appears to be much more cautious in its approach to repealing or replacing Obamacare, and the actual coverage details when released might not bode well at district town halls. Still, the structural changes to Medicaid have endured a decade or more as the dominant Republican health-reform strategy, and seem one of the likeliest changes to occur at some point over the next few years if they maintain control in Congress. Unfortunately, the losers of that strategy will tend to be the people for whom the country built the safety net in the first place.