President Obama’s Affordable Care Act (ACA) applies to about 11.4 million recipients currently but makes little difference to those who get their health insurance through their employer. It also doesn’t mean a lot for many of the 55 million retirees who get their insurance through Medicare.
What matters is that if lawmakers fail to adequately replace the ACA, the health insurance market could collapse, leaving millions struggling to face increasingly high premiums. House Republicans have proposed sweeping changes to both Medicaid and Medicare, which, if approved, could directly affect 125 million people.
While President Trump vowed he would not change Medicare during his campaign, Tom Price, in his new role as HHS Secretary, and House Speaker Paul Ryan, R-Wis., have a different agenda. Their view is that repealing Obamacare is only the first step in getting federal spending under control by scaling back entitlement programs like Medicare and Medicaid.
As a member of Congress, Price was insistent that this year’s agenda would include not just Obamacare but Medicare and Medicaid reforms. Privatizing the Medicare program for seniors and the disabled, and turning Medicaid, the program for the poor, back to the states are Price’s top suggestions to get control of unrestrained health spending. Opponents worry that both changes instead shift the financial burden of health care from the federal government to the states and individuals.
In order to get House and Senate approval of repeal and replace measures, lawmakers have been forced to make the moves in separate parts. “There are three phases of this plan,” Price told reporters recently. The House bill is the first step. It would repeal taxes on wealthy Americans, do away with a tax penalty on those who fail to obtain insurance, and adjust the rules governing insurance premiums so, in general, younger, healthy people pay less while older, sicker people pay more. The measure also makes big changes to Medicaid, beginning in 2020. And it adjusts the tax credits that people can use to buy health insurance on the individual market.
Regulatory adjustments are Phase 2 of the White House plan and Price as HHS Secretary will be responsible for implementing those.
Phase 3 involves going back to Congress with bills that let insurance companies sell policies across state lines or allow the government, and Medicare in particular, to use its purchasing power to negotiate lower drug prices. But lawmakers will have to overcome the strong opposition from lobbying groups with clout in almost every congressional district, like the powerful pharmaceutical lobby, to get that purchasing power.
What Is Driving the Push for Overhauling Medicare and Medicaid?
Medicare, which covers roughly 55 million elderly and disabled Americans, and Medicaid, which covers more than 77 million people with low incomes, are among the biggest items in the federal budget, together costing an estimated $1 trillion in 2016, according to the Congressional Budget Office.
Both programs are expecting to keep growing, gobbling up more and more of the federal budget. According to the budget office, over the next 30 years, the percentage of federal spending claimed by these two health programs is expected to rise from just over 6 percent to more than 10 percent. Ryan has argued for years that reforming the two programs will preserve them for the future.
Under Price’s vision, both programs would cease to be entitlements that require them to provide coverage to every person who qualifies. Instead, he and fellow House Republicans led by
Speaker Ryan, want to convert Medicaid into block grants to states — which would give them more latitude from federal requirements about eligibility rules and the medical services that must be covered for low-income Americans. His plan would also require “able-bodied” applicants to meet work requirements to receive health-care benefits — an idea that the Obama administration consistently rejected.
Why Seniors Should Care About Medicaid
Under the proposed version which Price has supported, states would have flexibility in modifying their Medicaid payments based on a per capita funding formula. But Republican governors so far are mixed on the idea.
Some support it because the program would generally relieve states from federal rules that govern who and what to cover in Medicaid, in exchange for accepting limited funding. But advocates for the poor say it would lead to fewer people getting fewer services. Governors could absorb the lost dollars by severely scaling back the programs offered.
Other Republican governors are worried because, under the House plan, the federal contribution is set to increase more slowly than predicted inflation in health care, which means states may face the added financial burden. It could also lead to deep cuts for those who use the program. The nonpartisan Congressional Budget Office has estimated that at least 14 million people would soon lose coverage in the short run if Congress revokes the Medicaid expansion that has occurred under the ACA.
Under the Republicans plan, the cap on federal spending would force states, and in particular, nursing homes, hospitals and others to make up any shortfall over time. Right now, one in every two people over age 65 will have some sort of stay in a nursing home and about 10 percent stay longer than five years.
If states can’t make up for losses in federal dollars, it could potentially increase the needs of folks depending on Medicaid for nursing home care and the pressure will increase on their families. Loss of Medicaid funding could also prevent people from living in their homes longer, where it costs considerably less than living in nursing facilities. If people try staying at home without the in-home services they normally have, that inevitably will end up costing more in the long run. And those costs aren’t cheap.
The proposed Medicaid changes could also make it more difficult for nursing homes to attract and keep staff at their facilities, where about 70 percent of costs go to pay personnel.
In addition, for the roughly 7 million poor elderly folks receiving Medicaid, their premiums, deductibles, co-payments and other out-of-pocket costs associated with Medicare are also covered under Medicaid. That too would change under the proposed changes.
What About the Medicare Proposals?
Price and Ryan both are pushing the concept of “premium support” which would give beneficiaries a set amount of money to spend on the health plan of their choice. This would switch things from a “defined benefit” to a “defined contribution.” With that, the government would give senior citizens or disabled Americans financial help to buy private insurance policies.
This idea, developed in the 1990s, was originally geared to using competition to slow the growth of Medicare spending. But the latest versions of the Medicare proposal would increase contributions intended to pay for insurance more slowly than the expected rate of health inflation.
Right now, the federal government says you pay a set share of these costs through Medicare premiums, deductibles and co-pays and beneficiaries get government funding to cover specific benefits. Under the premium support idea, Medicare would instead pay a specific amount of money, without the guaranteed benefits or defined set of benefits.
Repealing Obamacare would also hurt Medicare in two other ways that are vital to seniors. Changes made to Medicare under the Affordable Care Act law in 2010 resulted in extending the life of the Medicare Trust Fund, which makes up the difference when payroll taxes fail to cover the full cost of the program.
Repealing the taxes in the ACA will result in draining the trust fund by four years, forcing earlier changes to the program like cuts or a tax increase. While they don’t say it directly, some Republicans are counting on this depletion of the trust fund, observers speculate, as a justification for cutting or privatizing Medicare down the road.
In addition, repealing Obamacare would allow companies to charge older people a lot more money. The ACA allowed insurers to charge older customers more than younger healthier folks, but limited that amount to only three times as much as they charge younger people. The Republican bill allows insurers to charge older people five times as much.
[Contributing to this story were the Washington Post, Politico, CNN/MONEY, Kaiser Health News and National Public Radio.]
Alan Schlein runs DeadlineOnline.com, an internet training and consulting firm. He is the author of the bestselling “Find It Online” books.