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The Republican plan to slash Medicaid, explained

Medicaid expansion in Kentucky
Despite suffering from a past heart attack and diabetes, Mary Blair, pictured here at a Jackson, KY doctor’s office, was able to receive medical coverage through Medicaid expansion under the Affordable Care Act.
Luke Sharrett/For The Washington Post via Getty Images
Dylan Matthews is a senior correspondent and head writer for Vox's Future Perfect section and has worked at Vox since 2014. He is particularly interested in global health and pandemic prevention, anti-poverty efforts, economic policy and theory, and conflicts about the right way to do philanthropy.

Most of the people who got insurance through Obamacare were the more than 11 million poor people who benefited from the Medicaid expansion that 31 states, plus Washington, DC, adopted. And they have the most to lose under the American Health Care Act, the Republican replacement.

The Republican plan rolls back the expansion, taking 4 million to 6 million people off the rolls, according to Standard & Poor’s. But it goes further than that as well.

The AHCA converts Medicaid from a matching program, in which the federal government chips in a set amount for every dollar states spend on beneficiaries, to a capped subsidy, where the feds give states a set amount per enrollee every year, an amount that rises according to a fixed formula instead of according to need.

The cumulative effect, according to an analysis by the Center on Budget and Policy Priorities, is a $370 billion cut to federal funding to Medicaid over 10 years. Some of that money could be made up for by states, but most of it won't be.

And because Medicaid is already the cheapest insurance there is in America — cheaper per person than either Medicare or private insurance — cuts of that scale will necessitate kicking millions of people off the program.

What AHCA does to Medicaid expansion

The AHCA does not immediately strip coverage from the 11.2 million newly eligible people who’ve gained health insurance under the Affordable Care Act’s Medicaid expansion. But it effectively freezes enrollment, which would gradually unravel the expansion and leave millions without insurance.

Before the Affordable Care Act, poor adults’ access to Medicaid was limited. Disabled and elderly people (who need long-term care or other services Medicare doesn’t cover) who meet income and asset tests had access. Poor children, pregnant women, and, in some states, parents could access Medicaid or the Children’s Health Insurance Program.

But for adults, the income eligibility bars were very low and varied widely from state to state. Parents typically had to be very poor to qualify, and people without children had no access to Medicaid at all in most states. On the eve of the law’s implementation in 2013, the median income threshold for working parents was 61 percent of the poverty line ($14,366 a year for a family of four); for jobless parents, 37 percent ($8,714 for a family of four); and for childless adults, 0 percent.

The Affordable Care Act replaced that patchwork with a uniform income threshold for adults: 138 percent of the poverty line (about $34,000 for a family of four). And while the federal government normally pays for only 50 to 75 percent of Medicaid’s costs, the ACA offered states 100 percent federal funding for the newly eligible enrollees for 2014 through 2016. The match is gradually phasing down to 90 percent by 2020, where it’s supposed to stay.

The AHCA would start winding down this expansion in 2020. The federal government would continue to pay its 90 percent share of the cost for existing enrollees, including people who sign up between now and January 1, 2020. But it would effectively kill the expansion for people in 2020 and after who hit hard times and see their incomes fall below the 138 percent of poverty line, or who turn 27 that year or later and lose access to their parents’ insurance. The act does this by ending funding for any newly eligible people that states might want to enroll.

States could, if they chose to, continue to enroll everyone making 138 percent of income or lower and pay for this out of their own pockets. Particularly wealthy blue states like California and New York might do exactly that. Most other states will just revert to the pre-ACA status quo.

Some states are already prepared. Eight states — Arkansas, Arizona, Illinois, Indiana, Michigan, New Hampshire, New Mexico, and Washington — have “trigger” laws, which automatically undo the Medicaid expansion if there’s any reduction in federal support. Joan Alker, a Medicaid expert at Georgetown University, estimates that those eight states alone could lead to 3.3 million Medicaid enrollees losing coverage if the AHCA passes.

The Republican plan would prevent any coverage expansion in 2020 or after. But it also, over time, would lead people currently enrolled to lose their benefits and not be able to get them back. That’s because it drops funding for enrollees whose eligibility lapses for two or more months.

Imagine you’re a Kentucky parent in a family of four, making $30,000 a year. Right now, that’s below 138 percent of poverty (~$34,000 a year), so you’re eligible for Medicaid. Now suppose you get a raise, and start making $36,000. You’d lose eligibility for Medicaid and drop off the program. Then you lose your job, and get a worse one paying only $30,000 again.

If the AHCA passes, then you could not go back on Medicaid — or, at least, states wouldn’t get federal money to pay for you to get Medicaid.

This kind of income churn is very common. A study by Harvard's Benjamin Sommers and George Washington University's Sara Rosenbaum found that fewer than half of people eligible for the Medicaid expansion stay continuously eligible over the course of a year, and only 20 percent are continuously eligible over four years.

So over a few years, most Medicaid expansion beneficiaries would fall off as their incomes rise and not be able to get back on once they fall again. “I think expansion is going to wither on the vine because of the churn that happens,” Alker told me.

Donald Taylor, a health policy professor at Duke University, had the same assessment, writing on his blog, "There is tremendous churn in and out of Medicaid, and so this will mean that almost no enhanced cost match beneficiaries will be left within a year or so. This effectively sunsets Medicaid expansion."

What AHCA does to the structure of Medicaid

Medicaid cuts under the Republican bill Center on Budget and Policy Priorities

To maintain Medicaid expansion, the 31 states plus DC that expanded will have to come up with an additional $253 billion in funds over the next decade, the CBPP's Edwin Park, Aviva Aron-Dine, and Matt Broaddus estimate. Assuming that most if not all states will fail to cough up that money, the result is a massive cut.

