Senate Bill Would Devastate Health Care in Rural America

The Senate health bill — the Better Care Reconciliation Act (BCRA) — would, like the House-passed bill, effectively end the Affordable Care Act’s (ACA) Medicaid expansion, radically restructure virtually the entire Medicaid program through a per capita cap, and replace the ACA’s premium tax credit with a much smaller tax credit that would make coverage unaffordable for millions of people looking to purchase coverage in the individual market.  Taken together, these and other provisions would raise the number of uninsured by 22 million by 2026, according to the Congressional Budget Office (CBO).^[1]

The Senate and House bills would be particularly harmful to rural America.The Senate and House bills would be particularly harmful to rural America.  Medicaid has long played a larger role in providing health coverage and paying for care in rural areas than in urban areas.  Medicaid’s importance to rural America has only grown under the ACA.  Nearly 1.7 million rural Americans have newly gained coverage through the Medicaid expansion.  In at least eight expansion states, more than one-third of expansion enrollees live in rural areas: Alaska, Arkansas, Iowa, Kentucky, Montana, New Hampshire, New Mexico, and West Virginia.  Moreover, in expansion states overall, rural residents make up a larger share of expansion enrollees than they do of these states’ combined population.  The Medicaid expansion has become a critical financial lifeline sustaining rural hospitals as well.

Rural areas have also greatly benefited from the ACA’s premium tax credits and cost-sharing subsidies and would be disproportionately harmed by the Senate bill’s smaller credits and elimination of help with deductibles and copayments.  More than 1.6 million enrollees — or nearly 1 in 5 marketplace enrollees in the 39 states that use HealthCare.gov — live in rural areas.  The Senate bill would increase out-of-pocket costs for most consumers around the country, but especially for older people and people in high-cost states and areas.  That means the bill would disproportionately harm people in rural areas, where residents tend to be older on average and where health care costs and premiums tend to be higher.  And many rural residents could face prohibitive premiums and out-of-pocket spending because the Senate plan would allow states to waive protections that enable people with pre-existing conditions to get the coverage and services they need.

Medicaid — and Medicaid Expansion’s — Critical Role in Rural America

Medicaid has long played an essential role in delivering health care in rural America.  In 2010, prior to the ACA, 18 percent of rural residents nationwide were enrolled in Medicaid, compared to 15 percent of urban residents.  This reflected various factors unique to rural America, including its lower access to job-based coverage, greater prevalence of self-employed jobs (such as farming and contracting), lower incomes, and greater share of people with a disability.^[2]  In a 2007 survey, for example, two-thirds of farmers cited the cost of health insurance as the biggest threat to their farms.^[3]

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Like the rest of the country, rural America has enjoyed large gains in health coverage since the ACA’s major coverage expansions took effect in 2014.  The uninsured rate among rural non-elderly individuals plummeted by nearly one-third between 2013 and 2015, from 17 percent to 12 percent, according to a Kaiser Family Foundation analysis.  Over the same period, the Urban Institute’s Health Reform Monitoring Survey found that rural individuals’ insured rate rose by 7.2 percentage points, compared to 6.3 percentage points for individuals in urban areas.^[4] 

Coverage gains occurred in both Medicaid and private insurance, but states that expanded Medicaid have made larger gains in rural health coverage: the uninsured rate among rural, non-elderly individuals dropped much more in states that expanded Medicaid (from 16 percent in 2013 to 9 percent in 2015) than in non-expansion states (from 19 percent to 15 percent).^[5]  (See Figure 1.)

Medicaid also plays a larger role in providing health coverage to children in rural areas than urban areas: 45 percent of children in small towns and rural areas have Medicaid coverage, as compared to 38 percent in urban areas.  Medicaid is a big reason why the uninsured rate among children in rural areas fell from 9 percent in 2009 to 6 percent in 2015.^[6] 

Among non-elderly adults, 1.7 million of the more than 11 million people who have newly gained Medicaid coverage through the ACA expansion live in rural America, according to CBPP estimates (see Appendix Table 1).  The expansion population is more rural than the population as a whole: rural residents make up 12 percent of the population of expansion states but 14 percent of expansion enrollees in these states.  In at least eight expansion states, more than one-third of expansion enrollees live in rural areas: Alaska, Arkansas, Iowa, Kentucky, Montana, New Hampshire, New Mexico, and West Virginia. 

