To Cut or to Reform Medicaid?

The GOP’s attempt to repeal and replace the Affordable Care Act has generated intense opposition and run into repeated roadblocks on Capitol Hill, despite advancing many worthy reforms. The proposals are right to allow individuals without pre-existing conditions to obtain insurance from a freely-competitive market, right to shift able-bodied individuals from Medicaid to the exchanges, and right to restructure Medicaid so that the largest share of its funds is not captured by the wealthiest states that need it least.

Yet, the $904 billion in aggregate spending cuts incorporated in the most recent bill have fueled bitter opposition to the proposed reforms. The GOP has long struggled to balance its objectives of enhancing competition and personal responsibility with a desire to immediately save money. Well-designed institutions save money over the long-term, but a haste for savings has ensured that the main thing many states, providers, and individuals see in the GOP’s reform proposals is the prospect of having to make do with less.

The blueprint for the GOP’s 2017 attempt to repeal and replace the Affordable Care Act was laid out by Speaker Paul Ryan in his June 2016 proposal, “A Better Way.” That white paper proposed “more choices, lower costs, greater flexibility” in health insurance, set out the case for reforming Medicaid into a per capita allotments for states, and argued for transforming Medicare into a “fully-competitive market-based model”.

Following President Donald Trump’s election, the “premium support” proposal to cut funding for Medicare was dropped — but a core tension remained between the belief that reforms could improve the structure of health insurance, and the desire to generate immediate savings for taxpayers.

There was much merit in the Senate GOP’s proposal to repurpose the exchanges into a dedicated safety-net for low-income individuals and those with pre-existing conditions, allowing a competitive market provide affordably-priced insurance to most individuals at premiums priced in proportion to their health care needs. But combining this reform with $46 billion of cuts from the $86 billion expected to be spent in 2026 on premium and cost-sharing subsidies for these plans raised legitimate concerns (only partially allayed by $19 billion in proposed stabilization funding) about whether the exchange would retain much appeal for the 81 percent of enrollees who currently receive subsidies. It also undermined the argument that exchange plans could serve as a satisfactory replacement for the expansion of Medicaid to able-bodied adults earning less than 138 percent of the poverty line.

It is hard to justify the system established by the ACA, by which the federal government pays for 90 percent of the cost of providing Medicaid services to able-bodied childless adults, but only 50 to 75 percent for disabled, the elderly, and pregnant women. Similarly, it makes little sense to finance the provision of health care for the poor through a system of matching funds which distributes the most money to the wealthiest states. But the coupling of fixes to these issues with aggregate funding cuts meant that GOP proposals to establish a more deliberate allocation of resources were easily beaten back by an alliance of hospitals, physicians, and state politicians who stood to lose money, without being counterbalanced by others who stood to gain.

The competing priorities of structural reform and fiscal retrenchment have long struggled for supremacy in conservative health policy proposals. The 2003 Medicare Modernization Act was perceived by many conservatives as showing the danger of paying too much for reform, and did much to foster the Tea Party insurgency within the GOP.

In the 2000 presidential election, Vice President Al Gore had pledged 50 percent federal assistance for a standalone drug benefit as a Part D to Medicare. George W. Bush responded with a proposal to subsidize 25 percent of the cost for private Medicare plans to add drug coverage, as a means of enticing beneficiaries into capitated plans. In order to avoid a Democratic filibuster, the Republican-led Congress eventually adopted the structure of Gore’s proposal, to be administered privately, with a 75 percent subsidy.

The MMA nonetheless succeeded in its core reform goals (slowing the cost of employer-sponsored insurance premiums and making private plans the most attractive choice for a growing section of Medicare enrollees), but the $100 billion annual cost of adding prescription drugs to Medicare was high.

Attempting health care reform through reconciliation, Republicans need not spend billions to secure Democrats’ support, but this time they have erred in the other direction. The health care reform proposed by the House GOP was scored as reducing federal spending by $119 billion over 10 years. Congressional budget rules required the Senate bill’s cuts to exceed that amount.

The most recent version of the Senate bill was estimated to reduce the deficit by $420 billion over 10 years, but if it fails to pass into law, it will save taxpayers $0. It was reported that Senator Mitch McConnell (R-Ky.) was looking to spend $200 billion of this as “candy”, to secure support for the bill. That effort, financed by a reduction of the tax cuts included in the bill from $701 billion to $484 billon, appears to have failed. Yet, much room remains to reinstitute subsidies withdrawn by the Senate bill, to ensure that the bill’s worthy structural reforms are not overwhelmed by the cuts they threaten to impose.

The experience of MMA may suggest that it is possible to do too much to sweeten a pill; but the experience of this year reminds us that it is also possible to do too little.

Chris Pope is a senior fellow in health policy at the Manhattan Institute.

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