Both the House-passed American Health Care Act (AHCA) and the Better Care Reconciliation Act of 2017 (BCRA) released by Senate leadership in draft form on June 22 propose major changes to Medicaid’s financing structure. These include elimination of enhanced federal funding for Medicaid expansion adults, and caps on federal funding for nearly all Medicaid beneficiaries and services. The Congressional Budget Office (CBO) has estimated that the AHCA would reduce federal Medicaid expenditures by $834 billion between federal fiscal year (FY) 2017 and FY 2026, and that the BCRA draft would result in a $772 billion reduction in federal Medicaid spending. While important for evaluating the overall size of the Medicaid cuts and the likely impact on coverage and the federal budget, the CBO estimate is not designed to provide state-specific information. To provide states and other stakeholders with information on the potential impacts of the capped funding and expansion changes contemplated in the AHCA and the BCRA, Manatt’s Medicaid Financing Model estimates the state-by-state impact of these provisions, taking into account that states may respond to the proposed law in a number of different ways.

With regard to BCRA in particular, Manatt has produced state-level estimates that are available through the Robert Wood Johnson Foundation State Network website. Key findings include:

  • Under any scenario, the Senate bill imposes substantial cuts on states that grow markedly over time. All states would be subject to the bill’s per capita cap, which would limit the amount of federal funding available to states. Among the 31 states and D.C. that have expanded Medicaid, the federal losses would be greater, as the bill phases down and ultimately eliminates enhanced federal funding for this population.
  • Some states could lose more than a third of their federal Medicaid funding. On average, to maintain expansion coverage, states would be required to increase state spending by 10.7%, but some states would need to increase their own spending by 20% or more to maintain expansion. If states instead drop their expansion coverage, estimated cuts would reach 30% or more of all federal Medicaid spending in some states.
  • Depending on state responses to reduced federal funding, coverage impacts could be substantial. If states do not replace lost federal funds with state funds to maintain expansion, more than 11 million people could lose coverage starting in 2021, accounting for 21% of Medicaid beneficiaries in expansion states. In some states, more than 30% of all Medicaid beneficiaries could lose coverage.
  • The per capita cap is a fundamental change in Medicaid financing. BCRA would eliminate the federal government’s guarantee to share the cost of all qualifying Medicaid expenditures. Unless states offset all of the federal cuts with an increase in spending from their own resources, they will need to reduce reimbursement rates, cut benefits, increase cost sharing or use other strategies to keep their spending below the cap.
  • BCRA Medicaid cuts increase markedly in the later years of CBO’s 10-year budget scoring window. Federal funding reductions would grow over time under the BCRA as the per capita cap switches from using a medical inflation trend rate through FY 2024 to a general inflation rate as of FY 2025. Cuts would also grow as enhanced federal funding for expansion adult coverage phases down from 2021 to 2023 and is eliminated as of 2024.
  • States—rather than the federal government—bear the risk if future spending pressures lead growth to exceed the trend rates that determine the size of per capita cap cuts. To date, the risk of higher-than-expected spending has been split between states and the federal government. Under a per capita cap, however, states would bear the full risk for any spending in excess of the allowable trend rates (tied to medical inflation or general inflation), which are themselves volatile and difficult to predict.

Although not explicitly included in Manatt’s state-level modeling, another notable feature of the BCRA’s per capita cap is that it allows the federal government to raise caps for the lowest-spending states by lowering caps for the highest-spending states, with a requirement that the adjustment not result in a net increase in federal spending. This redistribution provision likely was added to the Senate bill to mitigate the concern among traditionally low-spending states that their spending levels are “baked” into the formula for future Medicaid spending under a per capita cap. However, Manatt’s preliminary analysis indicates that this new provision may not work as intended and, in fact, could harm some of the states it is designed to help, hurt states with higher healthcare costs or that serve a higher proportion of people with significant healthcare needs (e.g., a state with an older population), and create even more uncertainty for states.