The American Health Care Act Would Make Unsustainable Cuts to Medicaid

Recent policy conversations related to the American Health Care Act (AHCA) have focused on  proposals that would eliminate the Affordable Care Act’s critical protection for people with preexisting conditions. This  controversial proposal has drawn a lot of attention for good reason. Eliminating this important protection, which keeps insurance companies in the individual (non-group) market from considering health status when making coverage decisions, could hurt millions — especially older adults who tend to develop more health conditions as they age.

But the preexisting condition protection is not the only serious concern. The proposed legislation would also make huge cuts to Medicaid by taking $880 billion out of the program by 2026. How? By, among other things, fundamentally changing the way the program is funded. Under the AHCA, Medicaid funding would move from a federal guarantee to match all legitimate state expenditures on health care and long-term services and supports (LTSS) for eligible beneficiaries, to a capped payment system that would give states a fixed dollar amount per enrolled beneficiary. [i]  Although per-enrollee caps respond to changes in enrollment, they do not respond to increases in health care costs attributable to medical or pharmaceutical innovation, nor do they respond to other changes in the health care environment that could affect per-enrollee spending. Health care costs, we all know, are notorious for their rapid rise. The result: an ever-widening gap between cost and funding.

The impact of such a huge loss of federal Medicaid funds on people with disabilities and poor seniors would be devastating — especially for 11 million Medicare beneficiaries who are also eligible for Medicaid. These individuals — called dual eligibles, or duals — are the poorest and sickest of all Medicare beneficiaries and rely on Medicaid for critical LTSS services, like help with toileting, bathing and eating.

Faced with major losses of federal funding for their Medicaid programs,  states would have limited options. They could plug the funding hole with state revenues, which is unlikely given competing demands on state budgets. States could also cut provider rates, which could lead to significant access problems for beneficiairies because many providers may choose not to serve the Medicaid population. States could also eliminate optional eligibility categories, including some that provide access to LTSS. Finally, states could reduce or eliminate access to optional services, including home- and community-based LTSS. Limiting access to needed LTSS for dual eligibles would most surely result in increased use of emergency room and hospital services, ultimately shifting costs to the Medicare program — creating a “pay me now or pay me later” situation for the federal government.

Rather than take billions of dollars out of Medicaid and shift significant costs to Medicare and states, it is time to have a reasoned conversation about how to improve the program in ways that don’t leave gaping holes in the health care safety net that millions of people  and their family caregivers rely on.

Lynda Flowers is a senior strategic policy adviser with the AARP Public Policy Institute, specializing in Medicaid issues, health disparities and public health.