Medicaid the lynchpin in Obamacare replacement debate

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As Obamacare replacement legislation moves through the House and Senate, one issue will continue to shape the debate: the level of Medicaid spending which impacts more than 72 million low-income Americans.

The battle lines within the Republican caucus are clearly drawn. At the conservative side of the spectrum, Freedom Caucus members see the House replacement legislation as too much like Obamacare and they chafe at the provisions that allow states to continue to expand Medicaid until 2020. Moderate Republicans, and several senators representing the 31 states whose Republican governors took the ACA’s expanded Medicaid funding, balk at the idea of rolling back Medicaid coverage and significantly overhauling the program. At stake is a large portion of federal spending and perhaps the success or failure of Obamacare replacement legislation.

Why are the Medicaid provisions important?

Obamacare addressed the U.S. health insurance marketplace in two major ways. First, in the individual insurance market (for those not receiving insurance through their employer, Medicare, the VA or Medicaid), Obamacare provided people earning less than $30,000 generous subsidies to lower health premiums and deductibles. Over 85 percent of people enrolled in Obamacare exchange plans receive subsidies which help keep premiums to no more than 9.6 percent of their income. In 2016, those subsidies averaged $291 per month.

Second, provisions in the 2010 Obamacare law also expanded Medicaid eligibility and funding. Legal residents with incomes up $16,400 a year could qualify for coverage. The federal government paid 100 percent of the cost of Medicaid eligibility expansion in 2014, 2015, and 2016. Under current law, the federal government would pay 95 percent of Medicaid expansion in 2017, 94 percent in 2018, 93 percent in 2019, and 90 percent in 2020 and beyond.

The current House Republican bill goes beyond just changing the individual health insurance market. It freezes the Medicaid expansion and changes the way its funded by sending states a fixed amount of money per enrollee, known as a per capita cap. The proposed changes are significant because of the 23 million Americans who have received health coverage under Obamacare, over 12 million received coverage from the ACA state or federal health exchanges. The remainder – around 11 million of the newly enrolled since 2010 – obtained coverage from the ACA’s Medicaid provisions and enhanced federal match. Almost half of those who have received health coverage under Obamacare have done so under Medicaid expansion.

Conservative concerns with Obamacare’s Medicaid expansion. For some Republicans, Medicaid expansion is not as problematic as mandated coverage provisions and the requirement that all health plans contain certain essential benefits. But deficit hawks face a vote on a stop-gap funding bill for fiscal 2017 that currently expires on April 28. The Trump Administration is also advocating for a 10-year $1 Trillion infrastructure bill with no apparent pay-for and a tax reform bill likely to increase the deficit. Simply put, Republicans who think Congress has done little to reduce long-term debt have difficulty overlooking Obamacare’s Medicaid expansion given the current opportunity to curtail health spending.

Moderate concerns with the Replacement Bill’s Medicaid cuts. The counter argument, which is the foundation of Democratic opposition to Obamacare repeal, is that the House proposal would reverse recent gains and increase the ranks of the uninsured. Opposition to the Republican replacement plan has gained momentum since the CBO predicted that House bill would cut the deficit but also reduce the number of people with health coverage by24 million over the next decade. CBO said the House replacement plan would cut Medicaid spending by a quarter over the next 10 years, a reduction of $880 billion. The predicted drop in coverage is also due to the less generous GOP tax credits for those receiving subsidies under current law and resulting increased premiums for those in the individual marketplace.

Medicaid and the House Bill

The original House bill that was approved by two key House committees, would freeze Obamacare’s Medicaid expansion in 2020. As noted, instead of the current open ended entitlement, states would also get a capped payment based on Medicaid enrollment in an effort to make federal Medicaid spending limited and predictable.

The House committee debate illustrated the divide over Medicaid in the Republican caucus. One provision in the House bill was designed to placate Republican governors in Medicaid expansion states. The provision gives expansion states two more years to enroll the expansion population. Conservatives do not like the additional time, because they argue other states will rush to expand and therefore increase the size of the Medicaid program. Former Committee Chairman Joe Barton (R-TX) offered and then withdrew a conservative Republican Study Committee amendment during the Energy and Commerce Committee mark-up that would have frozen Medicaid enrollment under Obamacare in 2018, not 2020.

To help win over fiscally conservative Republican governors who did not take advantage of the Obamacare federal dollars to expand Medicaid, another House bill provision authorizes $10 billion over five years. A state’s funding share would be determined by the percentage of residents in the state with incomes under 138 percent of the federal poverty limit.

What to expect over the next 60 days

Republicans find themselves in a political box. They can’t renege on campaign promises to repeal Obamacare. Repeal was core to President Trump’s campaign and there is no excuse for not replacing the law given House and Senate majorities in Congress. But the replacement bill has policy implications that could bring political consequences for Republicans in 2018, 2020 and future elections.
Two House bill developments are likely over the next 60 days.

  • Bill revised before House consideration. Speaker Ryan has acknowledged that the House bill will be amended before it comes to the floor. He can only afford 21 Republican defections with no Democratic support for the bill. Speaker Ryan and VP Pence have floated changes to the House bill, and general agreement was reached March 17 on two significant modifications. House conservatives and the White House agreed to give states the option to impose work requirements on Medicaid recipients. States also will have the option to receive block grants instead of the per capita cap. There could be additional revisions to move up the Medicaid expansion freeze by one year to 2019. Republicans also are considering dropping a provision to charge higher premiums for people who have a gap in coverage lasting longer than two months.
  • Revised House bill squeaks by the House; bogs down in the Senate. Changes to shore up conservative support are likely to alienate moderates. There will likely be additional revisions in the Senate as leadership reaches out to moderates. Again, the Medicaid provisions loom large. (See Senator Portman and other moderate Republican’s letter to Senate Majority Leader McConnell.) We expect to see an increase in the tax credits currently in the House bill to help individuals purchase insurance along with other changes if those changes are not included in the House-passed bill.

Leadership will attempt to balance competing demands in the Republican caucus and the political reality of reductions in federal health care spending inevitably leading to higher rates of people who will be uninsured, including those currently on Medicaid. If Obamacare replacement legislation falters, it will be a political debacle for Republicans and fracture the Administrations relationship with Congress. The consequences are significant for a new President who wants to quickly pivot to tax reform and infrastructure investments. President Trump has talked about an open negotiation, which means he’s willing to do what he needs to do to reach the 216 vote threshold in the House (with two vacancies).
After heated debate and delay in the Senate, we expect the Obamacare repair to pass the Senate but it won’t be pretty. And the political stakes are high. Health care can be complicated, who knew?