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The Senate's super-wonky, super-important Medicaid debate

Senator Rob Portman of Ohio
Chip Somodevilla / Getty Images
Dylan Scott covers health care for Vox. He has reported on health policy for more than 10 years, writing for Governing magazine, Talking Points Memo and STAT before joining Vox in 2017.

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Republicans don't just want to roll back Obamacare's Medicaid expansion: They want to cap future federal Medicaid spending, too. When the American Health Care Act passed the House, Paul Ryan sold the changes to Medicaid as the biggest entitlement reform in a generation.

But that plan is running up against a big problem in the Senate, where some Republicans are reluctant to cut spending too deeply for a program that covers so many of their constituents. At this point, Senate Republicans do not agree on a crucial piece of this Medicaid overhaul.

A quick refresher: Right now, the federal government and the states jointly fund Medicaid, with the feds contributing 50 percent or more of the cost. It's an open-ended commitment: The feds will pay their share for whoever qualifies for the program, no matter how much their health care costs. Medicaid covers more than 70 million low-income Americans.

The GOP's plan would fundamentally change that system. The federal government's payments to states would be capped, based on the number of enrollees, with some categories of people (such as the disabled or the elderly) having a higher cap than others (nondisabled adults or children). Any costs above that threshold would fall completely on the states. It's called a per capita cap.

One of the most important elements of that plan is the metric that will be used to increase the spending caps going forward.

That will help determine how deep of a cut the GOP's plan would be over the long term. A lower inflation index — to use the economic lingo — could lead to a bigger cut, because the spending cap would be less likely to keep up with the actual cost of covering the Medicaid population.

Which is why what index to use for the Medicaid caps is proving to be one of the big hurdles for Senate Republicans in their health care discussions.

I'm told that more moderate Republicans, personified by Ohio Sen. Rob Portman, don't want to make their Medicaid plan any more conservative than the House bill already is. The House bill used an index based on the price of medical services, with a small additional boost for the elderly and disabled populations. That index is already projected to grow more slowly than actual health costs, because it measures the amount that people spend out of pocket rather than the total cost of medical care.

"I want to be sure going forward that the per capita program works," Portman told reporters last week.

But Senate conservatives want the plan to go further. An aide to a conservative senator told me that they want the index to be based on historical Medicaid spending growth.

Experts say that could lead to an even deeper cut over the long term. The reason? Medicaid has seen an influx of children and nondisabled adults enrolled in recent years.

Because those populations are cheaper to cover, the program's per-person growth has been artificially low. An index based on that recent growth might therefore struggle to keep up with actual Medicaid costs in the future.

"In general, if one used a recent historical period for Medicaid spending, then that approach is very likely to lead to deeper cuts than the [index] included in the House bill," Matt Fiedler, who studies health policy at the Brookings Institution, told me.

Either way, Medicaid is looking at a significant cut. The Congressional Budget Office estimated that the House bill would reduce Medicaid spending by $840 billion and enrollment by 14 million people by 2026, though it did not specify how much of that was a result of rolling back Obamacare's Medicaid expansion and how much was a result of the new spending caps.

But here are some findings from the Brookings Institution to give you a sense of how a spending cap would change Medicaid. They estimated what Medicaid would have looked like in 2011 if a spending cap like the House plan's had been implemented starting in 2004:

  • Overall federal spending would have been $17.8 billion lower, an 11.3 percent cut.
  • But if Medicaid spending grew 1 percentage point faster than expected, the reduction in federal spending would nearly double to $34 billion, an almost 20 percent cut.
  • Different states would have felt dramatically different impacts, because Medicaid spending varies widely across states. One state would have needed to cut its Medicaid spending by more than 30 percent to stay under the cap; but 22 states wouldn't have needed to cut spending at all.

One other consequence: Spending caps could also make it more difficult for Medicaid to cover unexpected disease outbreaks or a new breakthrough treatment. States have recently struggled under the existing Medicaid program to pay for revolutionary hepatitis-C medications, genuine miracle drugs curing a disease that disproportionately affects low-income Americans.

Chart of the Day:

Brookings Institution

Kliff’s Notes

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Analysis and longer reads

  • "How Republicans Stopped Pretending and Started Getting Real": "Earlier this month, Republicans finally got to yes, at long last passing a bill that may offer relief from some of Obamacare’s most destructive insurance mandates. The bill was far from perfect—and it was certainly not full repeal as promised—but its passage has paved the way for insurance market reform nonetheless and given new momentum to a legislative agenda that looked dead in its tracks mere weeks ago." —Michael Needham and Jacob Reses, Politico
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