Republicans Eye Medicaid Cuts to Help Finance Their New Health Plan

Republicans Eye Medicaid Cuts to Help Finance Their New Health Plan


Speaker Paul Ryan (R-WI) said on Thursday that House GOP leaders and strategists were closing in on a plan to repeal and partially replace the Affordable Care Act with a series of dramatic changes, including revamping and reducing the Medicaid program for low-income Americans, a refundable tax credit to help consumers cover premium costs, and other changes to encourage competition among insurers and bring down costs.

Ryan and other leaders met this morning with rank-and-file Republicans to outline the contours of an emerging plan for using a special expedited budget process called reconciliation to formally repeal Obamacare – effective at some future date --- and replacing portions of the law with the Republicans’ more market-oriented provisions. Tom Price, the new Health and Human Services Secretary, attended a portion of the session.

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Although Ryan offered only a few clues as to how House Republicans would rewrite the Obamacare legislation, media reports and some health care lobbyists say it will begin with the complete repeal of federal mandates requiring many businesses to provide health insurance to workers and requiring all uninsured Americans to purchase coverage or pay a penalty.

The measure would eliminate all of the Obamacare taxes on insurers, drug companies, medical device manufacturers and other businesses, as well as on upper-income people. Those taxes are projected to generate more than $1 trillion over the coming decade and were crucial to underwriting the cost of Obamacare’s insurance exchanges and subsidies for lower-income Americans.

Repealing all those taxes is a major point of contention between House and Senate Republicans because many argue that the revenues will be needed to help finance the cost of the GOP replacement plan. However, Ryan, and Ways and Means Committee Chair Kevin Brady (R-TX) believe they can offset the lost revenues and pay for their initiative by capping the federal tax exclusion on large employer-based insurance plans and extracting huge savings from Medicaid.

Premiums paid for employer-sponsored health insurance are excluded from taxable income, which reduces the amount workers owe as income and payroll taxes by roughly $250 billion annually. That is the largest tax break in the federal tax code and has long been eyed by both parties as a revenue source for other programs.

Related: Are Republicans Losing Momentum on Obamacare Repeal?

The emerging GOP plan – similar to one Ryan promoted last summer – offers a handful of incentives for consumers to purchase health insurance on their own. Those include tax-exempt health savings accounts to help cover medical costs and so-called refundable federal tax credits, paid in advance, that would go to most Americans, including people with low or no taxable income. 

Currently, low-income people who qualify for premium subsidies under Obamacare must file for the credits on their federal tax returns – meaning that they don’t receive the subsidy until after they have purchased their health care plans.

“They call them refundable tax credits, but they are subsidies, and they are subsidies that say ‘we will pay some people some money if you do what the government makes you do,’” Ryan said today. “That is not a tax credit, that is not freedom.”

The House GOP approach would preserve a number of features of the existing Obamacare law, including preventing insurers from discriminating against applicants with pre-existing medical problems and allowing children to remain on their parents’ private health care plans until they turn 26. And it would experiment with federally financed, state-run “high-risk pools” that provide coverage to older and sicker Americans who would have trouble finding affordable health insurance in the private market.

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The House proposal will undergo additional drafting during the upcoming Presidents’ Day recess, and Ryan and others are anxiously awaiting analysis of their proposals from the Congressional Budget Office (CBO) and the Joint Committee on Taxation. Those two agencies will be responsible for determining, among other things, whether the GOP approach would eliminate coverage for millions of Americans, as many critics predict, and whether it will add to the deficit.

One of the most controversial issues is how the Republicans will treat Medicaid as part of their overall effort to replace Obamacare. While Medicaid currently guarantees health care coverage for poor and disabled people, Ryan and others are promoting a plan to convert the half-century old entitlement to block grants to the states, placing a fixed cap on how much to spend and giving states more latitude to tighten eligibility requirements.

That move alone would save the government hundreds of billions of dollars in the coming years while eliminating many of their coverage. The joint federal-state Medicaid program currently covers nearly 72 million Americans and spent approximately $545 billion during fiscal 2016, or $7,569 per person.

Related: The New Obamacare Rules Help Insurers But Not Consumers

But many Senate Republicans and some more moderate House Republicans oppose that approach to transforming Medicaid. Some are advancing an alternative approach that would base Medicaid funding on the number of people who qualify for it rather than on a fixed cap.

Ryan also hinted today that they are working out a plan that would allow the 31 states and the District of Columbia that opted for expanded Medicaid coverage under Obamacare to preserve the coverage at least temporarily. At the same time, the plan would provide additional health insurance funding to the 19 other states – mostly controlled by Republicans—that refused to take part in the Medicaid expansion.

Lawmakers from states that shunned the expanded Medicaid program argue that they are entitled to additional funding if the other states continue to receive the expanded Medicaid funding. Ryan told reporters today that he was looking for a compromise so that “we do it in a way that doesn’t disadvantage either side.”