Why GOP plan's 'historic' reform of Medicaid has many worried

Under the plan, states would lose $880 billion in Medicaid funding over the next decade as the federal government shifted more of the system's cost and responsibility to the states.

The Republican bill to repeal and replace the Affordable Care Act is not just about doing away with Obamacare. It’s also about the biggest entitlement reform in decades – a “historic” change, as House Speaker Paul Ryan (R) of Wisconsin describes it.

Of the federal government’s three big entitlement programs, the two most familiar to the public are the ones focused on seniors: Social Security, which provides retirement income, and Medicare, which provides medical help. The Republican bill would dramatically affect the third one, Medicaid – the federal-state health care program for the poor.

It also does a whole lot else, covering low-income children, pregnant women, the disabled, and people in nursing homes.

Under the GOP bill, states will lose a huge influx of federal Medicaid dollars – $880 billion over the next decade, essentially a 25 percent cut, according to the nonpartisan Congressional Budget Office. Also, 14 million fewer Americans will be covered by Medicaid, the CBO estimates. That’s 17 percent fewer than if the ACA remained in effect.

“This is a colossal shift of cost and responsibility from the federal government to the states. It’s seismic,” says Daniel Dersken, director of the Center for Rural Health at the University of Arizona in Tucson, whom the Monitor profiled last year. It goes “way beyond repealing and replacing Obamacare.” People need to pay attention, he says.

The aim of the bill's GOP backers is to rely more on market competition than the government to bring premiums down, to allow states more flexibility to run Medicaid programs, and to reduce the impact of Medicaid on the federal budget. Indeed, the CBO reports that the Republican repeal-and-replace plan would lower federal deficits by $337 billion over 10 years. 

Debate over how best to provide care

Democrats are uniformly denouncing the Medicaid changes, but there is considerable debate among Republicans about what should happen to this increasingly expensive program that covers millions more people than Medicare, although it costs less.

Hard-line GOP lawmakers want some of the Medicaid changes to kick in earlier, while some Republican governors are vigorously protesting them. Christopher Ruddy, a conservative and a longtime friend of President Trump, suggested in Newsmax this week that an “upgraded Medicaid” should become the nation’s “blanket insurer for the uninsured.”

But just because someone has Medicaid doesn't mean they're getting quality health care, some conservatives point out.

Medicaid's "dysfunctional 1965 design makes it impossible for states to manage their Medicaid budgets without ratcheting down what they pay doctors to care for Medicaid enrollees," wrote Avik Roy, author of "How Medicaid Fails the Poor" in a recent Forbes piece. "That, in turn, has led many doctors to stop accepting Medicaid patients, such that Medicaid enrollees don’t get the care they need."

Economist Gail Wilensky sees a middle way between supporters and detractors of the bill's treatment of Medicaid. The rising federal cost of the program argues for the bill’s capping of federal outlays to the states, she says – but the $880 billion cut is too steep.

“Republicans are going to have to go back to the drawing board,” says Dr. Wilensky, who directed the Medicare and Medicaid programs under Republican President George H.W. Bush. “They cannot take that kind of money out,” she says. “You are putting people at risk who don’t have a lot of other options.”

What GOP bill would change about Medicaid

The GOP bill, called the American Health Care Act, would make two big changes to Medicaid.

First, starting in 2020, it would roll back federal support for “Medicaid expansion” that has covered about 11 million more low-income Americans under the Affordable Care Act (ACA).

Thirty-one states plus the District of Columbia have chosen to take advantage of the federal government’s almost total payment for the expansion, including 16 states run by Republican governors.

The expansion has been praised for getting more people into preventive care and for reducing the number of charity cases that hospitals have to cover.  Wilensky calls it the “unsung hero” of Obamacare.

Second, the Republican bill would change how the federal government helps states pay for Medicaid, and this is the major reform of the entitlement. Instead of an open-ended payment where Washington contributes on average 57 percent of Medicaid costs incurred by states, the federal outlays to states would be capped.

Again starting in 2020, the federal government would limit their payments to the states based on the number of Medicaid enrollees a state has and based on medical-cost inflation.

A better way: allow states more flexibility

Wilensky argues that this is much better than another conservative approach – a simple block grant to the states. By tying the payment to the number of Medicaid enrollees, the GOP bill accommodates a population that would grow during a recession and decline during better times, she says.

And it’s a fiscal necessity, she adds, because states have found ways to sock Washington with more of the Medicaid bill even as costs rise.

“A per capita block grant might not be so unreasonable,” she says. “Medicaid, as an open-ended entitlement, no longer becomes an open-ended entitlement.”

But experts such as Dr. Derksen strenuously disagree. Capping the contribution will simply cause states to spend less on the neediest population, says Derksen, a medical doctor and a Republican who helped write parts of the ACA that pertain to rural care.

Derksen also lambasts the bill for the size of the Medicaid cut. In a state like Arizona, it would amount to a 10 percent cut to the annual general fund budget, he estimates, seriously hurting the state’s economy and healthcare infrastructure.

“That translates into real jobs,” especially in the remote, rural areas that characterize Arizona. “A rural hospital can be the underpinning of an economy,” he says, and a rural hospital that is hindered or shuttered by the Medicaid cuts could mean “the death” of a related pharmacy or nursing home.

The better way to deal with costs, he argues, is to encourage more Medicaid expansion waivers to allow states more flexibility with their own programs – waivers such as those granted to Indiana and Arizona that have taken creative approaches to containing costs.

Ultimately, the nation needs to move away from fee-for-service to pricing based on health outcomes, says Derksen, who adds that Obamacare provisions have started the nation down this path.

How the GOP repeal-and-replace effort will shake out remains to be seen. Both Democrats and Republicans recognize that high premiums, deductibles, and lack of choice in many parts of the country need attention.

For now, Republicans are trying to sort this out among themselves. Whether they will adjust their position on Medicaid is not clear. Several Republican senators – and governors – are pressuring them to do so. But Medicaid is not as high-profile as Medicare and Social Security. Poor people are not big voters and children don’t vote.

The only sustainable way forward is for a bipartisan solution, insists Republican Gov. John Kasich of Ohio, who is vigorously fighting against the proposed Medicaid cuts. Speaking on Sunday with NBC’s “Meet the Press” host Chuck Todd, Governor Kasich urged both parties to work together.

“When you jam something through just one party over another, it's not sustainable,” he said.