The AHCA will have the biggest impact on Medicaid. Under the AHCA, Medicaid will be significantly altered in two very separate and distinct ways.
What does Medicaid do and how is it funded?
Medicaid is a federal and state insurance program that provides health coverage Americans of all ages whose income and resources are insufficient to pay for health care. Funding for traditional Medicaid (not Medicaid expansions) is essentially a 50/50 split between federal and state governments. After 2015, largely due to the ACA’s Medicaid expansions, that split is now closer to 60/40. State governments directly manage Medicaid under federal regulations that must be followed in return for federal funding. About 2/3 of all Medicaid spending goes to the elderly and disabled. For example, Medicare does not pay for long term care for people over 65, its Medicaid. In order to be eligible for Medicaid you must meet certain low income, savings and asset standards.
The Kaiser Family Foundation describes basic Medicaid funding in the following way: “The federal government matches state spending for eligible beneficiaries and qualifying services based on state spending and program need without a limit. The federal share of Medicaid is determined by a formula set in statute that is based on a state’s per capita income. The formula is designed so that the federal government pays a larger share of program costs in poorer states. The federal share varies by state from a floor of 50% to a high of 74% in 2017, and states may receive higher a higher share for certain services or populations. Each quarter, states report their Medicaid costs (for qualified beneficiaries and services) to the federal government, and the federal government matches those costs at the state’s matching rate.”
How the Affordable Care Act (ACA) changed Medicaid
The biggest changes to Medicaid resulting from the ACA were the law’s Medicaid Expansion provisions. Under the ACA, states that wanted to expand Medicaid would be required to allow people that have incomes up to 138% of the Federal Poverty Level, including adults without dependent children, to qualify for coverage. The federal government would pay the full cost of the expansion until 2016. After that, states would have to pay 95% of the expansion cost in 2017, 94% in 2018, 93% in 2019, and 90% in 2020 and beyond.
As a result of the 2012 Supreme Court challenge to the ACA, states could choose to opt out of the expansion provisions. Since then, 32 states including the District of Columbia have opted into the ACA’s Medicaid expansions and 19 have not yet expanded Medicaid or have made the final decision not to.
In Colorado, prior to the ACA parents of children on Medicaid were only covered if they had incomes under 60% of the Federal Poverty Level ($18,228 for a family of four in 2017). After the ACA they could be covered if they had incomes under 138% of the Federal Poverty Level ($40,400 for a family of four in 2017).
Before the ACA adults in Colorado who did not have children could not qualify for Medicaid regardless of how poor they were. After the ACA, childless adults with incomes under $19,740 in 2017 can be eligible for Medicaid.
In total, the Colorado Medicaid expansion has covered over 425,000 additional residents in the last three years, who would have otherwise remained uninsured. The table below identifies the number of Americans covered in each of the states that have adopted Medicaid expansions:
Source: Families USA, A 50-State Look at Medicaid Expansion, April 2017
How the AHCA affects Medicaid funding?
First the AHCA would allow states to continue with their Medicaid expansions but it would phase out the federal funding for it by 2020. In practice, that would end the ACA’s expansion program in the 32 states that adopted it.
Secondly, traditional Medicaid would also experience significant funding cuts beyond the elimination of the expansion program. Under the AHCA, the funding scheme described previously would be replaced by something called a “per capita” block grant.
A per capita grant would cap federal Medicaid contributions per enrollee and defines an annual growth rate for future funding. This grant structure would forever alter the federal financing of Medicaid. It would shift from an open-ended funding scheme, with the federal government paying for a set percentage of state Medicaid expenses to a limited federal allotment that does not respond to increased spending beyond a preset limit or target per enrollee. The growth rates in the formula for allocating federal dollars under the AHCA are significantly lower than the expected growth in Medicaid spending under current law. States like Colorado would have to raise additional revenue to cover the shortfall or reduce benefits and/or increase out of pocket costs for Medicaid beneficiaries.
Under the AHCA, federal regulations would be reduced, but few experts think that additional efficiencies at the state level will remotely compensate for the cuts in funding.
According to the Urban Institute, under the AHCA per capita block grant, $734 billion would be cut from Medicaid between 2019 and 2028. With additional cuts and the elimination of the Medicaid expansion program almost $880 billion would be cut out of Medicaid by 2026. States with the largest coverage gains under the ACA would be more negatively affected than states that did not expand Medicaid. To make up the cuts, low-income expansion states would have to increase their Medicaid spending anywhere from 34 to 55 percent under the AHCA.
According to the Colorado Health Institute, Colorado will see a $340 million cut in federal funding for Medicaid beginning in 2020. Colorado will see a total loss of $14 billion in federal funding over the first 10 years of the AHCA’s Medicaid changes. Since Colorado is a TABOR state, that requires a popular election to increase revenues, it is extremely unlikely that Colorado can compensate for the shortfall in federal funding. There will be 600,000 fewer Medicaid members by 2030, most them will likely end up uninsured.
Under the MacArthur Amendment to the AHCA, state could apply for a State block grant as opposed to a per capita grant. Under the state block grant funding would not be based on the number of Medicaid enrollees. In periods of economic downturn, Medicaid funding would not be expanded for additional enrollees that lose their jobs or face economic hardships in a recession or depression.