A ‘Sleeper’ Lurking in the GOP’s Health-Care Overhaul

One little-discussed aspect of the legislation would significantly change the way state Medicaid programs are funded and could erode coverage nationwide.
June 26, 2017
U.S. Senate Majority Leader Mitch McConnell, joined by GOP Senators John Barrasso, Cory Gardner, John Thune and Majority Whip John Cornyn, after closed-door talks about the health bill.
U.S. Senate Majority Leader Mitch McConnell, joined by GOP Senators John Barrasso, Cory Gardner, John Thune and Majority Whip John Cornyn, after closed-door talks about the health bill on Tuesday. (AP/J. Scott Applewhite)
By Rachel Gershon  |  Contributor
Associate at the University of Massachusetts Medical School's Center for Health Law and Economics

Signs point to lightning-fast action by the Senate on its just-unveiled legislation to replace the Affordable Care Act (ACA), without much time for debate or public analysis. The Senate's Better Care Reconciliation Act retains much of the approach contained in the American Health Care Act already passed by the House.

I've worked on health care access issues since 2004 -- before passage of the ACA as a health care navigator and afterward as an attorney specializing in health policy. While it's too early to know what shape the final version of the Republican-crafted health care legislation might take, it's clear from what we know about the proposals on the table that both the Senate and House versions would reintroduce issues that individuals faced before the ACA and would make historic changes to Medicaid, resulting in added pressure on states to cut benefits and eligibility.

One "sleeper" section of both bills, Medicaid per capita caps, has received less media coverage than provisions affecting the expansion of Medicaid under the ACA, but it also has the potential to erode coverage nationwide.

For all of Medicaid's history, the federal government has paid states their share of Medicaid expenses according to the medical needs of each state's population and what services each state provides. When costly diseases like HIV emerged, for example, federal funds grew alongside state funds to help provide needed care. And when new, effective treatment for blood pressure, cancer and hepatitis C came along, same effect -- federal funding kept pace.

But under the per capita cap section of the Senate and House bills, the amount of federal funds to the states would be de-coupled from need and instead tied to inflation measures. The Senate bill largely uses the overall consumer price index, while the House bill ties funding increases to the medical care consumer price index. Since medical care costs are rising faster than general consumer prices (and Medicaid medical expenditures have risen faster than general medical expenditures), both bills are likely to result in continual downward pressure on Medicaid funding.

The Kaiser Family Foundation found that if the House bill's per capita caps had been in place from 2001 to 2011, the federal government would have spent $128 billion less on Medicaid, leaving states to either pick up the tab or cut benefits. Caps also can leave the program vulnerable to future federal cutbacks. Politically, it is a lot easier to tinker with a cap's growth rate than to specify which benefits or populations would be cut.

Per capita caps remind me of welfare reform, passed by Congress in 1996 and implemented by states during the following decade. That legislation similarly limited federal financing as a way of providing incentives for states to trim the size of their public benefit programs.

Back in 2006, around the time that some parts of welfare reform took effect, I volunteered for a nonprofit in Washington state that supported moms receiving welfare. Like many other states, Washington responded to national welfare reform by enacting extra eligibility hurdles and cutting off benefits for noncompliance with work requirements. I met a woman fleeing domestic violence who struggled to get to a newly required in-person eligibility appointment because she lived with three kids far away from public transportation and her truck had broken down. Another woman reported that suspension of her benefits had been threatened because she went to a work recruitment site dressed to do manual labor (which was her skill set) rather than wearing a suit. Since welfare reform passed, welfare rolls and government support have dropped dramatically, but the number of households living on $2 or less a day has doubled.

The parallel between per capita caps and welfare reform is not perfect -- Medicaid per capita caps don't require work or place time limits on benefits -- but the pressure on states to reduce the size of their programs would be similar. And there isn't much that states can do to cut Medicaid costs without reducing eligibility rolls or benefits. Per capita caps are not the way to rein in health care costs, unless the goal is to leave more people uninsured and without access to health care.

The views expressed here are those of the author and do not necessarily reflect those of the University of Massachusetts Medical School.