Hospitals fear new GOP block-grant bill would slash Medicaid funding

By Harris Meyer, September 13, 2017

Four Republican senators unveiled a radical proposal Wednesday to repeal and replace the Affordable Care Act by handing states $1.2 trillion in ACA subsidies through 2026 and letting them design their own coverage systems with few limitations on what they could do.

Sens. Lindsay Graham, Bill Cassidy, Dean Heller, and Ron Johnson acknowledged that their bill probably represents Republicans' last chance to undo Obamacare, following the failure of Senate GOP repeal and replace legislation in July in the face of intense opposition from Democrats and healthcare stakeholder groups. 

The four senators urged balky GOP colleagues, including President Donald Trump and Senate Majority Leader Mitch McConnell, to get fully behind it. And they warned that if their bill isn't passed, it's likely that the country will get a government single-payer health insurance system.

"We need people onboard now to stop what's inevitable if we fail, single payer for all, which would mean the end of quality and the end of a sustainable federal budget," Graham said at a news conference to discuss the bill.

Hospital groups expressed alarm about the new proposal, though they're still studying it. "It will decimate the Medicaid program in California," said Jan Emerson-Shea, vice president for external affairs at the California Hospital Association, who estimated that as many as five million people in her state could lose coverage under the bill. "The redistributive effect of this proposal is worse than any other proposal surfaced this year."

Under the bill, starting in 2020 each state would receive a federal block grant replacing the ACA's premium subsidies, cost-sharing reduction payments, and Medicaid expansion funding. The grants would total $136 billion in 2020, rising to $200 billion in 2026. There is no provision for continued funding after that year.

States could use the money to offer consumers premium support, pay insurers and providers to offer coverage and care, help people with out-of-pocket costs, or establish reinsurance programs or high-risk pools to cover people with pre-existing medical conditions. It apparently would let states waive the ACA's rules requiring that all plans offer 10 categories of essential benefits and set premiums without regard to preexisting medical conditions.

Federal funding to states to expand Medicaid to low-income adults would end in 2020. 

In addition, federal Medicaid payments to the states for the traditional Medicaid program would be capped, similar to previous Senate and House GOP bills to repeal Obamacare. Medicaid payments for children and non-disabled adults would grow only at the rate of general inflation after 2024.

The ACA's individual and employer mandates would be abolished, but the law's taxes would be preserved with the exception of the 2.3% levy on medical device sales.

The Graham-Cassidy bill's block grants would provide states $239 billion less between 2020 and 2016 than projected federal spending for the Medicaid expansion and premium and cost-sharing subsidies under current law, according to an analysis by the liberal Center on Budget and Policy Priorities. That does not include cuts to traditional Medicaid under the bill's per-capita spending growth caps.

The 20 states facing the largest percentage funding cuts under the block grant model would see reductions ranging from 35% to 50%, the center's analysis found. That would force states to cut enrollment and/or benefits or raise premiums and cost-sharing, causing millions of people to lose coverage, the center concluded.

Political observers see the bill as an extreme long-shot. That's because Senate Republicans have only until Sept. 30 to pass it through the expedited budget reconciliation process that requires just 51 votes for passage. Neither senators nor healthcare industry groups have had an opportunity to examine the far-reaching ramifications of the proposal. It's uncertain whether there will be any hearings on the bill.

The Congressional Budget Office needs time to analyze the cost and coverage impact, and the Senate parliamentarian must determine whether the bill's provisions comply with complex budget reconciliation rules.

There also are tough political hurdles within the GOP. Up to now, Republicans have been unable to reach a consensus on how to repeal and replace the ACA without sharply reducing the number of insured Americans and slashing Medicaid funding, which some experts say this bill would do.

"The fundamental problems of reconciling different (GOP) factions haven't gone away," said Tom Miller, a conservative health policy analyst at the American Enterprise Institute who favors replacing the ACA. "Their best chance is to have the senators vote without looking at it, because the more these things get examined the more they lose altitude."

The Republican sponsors of the bill said one of their main goals is to equalize federal payments to the states, reducing payments to Medicaid expansion states such as California and New York which receive a disproportionate share of ACA funding. Cassidy argued that many states, such as Indiana, Missouri, Virginia, and Wisconsin would receive hundreds of millions of dollars more under this bill than they would under the ACA.

The block grant amount paid to each state would be based on the number of each state's eligible residents with an income of 50% to 138% of the federal poverty level, relative to the total number of people in that income group nationwide.

Hospital leaders and pro-ACA experts agreed the bill would substantially redistribute federal funding to the states, potentially triggering powerful political pushback from lawmakers and governors whose states would be negatively affected.

"This is an enormous, fundamental restructuring of the healthcare system and supports that facilitate coverage for Pennyslvanians," said Laura Stevens Kent, vice president of federal advocacy for the Hospital Association of Pennsylvania, whose state expanded Medicaid to more than 700,000 people. "It would be an incredible undertaking for the state to re-envision how to make ends meet to serve these populations."

As with the previous GOP repeal and replace bills, a major hospital industry concern is whether Medicaid funding would be adequate under the bill's spending caps, and whether lots of people would lose coverage. There are particular worries about whether a capped model would allow funding flexibility in the event of medical advances, epidemics, and natural disasters.

"We need to make sure we have sufficient funds to take care of the Medicaid populations," said Susan Van Meter, senior vice president for federal relations at the Healthcare Association of New York State, whose state also expanded Medicaid.

If the bill passes, there would be huge debates in every state capital over how to redesign the healthcare system and adequately fund care for Medicaid beneficiaries and people in the individual insurance market, said Larry Levitt, a senior vice president at the Kaiser Family Foundation. 

"Graham-Cassidy would represent a massive devolution of federal money and responsibility to states with few strings attached," he said. "It would immediately catapult healthcare as an issue in every governor's race in the country."

That's OK by Sen. Graham, who argues that Americans will have a better healthcare system if it's designed and operated by state officials rather than federal bureaucrats. Governors and other local officials, he said, will listen more closely to the voices of consumers. 

"This is the defining fight for the future of healthcare and of the Republican Party," he said. "To my Republican colleagues I say, don't let the healthcare debate die, don't leave the field with your tail between your legs."

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