People enrolled in coverage through the Medicaid expansion are receiving needed primary care and critical health services, research shows.  For example, a survey of low-income, non-elderly adults in Arkansas and Kentucky — states in which half of expansion enrollees live in rural areas — found a 29 percent increase in the share of people with a personal physician, a 24 percent increase in the share of people who got a check-up in the past year, and a 42 percent increase in the share of people who say they are in “excellent” health.^[7]  In Kentucky, state data show tens of thousands of low-income individuals have received cholesterol, diabetes, and cancer screenings, and preventive dental services.^[8]  Medicaid expansion has also helped millions of people get treatment for opioid addiction and other substance use disorders.^[9]

The Medicaid expansion has been a lifeline for rural areas in other ways.  The ACA coverage expansions, especially the Medicaid expansion, have substantially reduced hospitals’ uncompensated care costs, which fell by about half as a share of hospital operating budgets between 2013 and 2015 in expansion states.^[10]  Reductions in uncompensated care and increases in the share of patients covered by Medicaid have been especially important for rural hospitals.  For example:

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• Both urban and rural hospitals in expansion states saw improvements in operating margins after the expansion.  But these gains were larger for rural hospitals (a 4 percentage-point increase) than in urban areas (a 1 percentage-point increase).^[11]
• Since 2013, hospitals’ uncompensated care costs have fallen by 1.7 percentage points more, and their Medicaid revenue as a share of total revenue has risen by 2.9 percentage points more, in expansion states than in non-expansion states.^[12]  (See Figure 2.)
• Most of the 78 rural hospitals that have closed since 2010 are in southern states that haven’t expanded Medicaid.^[13] 

Senate Cuts Would Undermine Entire Medicaid Program in Rural America

The Senate bill would roll back this progress in coverage and harm rural providers by effectively ending the Medicaid expansion.  Under the ACA, the federal government paid the entire cost of covering expansion enrollees from 2014 to 2016, and will pay no less than 90 percent of the costs in 2020 and thereafter.  Under the Senate bill, the federal government would pay 85 percent of the cost of expansion enrollees in 2021, 80 percent in 2022, 75 percent in 2023, and then only the regular federal Medicaid matching rate — on average, 57 percent — in 2024 and each year thereafter.  This means that in 2024, the Medicaid expansion would cost states between 2.8 and 5 times as much as under current law.^[14]

In nine states (Arizona, Arkansas, Illinois, Indiana, Michigan, Montana, New Hampshire, New Mexico, and Washington), these higher costs would automatically trigger immediate or eventual termination of the expansion, with no action by state policymakers necessary. Nearly 3 million people have coverage through the expansion in these states, including more than 600,000 people in rural areas.  Laws in these states either explicitly require the expansion to end if the federal matching rate falls or require the state to prevent an increase in state Medicaid costs.  practice, most or all of the other 23 states that have expanded Medicaid would also see their expansions end due to the size of the cost shift.

In addition, the Senate bill would radically restructure federal Medicaid financing by converting virtually the entire program for all states to a per capita cap.  (States would have the option to cover non-disabled, non-expansion enrollees through a block grant beginning in 2020.)  Under the cap, states would get less federal funding per beneficiary than under current law, with the cuts growing each year.  States would be responsible for 100 percent of any costs above the per capita cap, whether due to unanticipated health care cost growth or to demographic changes that a per capita cap wouldn’t account for.^[15]  To compensate for these cuts, states would have to raise taxes, cut other budget areas like education, or as is far likelier, cut Medicaid spending by cutting payments to providers or rolling back eligibility, with the cuts becoming increasingly severe over time.

Overall, these changes would cut federal Medicaid spending by $772 billion over ten years — a 25 percent cut by 2026 — and cut Medicaid enrollment by 15 million people by 2026, CBO estimates.^[16]  CBO also expects that after 2026, the reductions in Medicaid enrollment, relative to current law, would continue to grow.^[17] 

Senate Bill’s Tax Credits Would Not Meet Rural Residents’ Needs

The Senate Republican bill’s damage to rural America would extend beyond people who are or may become eligible for Medicaid.  The bill’s cuts to tax credits for the purchase of individual market coverage would raise premiums for many people in rural areas, especially for older people and people living in high-cost states.  Many of the 1.6 million current rural marketplace enrollees could find themselves unable to afford their high insurance premiums.^[18]

Today, premium tax credits are based on the value of “silver plan” coverage: a plan that covers, on average, 70 percent of health costs.  Under the Senate bill, tax credits would instead be based on the cost of a plan that covers only 58 percent of costs — roughly equivalent to current “bronze plan” coverage.  Since the tax credits would be smaller, most consumers who want to maintain their current level of coverage would pay more out-of-pocket in premiums.  People who couldn’t afford to pay more in premiums and enrolled in the bronze plan would pay much higher deductibles: in 2016, the median deductible for bronze plans was about twice as high as the median deductible for silver plans — $6,300 versus $3,000.  The reduction in the share of medical expenses paid by insurance and the increase in deductibles would cause many low-income people to forgo insurance altogether.  

