The Senate's Plan Makes Medicaid a Time Bomb

A secondary Congressional Budget Office analysis finds a long-term cut in Medicaid spending in the Better Care Reconciliation Act would hamstring state programs and budgets.

Rogelio V. Solis / AP

In the least economically defensible argument in favor of the Better Care Reconciliation Act, some Republicans have taken to pointing to an increase in nominal Medicaid spending as a defense against claims that the Senate’s Obamacare repeal cuts Medicaid. Last Wednesday, President Trump tweeted that Medicaid spending “actually goes up,” citing a chart showing nominal expenditures rising until 2026. White House adviser Kellyanne Conway and health secretary Tom Price echoed that argument over the last week as well.

Their arguments are, of course, a fiction. The BCRA’s rollback of the Obamacare Medicaid expansion to able-bodied adults, and its implementation of per-capita caps, decrease both real (adjusted for projected inflation) spending and spending as a percentage of GDP over the next decade. But analyses on the long-term effects of the bill illustrate that those decreases are only the tip of the iceberg. Because of a 2025 change in the growth rate of the cap, a second Congressional Budget Office report finds even deeper cuts in the decade beyond. Combined with other demographic predictions, that analysis projects a landscape in 2035 where Medicaid might be unable to fulfill its core obligations, even when it’s needed most. That’s not good news for Republicans facing a recess and invigorated public opposition to their bill.

The issue at stake here is a seemingly small change in the long-term plan for Medicaid. The program is funded in an open-ended fashion now, which means that the federal government reimburses states based on how much enrollees’ care costs, with no upper limit. In addition to ending enhanced reimbursements for able-bodied adults, after 2020 the BCRA would also put a per-person limit on how much each state spends. In order to account for some amount of inflation, the Senate plan would grow that per-person amount by the medical care component of the consumer price index (CPI-M) for most non-elderly people and CPI-M plus one percentage point for elderly disabled people.

The CBO projects that CPI-M over the next decade will average 3.7 percent, which means the rate for elderly people will be 4.7 percent under the new law. Medicaid growth under existing laws is 4.9 percent for the non-elderly and 3.3 percent for the elderly.

The original CBO score of the bill found that these provisions alone would decrease Medicaid spending by almost $800 billion over the next decade and would decrease Medicaid enrollment by about 15 million. Those are both decreases under projections of current law, and the spending is also a real decrease in funding when adjusted for medical inflation.

But after 2025, the BCRA does even more damage, changing the per-capita growth rate for all enrollees to the consumer price index for all urban consumers (CPI-U). Since regular consumer goods inflate less quickly than medical care, that rate of increase would only be about 2.4 percent. So according to the CBO, the big belt-tightening moment actually comes in 2026 and beyond, and it applies to all enrollees, including the elderly.

Congressional Budget Office

The CBO projects that this belt-tightening amounts to a 35 percent reduction in Medicaid spending as a percentage of GDP by 2036. What all those numbers mean is that on average, by 2036 Medicaid funding will be a much smaller slice of state budgetary pies.

Because of that long-term reduction in Medicaid funding, the CBO finds that:

After the following after the next decade, states would continue to need to arrive at more efficient methods for delivering services (to the extent feasible) and to decide whether to commit more of their own resources, cut payments to health care providers and health plans, eliminate optional services, restrict eligibility for enrollment, or adopt some combination of those approaches. Over the long term, there would be increasing pressure on more states to use all of those tools to a greater extent.

That’s a rather euphemistic way of saying that states will have to either raise taxes, pay doctors less, reduce benefits, or reduce the number of people they cover under Medicaid. They’ll likely have to do all of these things. And over time, as the population ages, more and more funding will have to be appropriated to a more expensive, expanding set of disabled elderly enrollees, even as states receive less and less for them over time. In essence, Medicaid will run into a demographic disaster under the BCRA. State Medicaid directors will have to cut eligibility—likely for sick kids—and pare back expanded benefits to keep up with an aging population. Since federal law dictates that there are some populations that have to be covered, there’s a limit to how much they can restrict eligibility and benefits, at which point the Urban Institute predicts “ever-increasing annual budget shortfalls.”

These are likely best-case scenarios. There’s no prediction for, say the opioid crisis becoming an endemic year-to-year problem—and by most accounts the BCRA itself will lead to that crisis getting worse. There are major demographic shifts in America, leading to re-allotments of geographic medical risk, but the BCRA would lock states into permanent disadvantage even if they have sicker patients in the future. Additionally, states already underpay physicians for Medicaid services on average relative to Medicare and private insurance. If they have to reduce that amount further, the physicians and hospitals that accept Medicaid now could simply decide to decline those aging, sicker patients in the future.

There’s also nothing to account for the cost of medicine increasing more than expected, which would certainly happen if there are breakthroughs in cancer treatment or the development of other high-cost life-saving therapies. And since the CPI-U is directly connected to non-medical inflationary factors—like say oil and energy crashes—there will almost certainly be years in the future where Medicaid doesn’t grow at all, even as the cost of medicine does. The global end results, a generation down the road, will be a Medicaid program that is increasingly behind the eight-ball and increasingly unable to meet its core obligations, and state budgets that won’t be able to keep up.