House “repeal and replace” legislation gets Medicaid right

I found this analysis of the proposed House Obamacare repeal and replace legislation to be a useful starting point in understanding the proposal. The author is “Asclepius,” a sensible sounding guy.

His verdict: The proposal contains sound and much needed Medicaid reforms; sensible but very modest insurance market reforms; and the entirely misguided creation of new subsidies, in the form of tax credits, for participants in the ACA exchanges.

In this post, I’ll focus on the good of the proposed legislation — the Medicaid reforms. Avik Roy has this to say about them:

The [proposed legislation] takes important steps to strengthen the Medicaid program by converting its funding into a per-capita allotment that would give states the flexibility they need to modernize the program. It’s an idea that was first proposed by Bill Clinton in 1995 as an alternative to block grants, and one that could give Medicaid enrollees the access to physicians and specialists that they struggle to have today. . . .

It. . .preserv[es] the 90 percent federal match rate past 2020 for people who had signed up for the expansion prior to that year. That helps expansion states cover those individuals without significant disruptions in funding.

The first feature would give states more discretion over eligibility requirements and provide them more flexibility to target funds at the neediest individuals. The second feature should be viewed as a clever compromise intended to bridge the divide on the Medicaid expansion between hard-core conservative Republicans and more moderate ones.

As “Asclepius” explains, conservatives opposed the Medicaid expansion because of its cost, because they believe it does little to expand access to care, and because they represent states that have not received additional funds from it. More moderate Republicans like the expansion because they represent states that have expanded Medicaid. These states have millions of residents that would lose health coverage if the expansion were rolled back.

The proposed legislation tries to bridge this gap:

By grandfathering the Medicaid expansion at the level of individual eligibility, the House GOP proposal transcends the stark dichotomy between expansion and non-expansion states and prevents sudden disruption to state budgets. But it also provides a glide-path towards a system of per capita caps at an intermediate level, as individuals cycle out of the program’s eligibility through employment and cohort replacement.

This is a very clever solution to a very knotty political problem, which also puts policy on a sounder course. It doesn’t completely lock future Congresses into spending specific amounts of money on the program, but allows states to better-target their funds, and begins to establish a more equitable distribution of resources across the country.

Given the cost of the Medicaid expansion and legitimate doubts as to whether it has improved health care outcomes, a good policy case can be made for simply repealing it. However, after the Supreme Court ruled that Congress could not force states to accept it, more than half of them opted for the expansion.

Moreover, it is the biggest driver of the increase in the number of people who have health insurance as a result of Obamacare, making repeal politically perilous. Repeal would also be inconsistent with some of President Trump’s pronouncements on health insurance.

Only a week ago, Trump told Congress, “we should give our great state governors the resources and flexibility they need with Medicaid to make sure no one is left out.” The proposed House bill attempts to do just that.

Whatever defects the House proposal contains, its Medicaid provisions should be applauded.