The Senate bill would cut tax credits further for older consumers while increasing them for some younger consumers and, like the House bill, would allow insurance companies to charge older people up to five times more than younger people.  It also would eliminate tax credits entirely for people with incomes between 350 and 400 percent of the poverty line — about $44,000 to $50,000 for a single person.  These changes could have a substantial impact, separately and in combination.  For example, according to CBO, a 64-year-old with income at 375 percent of the federal poverty line would have to pay $13,700 more in premiums in 2026 for a silver plan because he would no longer be eligible for financial assistance.

Because rural states and areas tend to have older populations and higher health care costs, the Senate bill’s cuts would disproportionately affect them.  The cuts to premium tax credits would be higher in high-cost areas for two reasons.  First, the credits adjust for local premiums, so people losing eligibility for tax credits because they are between 350 and 400 percent of poverty would lose more in higher-cost areas.  Second, in states where health costs — and hence premiums — are high, the difference in premiums between more and less generous coverage is high as well.

As Table 1 shows, ten of the 11 states where low-income older people would face the steepest percentage increases in net premiums have significant rural populations.^[19] (Also see Appendix Table 2.)  For example, in Wyoming, where rural residents constitute a higher share of marketplace enrollees than in any other state (78 percent), a 60-year-old enrollee at 150 percent of the poverty line ($18,890 for the 2020 enrollment year) would need to pay $2,600 more to keep his current coverage, quadrupling his premiums compared to ACA coverage.  In Maine, a 60-year-old at 150 percent of the poverty line would pay premiums of $791 per year for a silver benchmark plan after the ACA’s tax credit.  Under the Senate bill, his premiums would more than triple. 

Even within a given state, rural consumers would often fare worse than urban ones, county-level data from the Kaiser Family Foundation show.  In urban Memphis (Shelby County), Tennessee, a 40-year-old earning $30,000 would get a $2,640 tax credit under the Senate plan, or $770 less than under current law.  But in the rural counties to the north, like Gibson or Madison County, the Senate credit of $4,310 would be nearly $2,000 less than the ACA would provide.^[20]

Finally, like the House bill, the Senate bill would eliminate the ACA’s cost-sharing subsidies, which help lower deductibles and copayments for low-income marketplace enrollees, and would not replace them.  This means the typical deductible would jump from about $500 to $6,300 for people with incomes between 150 percent and 200 percent of the poverty line.^[21]  

Senate Bill Would Fuel Market Instability and Lead to Higher Premiums and Benefit Reductions

CBO predicts that “a small fraction of the population resides in areas in which — because of this legislation [the BCRA], for at least for some of the years after 2019 — no insurers would participate in the nongroup market or insurance would be offered only with very high premiums.”  CBO posits that some areas may have no insurer participation in part because the large cuts to subsidies would shrink the demand for insurance so much that “it would probably not be profitable for insurers to bear the fixed costs of operating in some markets.”  While CBO doesn’t predict which areas will be affected, rural areas would likely experience these consequences, since weak competition among insurers and providers and low population density already result in high fixed costs relative to profit opportunities and often make these areas unattractive to insurers. 

In response to this dilemma — and the premium increases that CBO projects under the Senate bill in 2018 and 2019 — some states would seek waivers of the ACA’s market regulations.  CBO estimates that states with about half of the nation’s population would take up “section 1332” waivers that the Senate bill would dramatically expand, primarily to eliminate or weaken the ACA requirement that insurers cover essential health benefits.  As CBO’s analysis of the House-passed bill explained, people living in such states could experience “substantial increases in out-of-pocket spending on health care or would choose to forgo the services” entirely.^[22]

Excluded services could include maternity care, mental health and substance use disorder treatment, rehabilitative and habilitative services, or pediatric dental care.  CBO notes that out-of-pocket costs associated with maternity care and mental health and substance abuse services could increase “by thousands of dollars” and that annual and lifetime limits on benefits would also no longer apply.  Those with the greatest health care needs would see their out-of-pocket payments rise the most in states that eliminated or substantially altered the essential health benefits requirement.

Because rural populations tend to be older and sicker than urban populations and have significant needs for mental health and substance use disorder treatment, waivers of certain essential benefits could have an especially large impact on them.  For example, rural suicide rates are nearly double urban rates and families in rural areas experience considerable stress due to high poverty and unemployment.^[23]  In addition, the opioid epidemic has hit rural areas hard and reducing treatment options would be particularly consequential in those parts of the country.^[24]  For these reasons, rural residents likely benefit disproportionately from the ACA’s health benefit protections — and could be disproportionately harmed by the loss of those protections, as well as by the other major provisions of the Senate bill.