More to the point, the up to 11.2 million people that ending expansion could kick off the rolls is a massive human toll to pay.

But the bill also includes some dramatic, and far less publicized, changes to Medicaid as it existed even prior to the Affordable Care Act. The biggest is the adoption of a policy known as a “per capita cap.”

Currently, the federal government matches state spending on Medicaid, offering about $1 to $2.79 for every dollar states spend on it (with a bigger match for poorer states). The AHCA would change all that. Starting in 2020, rather than matching state Medicaid spending, the AHCA would give each state the set amount of money per person. The amount would grow from year to year according to the medical component of the Consumer Price Index, to account for inflation.

This is a bit of a strange choice; the CPI measures consumer spending, so the medical component “approximates what households spend out-of-pocket on health care: premiums, deductibles, coinsurance, etc. More importantly, the medical component is growing more slowly than Medicaid costs are expected to grow right now, according to CBPP. So switching to a per capita cap is a federal cut of about $116 billion to Medicaid over 10 years.

Unlike a block grant, which just gives states a big lump of cash to spend as they will, a per capita cap is at least somewhat responsive to changes in Medicaid enrollment. But it could lead to cuts in some other ways as well. Take a state like Florida that’s aging fast. The AHCA includes separate caps for different groups of beneficiaries — the elderly, disabled, non-elderly adults, etc. — so states can’t get more money by dumping lots of seniors in favor of 24-year-olds.

However, there is still a lot of variation in cost within those categories. “Within your elderly group, you have the young and old, 67-year-olds and 85-year-olds, and the latter are much more expensive,” Alker explains. A state like Florida, which has a large senior population, could see costs rise fast as its population ages with time. But a per capita cap wouldn’t keep up with that. To get around that, the state might be motivated to kick off older seniors and focus enrollment on younger ones.

There are some federal requirements as to who states must cover, but they only go so far, and most states now provide additional coverage that they can roll back. “You do have to cover people on Supplemental Security Income” — a program for disabled, elderly, and blind people with low incomes — ”but a lot of folks in nursing homes [are] optional coverage,” Alker continues.

This helps explain why disability rights activists are appalled by the per capita cap plan. “People with disabilities who rely on home- and community-based services through Medicaid — such as personal-attendant care, skilled nursing, and specialized therapies—could lose access to the services they need in order to live independently and remain in their homes,” the Center for American Progress’s Rebecca Vallas, Katherine Gallagher Robbins, and Jackie Odum note.

A per capita cap would also cause problems if a new, expensive, but necessary drug comes on the market, or an epidemic hits. Those are both changes that would raise the per capita amount Medicaid has to pay year to year, but which a per capita cap wouldn’t budget for.

For instance, the opioid epidemic has taxed state Medicaid programs as more patients need treatment for substance use disorder. Today, an increase in need leads to an automatic increase in federal funds flowing to states. But the Republican plan would halt that and put the whole burden on states.

"Under the House plan’s per capita cap, states would have had to cover the entire cost of rising need on their own,” CBPP’s Park, Aron-Dine, and Broaddus write. “And rather than being able to invest in improving care, many states would have been forced to scale back or ration substance use treatment as the need increased, or to weaken Medicaid coverage for other groups.”

The bottom line is that the Republican health plan would result in massive cuts. And since Medicaid is an exceptionally lean program, which grows in costs much more slowly than private insurance or Medicare, so there’s not just room to cut by getting more efficient. Cuts to the program basically result in either enrolling fewer people or giving them worse coverage.

Why the law hurts people who sign up for Medicaid at the hospital

Coney Island Hospital Emergency Room Mario Tama/Getty Images

The bill makes a number of smaller cuts to Medicaid as well. It eliminates “retroactive coverage,” a provision that has Medicaid pick up the tab for care received up to 90 days before enrollment. That’s important, because families often learn about eligibility when someone gets sick and they go to the hospital; retroactive coverage lets them not worry about medical bills during that period and be paid back as soon as they’re approved.

Alker offers an example. Friends of friends of hers moved back to the US after time abroad. When they arrived, they didn’t yet have health insurance, and they learned their child had leukemia and had to be admitted to the hospital. “That kid will probably be eligible for Medicaid because the family doesn’t have jobs yet,” she says. “But the retroactive eligibility ensures that they will be covered 90 days before.” So his initial treatment will be covered, and the family won’t be bankrupted by this sudden, horrible news.

Under the change being considered, that child’s family would have to bear the cost of his care for the whole period up to their enrollment in Medicaid, which would likely come to thousands and thousands of dollars.

Alker also notes that the law changes the way Medicaid and CHIP, the Children’s Health Insurance Program, intersect. Before the ACA, Medicaid often had different income thresholds for children of different ages. That meant that even within the same family, one sibling could qualify for Medicaid and the other for CHIP.

The Affordable Care Act set a uniform 133 percent of poverty Medicaid threshold for kids of all ages. States reacted to that change by moving kids from CHIP into Medicaid, letting many families have their kids under the same program and enabling them to avoid premiums, which CHIP can charge but Medicaid can’t.

“The way I read it is [the Republican bill] gives states the option to put those kids back in CHIP,” Alker says. This is particularly concerning because CHIP funding is still slated to expire in September of this year, unless Congress acts; usually that funding is passed readily, but with the cuts Republicans are anticipating to Medicaid, it’s hard to know whether CHIP will maintain its current funding.

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