State Budgets Aren't Accounting for Obamacare Repeal

In planning their finances for the year, governors are counting on health care to remain the same. But if it doesn't, states could suddenly be on the hook for billions of dollars.
by | January 23, 2017
Protesters rally in Los Angeles to save the Affordable Care Act. (AP)

On his first day as president, Donald Trump signed an executive order to begin the process for repealing the Affordable Care Act (ACA). In the weeks before that, the Republican-controlled Congress made several moves toward dismantling the law. But you likely wouldn't know all that by looking at most states' proposed budgets.

If Trump makes good on his campaign promise to repeal Barack Obama's landmark health-care law this year, states could take a major financial hit and don't appear to be preparing for that.

Hardest-hit would likely be the 31 states that expanded Medicaid under the ACA. The law provided 100 percent of the funding for states to make more low-income people eligible for free or cheap health care. If that funding provision isn't included in the Republicans' replacement plan, expansion states would be on the hook for billions of dollars if they want to keep millions of people insured.

Despite that, several health policy experts told Governing that it's unlikely that any state budget offices have drawn up contingency plans for a full repeal yet.

“People are thinking about what will happen, but it’s just really hard to put a fiscal note on the possibility of that,” said Matt Salo, executive director of the National Association for Medicaid Directors.

“Keep in mind," he said, "that rolling back a Medicaid program has only happened twice before, and that was at the state level. This would be the feds walking away.”

It's anyone's guess how far the new administration and Congress will go to get rid of the ACA. But both Trump and Congressional Republicans favor converting Medicaid into block grants, which give states more flexibility to decide who would be eligible for subsidized care and what services would be covered. Either way, Democratic and Republican governors in expansion states are worried that Congress will rush to repeal the law without an immediate plan in place.

California Gov. Jerry Brown's proposed budget addresses the uncertainty but only to explain why it doesn't account for a potential repeal.

“The incoming presidential administration and leaders in Congress have suggested major changes to the program," the budget reads. "At this point, it is not clear what those changes will be or when they will take effect. As such, the Budget continues to reflect existing state and federal law.”

New York's budget, proposed by Gov. Andrew Cuomo, strikes a similar sentiment:

“It is not possible at this time to assess the potential fiscal impact of policies that may be proposed and adopted by the new administration and Congress.”

Most expansion states that have released their proposed budgets do allocate more money for Medicaid. But that was expected since federal funding to subsidize states' Medicaid expansion drops to a 95 percent match this year.

If Obamacare is repealed and replaced with something different, “lawmakers would have to go back and rewrite a good portion of the budget because I think there are bits of Medicaid in every aspect of state government,” said John Corlett, a former Medicaid director for Ohio.

It's not just Medicaid that a repeal could impact. The ACA also offers financial incentives to implement electronic health records and to help providers update their IT systems. Many are worried such funding would not be included in a replacement plan.

“Those IT systems impact more than just our Medicaid program -- and that’s true even for states that didn’t expand," said Loren Anthes, a Medicaid fellow at the Center for Community Solutions. "Trust me, states do not want to go through another IT procurement process.”

“There’s a lot of detail in policy, and politics doesn’t always recognize that,” said Anthes.

Efforts to address the opioid epidemic could also fall victim to an Obamacare repeal. Expanding Medicaid helped many addicts afford treatment.

In Ohio, for example, Corlett estimates that out of the 700,000 residents who received coverage once the state expanded Medicaid, 200,000 struggle with substance abuse. 

“The amount of money in our Medicaid program that goes towards substance abuse help, it’s incomparable. To rip out the financing arrangements for that would be devastating,” said Corlett.

One thing is for certain: If a full repeal happens, it will be disastrous for most states' budgets -- at least in the short-term.

“There’s a saying in Ohio that when the rest of the country gets a cold, we get pneumonia," said Corlett. "That’s what it would be like if Medicaid expansion is rolled back."

*CORRECTION: A previous version of this incorrectly stated that federal ACA funding to help states expand Medicaid drops to a 90 percent match this year. It drops to 95 percent.