ACA Suit Threatens Disruption, Loss of Protections for Tens of Millions of Medicaid, Medicare Beneficiaries

Tens of millions of Medicaid and Medicare beneficiaries face direct harm from a lawsuit to overturn the Affordable Care Act (ACA) — which strengthened and updated both programs, transforming Medicaid’s eligibility rules and Medicare’s payment systems.

The Supreme Court will hear oral arguments November 10 in California v. Texas, in which the Trump Administration and 18 Republican attorneys general are asking the courts to invalidate the entire ACA. A district court ruled to do so, even though legal experts view the case against the law as extraordinarily weak. The Fifth Circuit concurred that the individual mandate to get insurance or pay a penalty was unconstitutional but returned the case to the district court to determine which, if any, portions of the ACA could remain.

If upheld, the district court decision would have severe consequences not only for those covered through the ACA marketplaces or benefiting from its protections for people with pre-existing conditions, but also for Medicaid and Medicare beneficiaries.

Most significant, over 12 million people who gained coverage in states that implemented the ACA’s Medicaid expansion to adults with incomes below 138 percent of the poverty line would lose it if the court’s decision prevails.

On top of that, overturning the ACA would jeopardize states’ ability to administer their Medicaid programs even for those who remain eligible. The ACA required states to transform how they determine Medicaid eligibility for most enrollees, streamlining the process for both states and enrollees. If the law were overturned, states would have to return to the old, more complicated ways of processing and determining Medicaid eligibility. This could be a significant challenge for states, given the dramatic technology changes they’ve made to their eligibility systems to comply with the ACA. And it would come at a time when states are grappling with big budget shortfalls, rising need for Medicaid coverage, and other pandemic-related challenges.

For Medicaid, as we’ve explained, overturning the law also would:

• Roll back coverage for about 1.5 million children as well as for people aged 19 to 26 who were formerly in foster care.
• Reduce access to home- and community-based services for nearly half a million seniors and people with disabilities by overturning key ACA provisions that increased eligibility and provided new benefits.
• Raise federal and state costs for prescription drugs by undoing reforms to Medicaid’s drug rebate.
• Discourage states from promoting preventive services by eliminating federal incentives to offer services such as immunizations and tobacco cessation programs at no cost for beneficiaries.

Invalidating the entire ACA would also cause disruption in Medicare, calling into question all of the law’s changes to that program. In particular, the ACA altered Medicare’s annual payment updates to hospitals, skilled nursing facilities, and certain other health care providers, as well as payments to Medicare Advantage health plans. If the district court’s decision stands, all of these payments would have to change, creating confusion and uncertainty for months or years until the Centers for Medicare & Medicaid Services (CMS) established new regulations to reset all of these rates and the courts resolved any legal challenges. The changes in payment rates would presumably be retroactive to January 1, 2019 — the date at which the ACA’s individual mandate penalty ceased to apply.

Meanwhile, overturning the ACA would also jeopardize such Medicare improvements as:

• Closing the prescription drug “donut hole.” In 2020 seniors would pay 100 percent instead of 25 percent of the cost of brand-name drugs that fall into the Medicare Part D coverage gap.
• Providing preventive services without cost sharing. The ACA eliminated beneficiary coinsurance for most preventive services, such as screenings, and added coverage of an annual wellness visit.

And overturning the ACA would weaken Medicare’s financing. ACA payment reforms and revenue increases strengthened the financial status of Medicare’s Hospital Insurance (HI) trust fund. Before the ACA, Medicare’s trustees projected that the trust fund would become insolvent in 2017. Earlier this year, without factoring in the effects of the pandemic, they projected it would remain solvent through 2026. The ACA also eliminated four-fifths of the fund’s long-run shortfall.

As a result of the pandemic and recession, the HI trust fund will be depleted in 2024, the Congressional Budget Office now projects. Striking down the ACA would advance that date even further. In addition to losing payroll tax income and facing higher spending going forward, the trust fund would likely be liable for tax refunds and additional provider payments for prior years.

In both Medicaid and Medicare, overturning the ACA would also jeopardize delivery system reform and other health care quality improvement initiatives. The court decision would effectively shut down CMS’ Center for Medicare and Medicaid Innovation, ending demonstration projects designed to improve the delivery of care to Medicaid and Medicare beneficiaries while lowering costs for both states and the federal government. It would also eliminate successful incentives for hospitals to prevent avoidable readmissions and hospital-acquired conditions.