By Kenneth Kaufman
July 26, 2017

With debate underway in the Senate over a bill to repeal and replace the Affordable Care Act (ACA), multiple amendments being considered, and no clear sense of what may or may not reach President Trump’s desk, U.S. lawmakers are perilously close to opening Pandora’s Box. That risk goes far beyond changing the ACA. In the bills that emerged from the House and Senate, the most potent changes were to the size and nature of Medicaid—a formerly sacrosanct health care safety net that has been in place since 1965.

The changes proposed would affect a large and highly vulnerable population: poor children, people with disabilities, elderly people whose resources have been depleted, and adults suffering from short-term or long-term poverty. Yet, the House and Senate bills contain no direction on how to implement the proposed changes in a way that would not hurt the millions of people the program serves or the many others touched by the program. These high-stakes effects would be left to states and providers to remedy and for these populations to absorb.

Medicaid covers 77 million people—one-fifth of the nation’s population and more than any other U.S. government health program. Beneficiaries include 34 million children, 27 million adults, 9 million people with disabilities, and 6 million elderly people. Medicaid covers approximately one-third of the nation’s children, one-half of the nation’s births, and two-thirds of the nation’s nursing home residents.

In 2016, the federal government paid states $349 billion for Medicaid, which is 9% of total federal spending at home and 16% of all personal health care spending. For most states, Medicaid is the largest single federal revenue source.

The House bill (the American Health Care Act) and Senate bill (the Better Care Reconciliation Act) propose reshaping Medicaid in two basic ways. First, the bills would end the Medicaid expansion that 32 states adopted as a result of the ACA. Second, the bills would alter the basic nature of how the federal government funds Medicaid. Rather than paying based on the cost of services provided, federal Medicaid spending would be capped based on the number of people covered.

As a result, Medicaid would cover 15 million fewer people by 2018, according to a Congressional Budget Office analysis of the July 20 version of the Senate bill. The effects would likely be felt disproportionately by the disabled, who account for 42% of Medicaid spending. Overall, 22 million fewer people would have health insurance by 2026. The total number of people without health insurance would be 49 million.

The bills also would reduce Medicaid funding to states by $756 billion, or 26%, by 2026. By 2036, federal funding would decline 35%. These cuts would leave states with only unpalatable options, including raising taxes, cutting back on other government services, reducing Medicaid benefits and coverage, and reducing payments to providers.

 

People without health insurance often will avoid or delay getting care, but at a certain point, they will absolutely need care. Then they will show up at our nation’s hospitals, where in one form or another, they will be treated. As a result, hospitals will see increases in uncompensated care costs of up to 78% over 10 years. Hospitals, which already operate in the red under Medicaid, also would undoubtedly see a decline in payment rates for Medicaid. Hospitals in every state would see a decline in operating margin, with margins in Medicaid expansion states falling to an average of –5.3% by 2026.

No matter what happens in the Senate, we have reached a point where significant changes to Medicaid and the social safety net have become central to the political discussion.

Our nation’s health care system is a large and complex web of interdependencies among individuals, providers, government, employers, payers, and many other stakeholders. Any change to one part of that system will cause multiple, hard-to-predict effects on any and every other part. The consequences of a fundamental change to Medicaid are extremely hard to calculate, and that is a huge risk for a large and vulnerable segment of the American public and for those who provide their care.

Kenneth Kaufman is managing director and chair of Kaufman Hall.

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