The draft bill’s approach to Medicaid would produce less financial pain for hospitals in the short term and more in the long term, one health policy adviser says.

June 22—A "discussion draft" of the Senate bill to overhaul the Affordable Care Act (ACA) was posted this week and included various changes from a House-passed version. What didn’t change was hospital groups’ opposition.

The draft of the legislation, called the Better Care Reconciliation Act (BCRA), includes numerous departures from the American Health Care Act (AHCA), which the House passed in May. But it was directionally similar.

Key marketplace provisions of the draft bill included:

  • Changing the benchmark used to determine tax credits to a median plan that has 58 percent actuarial value (AV), compared with 70 percent under the ACA
  • Reducing income eligibility for premium subsidies from up to 400 percent of the federal poverty level under the ACA to up to 350 percent
  • Changing eligibility for subsidies to vary with age
  • Postponing most changes to the individual market until 2020
  • Dropping the individual mandate, retroactive to 2015
  • Appropriating $50 billion over four years to stabilize the ACA marketplaces
  • Providing an additional $62 billion in state grants
  • Allowing 1332 state waivers to include dropping essential health benefits or dropping an ACA marketplace
  • Providing cost-sharing subsidies through 2019

Many of the biggest changes in the bill—like in the House version—were focused on Medicaid, including:

  • Maintaining the ACA’s Medicaid expansion until 2020 and then gradually phasing back down to the traditional federal matching rate over three years
  • Providing non-expansion states with extra safety-net funding, which allows states to increase Medicaid payment rates to providers
  • Allowing states to implement Medicaid work requirements
  • Instituting per capita caps for Medicaid that are linked to overall inflation instead of medical inflation
  • Allowing states to take federal Medicaid funding as block grants, similar to the House bill
  • Requiring states to adhere to conditions if they take block grants, including offering plans that have at least 95 percent AV and that cover most services

Hospital Reaction

The bill drew a swift and unanimous "no" from national hospital advocacy organizations.

Chip Kahn, president and CEO of the Federation of American Hospitals (FAH) said "critical revisions" were needed to improve insurance coverage and to maintain Medicaid viability.

"FAH has been explicit about our health reform core principles: maintain coverage levels, [implement] reasonable Medicaid structural reforms, sustain affordable and high-quality individual coverage, protect employer-sponsored insurance and roll back untenable cuts to hospital reimbursement," Kahn said in a written statement. "At this time, the BCRA draft does not sufficiently meet those principles which are so important to those Americans our community hospitals serve and our employees who care for those patients every day."

Rick Pollack, president and CEO, of the American Hospital Association, similarly urged Senate Republicans to go back to the drawing board.

"The Senate proposal would likely trigger deep cuts to the Medicaid program that covers millions of Americans with chronic conditions such as cancer, along with the elderly and individuals with disabilities who need long-term services and support," Pollack said in a written statement. "Medicaid cuts of this magnitude are unsustainable and will increase costs to individuals with private insurance."

Bruce Siegel, MD, president and CEO of America’s Essential Hospitals, said the Senate bill made few improvements to the House legislation, which all of the national hospital groups opposed, "and might be worse overall."

"For the hospitals that protect millions of Americans and their communities—our essential hospitals—this bill might even accelerate decisions by some to reduce services or close their doors," Siegel said in a written statement.

Siegel also raised the specter of job losses of up to 1.5 million positions owing to the bill's federal funding cuts.

Darrell G. Kirch, MD, president and CEO of the Association of American Medical Colleges, urged the Senate to reject the draft legislation, partly over concerns that it would spawn less-affordable coverage.

"As the nation’s medical schools and teaching hospitals see every day, people without sufficient coverage often delay getting the care they need," Kirch said. "This can turn a manageable condition into a life-threatening and expensive emergency."

He also worried that the proposed Medicaid funding changes would place "untenable strain on states and providers."

Short-Term vs. Long-Term Pain

Among the draft bill’s differences from the House-passed measure was the likelihood of less short-term and more long-term financial pain for hospitals stemming from the legislative approach to Medicaid, said Chas Roades, chief research officer of The Advisory Board Company.

"The Senate bill for hospitals is like getting punched in the stomach a little bit less hard than the House bill," Roades said in an interview. "But the long-term pain is going to be worse for hospitals."

The Senate bill would take longer than the House bill to wind down the ACA's extra federal funding for the expansion population, and it would let states select their initial per capita cap benchmark—which likely would be higher than under the House bill, according to Roades.

"The coverage effects will occur more slowly, but the final impact on coverage will be even greater," said Caroline Pearson, a senior vice president for Avalere.

Additionally, the Senate bill would allocate additional funding through 2022 to non-expansion states and allow greater Medicaid payment rates.

"Relative to the House bill, this approach would initially make the Senate version less financially painful for hospitals—but only in the short term," Roades said.

In the long term, the Medicaid cuts could be larger because the Senate bill would increase the per beneficiary cap at a slower rate than the House bill. Starting in 2025, the Senate measure would increase the cap growth rate based on a broad-based inflation index (CPI-U) that is projected to grow by around 2.5 percent annually, according to Roades. That’s much slower than the Consumer Price Index for Medical Care (CPI-M), which was used in the House bill and is projected to grow by about 3.9 percent annually. For adults with disabilities and the elderly, the House bill would increase the cap by CPI-M plus one percentage point.

"As the Senate plan's more aggressive cap on the growth rate takes effect, states would be more likely to significantly modify some combination of Medicaid eligibility, benefits, and payment rates, all of which would negatively impact provider margins," Roades said. "States might also respond to funding cuts by using federal waivers to experiment with consumer-driven insurance design or to implement delivery system reforms in Medicaid."

The marketplace rule changes also could have big hospital impacts. For instance, the bill’s rules would likely produce "skinnier" marketplace insurance with higher out-of-pocket costs, "which from a hospital point-of-view creates real pressure on whether people can meet their deductibles," Pearson said. "There’s a question as to whether people who have low and moderate incomes will be able to afford to use their insurance."

For insurers, the Senate bill included several key provisions, such as a $65 billion reinsurance fund and the appropriation of cost-sharing subsidies.

"The bill includes a lot of things that insurers have been saying that they need," Pearson said.

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

Publication Date: Friday, June 23, 2017