Some analysts think ACA replacement plans will have to offer parity federal funding to Medicaid expansion and non-expansion states.

Feb. 9—The bill to repeal the Affordable Care Act (ACA) will include some replacement provisions, according to some healthcare policy experts tracking the debate.

Although the ACA repeal legislation is still under construction, some policy watchers say they hear it will include an expansion of health savings accounts (HSAs), funding for state high-risk pools, a shift of Medicaid funds to state block grants with per capita limits, and tax credits for individual health insurance.

“This is all very preliminary and subject to the fleshing out of lots of details—not the least of which is the adequacy of the consumer tax credits compared to what we have in the exchanges now,” Robert Laszewski, an insurance industry adviser and longtime policy watcher, wrote in a blog post.

A repeal bill with those elements is on track to be enacted in the spring, based on what Laszewski is hearing.

“On the Medicaid side, they are looking seriously at a combination of greater state flexibility and a per-capita based formula for federal funding,” agreed Kip Piper, a consultant who advises states on Medicaid expansion.

Others have insisted that Republicans are slowing the repeal-and-replace process, with conflicting goals stated by President Donald Trump and Republican congressional leaders. The elements of the repeal bill are being closely watched because such a bill can be enacted quickly by congressional Republicans using a simple majority.

Ed Haislmaier, an expert in health care policy at the Heritage Foundation who is advising Congress on ACA replacement, expects the repeal bill will be more similar to a simple repeal bill that Congress passed last year, which established a two-year cutoff for the ACA’s coverage provisions. He said in an interview that he expects an eventual replacement bill to address major Medicaid changes.

If Congress approved a move to per capita caps that would be a major shift in federal Medicaid policy and spending. A new analysis by Avalere concluded that federal Medicaid spending would be reduced by $150 billion over five years from a shift to block grants and by $110 billion over that span from a shift to per capita caps. The federal government spent $344 billion on Medicaid in FY15, while state and local governments spent $201 billion.

The differences between block grants and per capita caps could have major impacts on states and hospitals.

Medicaid block grants would cut federal funding to all but one state, North Dakota, with reductions of as high as 62 percent. Per capita caps would increase federal funding to 24 states and cut monies to 26 states and Washington, D.C., by up to 30 percent, according to Avalere.

“A study like that is based on a number of assumptions, and we just don’t have a clue what is being considered,” said Blair Childs, senior vice president of Premier, who frequently meets with congressional officials. “You’ve got members of the Senate who are from states that are currently advantaged by the Medicaid match, so … they could take huge hits, and there’s no way that’s going to happen politically.”

Thirty-one states—more than half with Republican governors—expanded Medicaid eligibility under the ACA.

Despite the political landmines, congressional officials tell Childs they are committed to passing a repeal bill in the spring, followed by piecemeal replacement bills with bipartisan support.

“None of us have seen anything, and I don’t think they can just ram this through,” Childs said, referring to a repeal bill with replacement elements. “It’ll create too much of a backlash.”

Details Will Be Key

Policy watchers said they have not seen any specifics of the Medicaid changes.

Bill Hoagland, a senior vice president at the Bipartisan Policy Center, noted at a Feb. 3 briefing that per capita caps would offer less reason than straight block grants for states to cut provider rates. But key details about per capita caps, including whether to incorporate carve-outs for the long-term chronically ill, are critical.

“This is where the details matter about how would you restructure Medicaid because you are going to have winners and losers, and there are going to be some losers who are still Republican senators, who they need to keep [in office],” Childs said.

Another key detail in the repeal bill will be the level of Medicaid funding. It’s unclear whether federal funding will be cut to pre-ACA levels, stay at current levels, or increase to give non-expansion states the amounts they would have received had they expanded eligibility.

“States only have so much revenue, and so if there is real significant reduction on the Medicaid budget, for example, how are they going to make up that delta?” said Hemi Tewarson, program director for the National Governors Association.

Laszewski said in emailed comments that it’s not yet clear how Republicans will come down on the funding question.

“What they will do for the states that did not offer [expansion] is a conundrum for them right now,” Laszewski said. I “[h]ave to believe they will eventually offer them parity.”

Any reduction from current funding levels would have to be phased in over “a fairly long period of time” to minimize disruptions for states, Childs said.

On the question of whether to move toward block grants or per capita caps, the per capita approach has the advantage of funding recent increases in states’ Medicaid rolls, Tewarson said. Medicaid programs have added 16.4 million enrollees since the expansion started in October 2013, according to a report from the Centers for Medicare & Medicaid Services (CMS).

Tewarson said block grants and per capita caps have received varying levels of support and opposition from governors.

Impact on Providers

The federal funding cuts expected from a shift to either per capita caps or block grants are likely to impact the rates paid to providers, according to industry observers.

The potential financial impact on hospitals of a shift to Medicaid block grants was recently underscored by Andy Slavitt, former acting administrator of the Centers for Medicare & Medicaid Services, who has been traveling the nation talking to providers since his departure from the agency in January.

“No one has written the story of how stark that is economically for hospitals,” Slavitt said in an interview. For healthcare finance leaders, “it’s much, much harder to assume that Medicaid expansion goes away, and as a result you would have massive state budget deficits and very significant increases in bad debt.”

While elimination of the Medicaid expansion would directly affect only funding to the 31 states that expanded eligibility, the loss of that $78.5 billion in 2019 would result in 451,000 fewer healthcare jobs that year, according to a new projection by researchers at The George Washington University in Washington, D.C. Another 86,000 healthcare jobs would be lost in non-expansion states because of indirect economic impacts from expansion states.  

Among research on the financial benefits accruing to hospitals from the Medicaid expansion was an October study in JAMA. Researchers found that in states that initially expanded Medicaid in 2014, mean annual Medicaid revenue increased by $3.2 million per hospital compared with hospitals in non-expansion states. Additionally, mean annual uncompensated care costs declined by $2.8 million per hospital, compared with non-expansion states.

“If a state has to suddenly cut its Medicaid payment, that flows directly to the hospitals and employment; there’s no question,” Childs said.

Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare 

Publication Date: Thursday, February 09, 2017