The Takeaway: Math Problems

  ·  Health Policy Hub   ·   Michael Miller

As Republicans struggle to come to agreement on how far to go with ACA repeal and what to put in its place, they are confronted with three interlocking math problems: first, how to make their budget numbers add up; second, how to put together a proposal that can command a majority in both the House and the Senate; and third, how to avoid running afoul of public opinion.

Where to Start?

Let's start with the budget problem. The budget reconciliation instruction only requires Congress to save $2 billion over 10 years, which is barely even rounding error in the context of overall federal health spending. It should be easy, right? But the complications begin immediately with the Republican commitment to repeal the taxes that helped pay for the expanded benefits in the ACA.

How to plug that hole? In the good old days of "repeal and delay" (about a month ago), you simply wiped out all of the ACA spending – including both the tax credits for marketplace coverage and all of the Medicaid expansion funds – and made some vague promises about fixing it later, someday, maybe (not!). But “repeal and delay” ran aground on the other two problems – public opinion, which is strongly against it (only 18 percent support this course), and that constituents have not been shy about making their objections known to their members of Congress.

As a result, there aren't enough votes to pass repeal and delay, so GOP leadership is in need of some kind of replacement plan. That replacement plan has to make good on Republican commitments to preserve access to coverage for people with pre-existing conditions and also has to avoid yanking Medicaid coverage (and funding) away from states. But preserving funding for the Medicaid expansion (even if the federal matching rate phases down over time) and creating a substitute for the ACA tax credits, even at reduced levels, eats up some of your savings, so you are still left with a budget hole.

How big a hole depends on how much of the expansion funding is preserved and how adequate are the new tax credits. The greater the funding preserved, the bigger the budget hole. But proposals to shrink the funding have fueled opposition in states that have benefited from the Medicaid expansion, including 16 states with Republican governors. It would also cause the number of uninsured to spike and do little to allay the public's fear that people with pre-existing conditions will again be locked out of the insurance market. 

A notable feature of the recently leaked draft House repeal-and-replace plan is that it tries to address these problems by providing more funding for the Medicaid expansion and for subsidizing private insurance than did previous proposals, such as the one authored by now-HHS Secretary Tom Price. But because at least a portion of the ACA funding is preserved, a sizable budget hole remains, although we don't know how big because no CBO score has yet been made available.

Fixing a Hole?

How is this hole to be plugged? Again according to the leaked plan, there are two additional revenue sources. One, involves cuts to the core Medicaid program; the other involves changes to the tax exclusion for employer-sponsored insurance, in the sphere of the ACA's "Cadillac tax" that places an excise tax on the most expensive health plans. But both of these revenue sources immediately run into trouble with respect to math problems two and three, above. The "Cadillac tax" is wildly unpopular with both the public and in Congress, across party lines. It is not at all clear that a majority of members will repeal the Cadillac tax only to turn around and support replacing it with something that essentially does the same thing.

On the Medicaid front, the House proposal is to continue to provide states with enhanced matching funds through 2019, but only for those beneficiaries who are currently enrolled. New enrollees would receive only the regular match rate. Starting in 2020, states would receive a capped amount for each beneficiary. The proposal calls for this capped payment to grow at the rate of medical CPI plus one percentage point. It's not clear that this adjustment factor saves a lot of money. If not, it then doesn't do much to fill the budget hole (running into math problem one).

The House Medicaid proposal differs significantly from another leaked proposal, this one developed by a number of Republican governors. In particular, the governors do not want to be forced to assume increased risk for the cost of care for beneficiaries who are jointly eligible for Medicare and Medicaid. (The "dual eligibles" account for over one-third of all Medicaid spending.) At the same time, at least some Republican governors seem perfectly comfortable with substantial Medicaid funding cuts as long as they have increased freedom to cut people off of Medicaid and reduce benefits for those who remain. Of course, this would just shift costs onto providers and beneficiaries. In essence, perhaps in an effort to keep senior citizens, people with disabilities and the providers who serve them on the sidelines, the governors' plan boils down to massive eligibility and benefit cuts for non-disabled adults and children.

Especially if the votes aren't there for tackling the tax-exclusion, then the Medicaid cuts would have to be deeper – much deeper – than what is laid out in either of the leaked draft proposals.  And benefits would likely be even skimpier both for Medicaid beneficiaries and in the private market. An analysis of the replacement plan based on documents released by Speaker Ryan suggests that millions would lose coverage. Such draconian cuts in health coverage would spark even more public outcry and could erode support in both the House and Senate, even though one House leader called a decline in coverage "a good thing" (again, see math problems two and three, above).

All in all, once the "original sin" of repealing the ACA taxes is committed, solving all three "math problems" – i.e., finding a way to make the budget numbers work while keeping a majority of support lined up in both the House and the Senate and not enraging the voters – adds up to a monstrous headache for Speaker Ryan and Leader McConnell. (Sad!)  Perhaps that's why former House Speaker Boehner predicts that the Republican effort to repeal most of the ACA will ultimately fail.

Let's hope he is right.