On Tuesday, the White House is expected to roll out a budget that includes hundreds of billions in cuts to Medicaid — proposing cuts on top of the ones included in the Trumpcare bill that passed the House a few weeks ago.
Trump’s budget blueprint seeks to dismantle the social safety net in dramatic ways. When it comes to the future of Medicaid, however, the long-term implications of the Trumpcare legislation may be even more significant.
That’s because the health care legislation advancing in Congress isn’t just a plan to cut Medicaid; it is a plan to phase out much of the Medicaid program over time. And it could get even worse before it becomes law.
The House already voted to dismantle much of Medicaid when it rushed to pass Trumpcare earlier this month. Now, the Senate may push for a faster and more comprehensive plan to phase out the government program that provides health care for low-income Americans.
To understand how this works, you need to take a look back at Paul Ryan’s history of attacking safety net programs.
In 2011, fresh off a wave election that gave Republicans control of the House, newly minted House Budget Chair Paul Ryan convinced his caucus to sign onto a budget resolution laden with cuts to health care and education and big upper-income tax breaks. This resolution also included Ryan’s signature proposal to repeal Medicare and replace it with a voucher program. The voucher, moreover, would lose value with each passing year — effectively phasing out the Medicare program gradually over time.
By providing that the voucher would grow slower than the rate of health inflation, Ryan’s plan ensured that the voucher would effectively lose value every year that the plan was in effect.
The House version of Trumpcare works similarly, albeit in a somewhat more complicated way. Unlike Medicare, which is an entirely federal program, Medicaid is a partnership between the federal government and the states. The federal treasury pays a set percentage of the costs arising under the program — on average, 64 percent — and the state covers the rest.
Trumpcare replaces this structure with one of two options. States can either elect for a “per capita cap,” meaning that each state would only be allowed a set amount of money per beneficiary. Or they could choose to have some Medicaid beneficiaries be covered by a “block grant,” which means that the state would receive a lump sum that stays the same no matter how many people enroll in Medicaid.
Experts at the Center on Budget and Policy Priorities (CBPP) detail the many harsh consequences Medicaid beneficiaries would face under either the per capita cap or the block grant option, but the most significant long-term consequence is that federal Medicaid spending will not keep up with the rate of Medicaid inflation under either option.
One of the biggest challenges facing policymakers is that health inflation — that is, the rate at which the cost of health care grows — outstrips overall inflation. Thus, with each passing year, a higher and higher portion of workers’ wages go to their health care costs. Some of the reforms under the Affordable Care Act helped mitigate this gap between health inflation and general inflation, but that didn’t close it entirely.
And Medicaid costs are actually expected to grow slightly faster than health expenditures generally — although not as fast as costs in the private health market.
That’s why the House Trumpcare bill would be so disastrous for the future of Medicaid. Whether states choose the per capita cap or the block grant option for the program, there isn’t enough funding to keep up with the costs.
As CBPP’s Edwin Park writes, the Congressional Budget Office (CBO) “estimates that overall Medicaid per-beneficiary costs would grow annually by 4.4 percent, on average, over the next ten years.” Yet the House Trumpcare bill initially uses the general health inflation index, which the CBO expects to grow by just 3.7 percent each year, to determine how fast the per capita cap will grow. Thus, with each passing year, the real value of the cap would be less and less.
Beginning in 2020, the phase out slows down. The cap for some beneficiaries continues to grow slower than the expected rate of Medicaid inflation, while the cap for seniors and people with disabilities would grow faster. Nevertheless, Park told ThinkProgress in an email, the overall rate of growth should still be “slower than 4.4 percent.”
The news is even worse in states that elect for the block grant. There, Park explains with his colleagues Judith Solomon and Hannah Katch, the grants would be “increased annually by general inflation.” But the rate of Medicaid inflation is quite a bit higher than the general inflation rate. So the block grants would lose value faster than the per capita cap.
Block grant states, moreover, would also be hit by the fact that the block grant does not account for many new Medicaid enrollees. So as a state’s population goes up, the amount of money it has to provide health care to its least fortunate residents will effectively go down.
That’s what passed the House. But the Senate’s version of Trumpcare could be even harsher on the Medicaid program.
Shortly after the House approved Trumpcare, Senate Republicans revealed that 13 male Republicans would design the Senate’s version of the legislation. Two of these men, Sens. Pat Toomey (R-PA) and Mike Lee (R-UT), recently came forward with a plan to accelerate the Medicaid phase out.
Recall that, under the House bill, states that opt for the per capita cap will initially see federal Medicaid spending rise at the overall rate of inflation for medical care. That’s still lower than the rate of Medicaid inflation, but only slightly so. The Toomey/Lee proposal, by contrast, would “further cut the annual growth rate for the per capita cap to general inflation.”
Thus, the House passed a bill that will effectively give states a choice between phasing out much of Medicaid slowly or phasing it out relatively quickly. And now two key senators want to take the slow option off the table.