The Economist explains
How Republicans want to change Medicaid

This is the first of a two-part explainer on Republican plans to overhaul Obamacare. Tomorrow, we will examine proposals for the individual health insurance market

Explaining the world, daily
The Economist explains

ONE of the crucial ingredients of the Affordable Care Act, better known as Obamacare, was an expansion of Medicaid, health insurance for the poor. In compliant states, Obamacare expanded eligibility for the programme to all those earning less than 138% of the federal poverty line, or $16,400 for an individual in 2017. The American Health Care Act (AHCA), unveiled on March 6th by Republicans in the House of Representatives, would overhaul this reform. How and why do Republicans want to change Medicaid?

Obamacare has boosted Medicaid’s rolls by 12m. This accounts for nearly three-fifths of the improvement in health-insurance coverage since 2010. Then, 16% of Americans went uninsured; today, only 8.8% do. But Republicans say that Medicaid coverage is barely worth having. Amazingly, research suggests that it does not much improve the physical health of enrollees (though it does help them financially and reduce depression). Critics blame the programme’s structure for its shortcomings. The federal government and states simply divvy up the bill for enrollees’ medical expenses between them. This reduces states’ incentives to control costs. In any case, the best way they can currently keep bills down is by cutting payments to doctors, causing many to stop accepting Medicaid patients.

Before Obamacare the federal government paid, on average, 57% of Medicaid’s bills. Washington fully funded the early years of Medicaid expansion; its contribution is set to fall to 90% by 2020. The AHCA would gradually roll back this more generous funding. From 2020, any new enrollees eligible only because of Obamacare’s expansion of the programme would cost states as much as conventional Medicaid patients do. Because Medicaid has a high turnover, the number of people attracting the 90% match rate would dwindle over time. The bill also overhauls how the federal government funds the entire programme. It would cap the total amount of funding states receive per person, and link the cap to medical inflation.

The reform would encourage states to experiment with ways to make Medicaid better and more cost-effective. But critics say the real aim is to whittle down the programme. In most states that did not go along with the Obamacare expansion, Medicaid does not provide much of a safety net. In only one, Wisconsin, are childless adults eligible, according to the Kaiser Family Foundation, a think-tank. In Alabama and Texas, parents cease to qualify at just 18% of the poverty line (an annual income of about $3,600 for a family of three). The left worries that states like these have no interest in experimenting with the best ways to help the poor. Republicans respond that it should be up to the states, not the federal government, to decide what to do. The savings in the federal budget from reducing Medicaid funding will help fund about $600bn of cuts to federal taxes over a decade. The question is: will states plug the gap?

Reuse this contentThe Trust Project
The Economist Today

Hand-picked stories, in your inbox

A daily email with the best of our journalism