No State Wins Under Cassidy-Graham, Despite Its Funding Redistribution

The Cassidy-Graham bill to repeal the Affordable Care (ACA) would eliminate the ACA’s Medicaid expansion and marketplace subsidies, replacing them with a temporary block grant to states. The block grant would not only cut total federal funding for coverage but also drastically redistribute funds across states. States that made the most progress in boosting coverage under the ACA — especially due to the Medicaid expansion — would lose disproportionately. But even states that get a short-term funding boost would eventually see funding cuts, and all states would suffer due to other aspects of the bill, including its Medicaid per capita cap, its removal of protections for people with pre-existing conditions, and the insurance market uncertainty the bill would cause. Ultimately, no state would win under Cassidy-Graham.

• All states would see deep funding cuts when the block grant disappears after 2026. Cassidy-Graham would eliminate its block grant, which would prove an inadequate replacement for funding Medicaid expansion and marketplace subsidies over the next decade, after 2026. The giant cliff in 2027, when funding ends abruptly, would leave all states — regardless of how they fare under the block grant — facing a huge federal funding loss compared to current law. While the bill’s sponsors claim that the President and Congress would extend the grant in the future, doing so would likely require hundreds of billions in offsetting measures to pay for it that could make the extension difficult or bring deep cuts to other priorities.
• Apart from the block grant, all states would experience deep and growing cuts to their Medicaid programs for children and families, pregnant women, seniors, and people with disabilities. Like prior Republican repeal bills, Cassidy-Graham would radically restructure financing for all of Medicaid. Starting in 2020, Cassidy-Graham would replace the existing federal-state financial partnership, under which the federal government pays a fixed percentage of a state’s Medicaid costs, with capped federal Medicaid funding at a set amount per beneficiary, irrespective of states’ actual costs. Cassidy-Graham would annually adjust these cap amounts at a rate that’s lower than projected growth in state Medicaid costs per beneficiary, forcing every state to make large and growing Medicaid cuts over time. The federal cut to Medicaid spending would total $1.1 trillion between 2020 and 2036 (and that doesn’t count the end of the ACA’s Medicaid expansion), the independent consulting firm Avalere estimated.

  Moreover, under the per capita cap, states would have to cover 100 percent of unanticipated cost increases for Medicaid that are driven by, for instance, new breakthrough treatments or prescription drug price spikes. They’d also have to cover the cost increases that the cap doesn’t account for, like the aging of the population as the baby boom generation gets older and requires more health care and long-term services and supports.

• Most states that appear to “win” in the near term only do so because the bill assumes they won’t expand Medicaid. Under current law, non-expansion states have the option to expand Medicaid at any time, at which point they would receive billions more in federal funding to cover millions more people (and that additional federal funding wouldn’t come at other states’ expense). Estimates showing that states like Kansas, Maine, and Tennessee would get more funding from the Cassidy-Graham block grant through 2026 assume these states will never expand Medicaid, despite bipartisan efforts in those states to do so over the last several years. A comparison between non-expansion states’ funding levels under Cassidy-Graham and current law, assuming they expanded Medicaid now or in the future, would almost certainly show most or all losing federal dollars due to the block grant.
• In every state, the bill would raise premiums, increase uncertainty, and risk market chaos. The bill would increase premiums in the near term first by repealing the individual mandate that people must secure health coverage or pay a penalty, which the Congressional Budget Office has estimated would raise premiums 20 percent to cover the higher costs driven by a less healthy risk pool. But on top of that, Cassidy-Graham would eliminate the marketplace subsidies. That means 50 states and Washington, D.C. would be forced to establish their own individual market subsidy systems by January 1, 2020 (assuming they want to do so), something they might or might not find feasible. It would also create enormous uncertainty for insurers, leading them to raise premiums to protect against the risk of big losses, or simply pull out of markets altogether.
• With a block grant, states couldn’t buy the same coverage that was possible under the ACA — even if they wanted to. There’s no requirement that states use their block grant funds, which they would receive to replace the ACA’s coverage provisions, to actually provide coverage. Indeed, states could use it to replace existing health care spending, such as state funding for behavioral health care. But even states that wanted to spend the money on coverage likely couldn’t do so as efficiently as the ACA does. Under the block grant, as noted, states’ federal funding for coverage would be capped, meaning they would bear the full cost of any increases in the number of people needing coverage — for example, during a recession — and the full cost of premium spikes, public health emergencies, or other unexpected costs.

  In a letter this week, the National Association of Medicaid Directors explained that: “Taken together, the per-capita caps and the envisioned block grant would constitute the largest intergovernmental transfer of financial risk from the federal government to the states in our country’s history.” Most states wouldn’t be able or willing to absorb this much risk, especially with block grant funding ending after 2026. That means expansion states most likely could not continue to offer Medicaid coverage to all low-income adults who need it, and also that non-expansion states could not continue to offer individual market tax credits that adjust in size as needed to shield individual market consumers from premium increases.

• In all states, protections for people with pre-existing conditions could disappear in the individual market. All states could waive the ACA protections that prohibit insurers from charging people with pre-existing conditions more and that require plans to offer such “essential health benefits” as maternity care and mental health treatment. Among the states that we estimate would get more funding under the Cassidy-Graham block grant in 2026, not one prohibited insurers in the individual market from charging higher premiums based on pre-existing conditions before the ACA. Facing the risk of major premium increases, these states would face significant pressure to return to their pre-ACA rules. As a result, even in states that receive additional funding in the near term, the basic outcome for many older people and people with pre-existing conditions would remain the same: Cassidy-Graham would put affordable coverage out of reach.