Are GOP's proposed Medicaid cuts paltry? Not if you have to look a patient in the eye

The congressional Republican proposal to establish a budget cap on federal Medicaid spending has raised alarms among healthcare industry leaders, state policymakers and patient advocacy groups.

The American Medical Association came out firmly against Medicaid spending caps Tuesday, with one AMA board member calling the GOP proposal "disastrous for patients."

But last week, prominent conservative health policy expert Dr. Avik Roy downplayed the impact of the per capita limits on Medicaid spending contained in the House Republican bill to repeal and replace the Affordable Care Act and likely to be included in the Senate repeal bill.

That may be a sign that supporters of the Republican repeal-and-replace drive are nervous about the growing political backlash to cutting Medicaid.

Roy, the opinion editor at Forbes, argued in a column that the growth cap would result in a "paltry" $107 billion, or 1.6%, cut from 2017 to 2026 in Medicaid's pre-ACA federal spending.

In making his case, he took a shot at a recent Modern Healthcare article about Medicaid managed-care insurers fearing financial losses under the bill's spending limit. That provision would cap the annual growth of federal payments to each state at the medical component of the Consumer Price Index for most beneficiaries, and at M-CPI plus 1 for the elderly and disabled. Payments would be based on each state's spending for fiscal 2016.

"I expect margin compression as states claw back rates in Medicaid to offset the funding pressure from the rollback in Medicaid funding and a move to per capita caps," said Leerink Partners analyst Ana Gupte.

Roy wrote that "the numbers these alarmists are using are factually wrong. Indeed, the per capita cap in the American Health Care Act may not end up saving any money."

That's hard to square with recent analyses of the House bill done by the CMS' Office of the Actuary and the Congressional Budget Office.

On Tuesday, CMS Actuary Paul Spitalnic projected that the House bill's per capita cap would reduce federal Medicaid spending by $64.9 billion over 10 years, out of a total of $383.2 billion in Medicaid cuts. Federal payments under the per capita caps would be about 0.5 percentage points per year lower than under current law.

While the CBO did not break out the dollar impact of the per capita cap, it projected that under the cap formula Medicaid payments to the states for most beneficiaries would lag behind actual Medicaid per capita costs by 0.7 percentage points—3.7% versus 4.4%. The CBO estimated the House bill's Medicaid provisions overall would reduce federal Medicaid spending by $834 billion over 10 years, or about 25%.

Meanwhile, Senate conservatives are pushing to peg per capita growth to the CPI, which the CBO projects will be 2.4%; that would reduce federal Medicaid spending much more steeply.

Experts say the House Republicans' proposed Medicaid growth cuts might look relatively innocuous at first, but that would change.

"By its very nature, a per capita cap tends to generate small cuts initially that get steadily larger over time," said Matt Fiedler, a budget expert at the Brookings Institution's Center for Health Policy, commenting on Roy's argument. "It's perfectly reasonable to be very concerned about a per capita cap even if the near-term budgetary impacts are small relative to the other very large Medicaid cuts included in the AHCA."

"States simply do not have the resources to make up even a small cut in federal support, and this is not a small cut," said Vernon Smith, a senior adviser at Health Management Associates who formerly served as Michigan's Medicaid director and budget director under Republican Gov. John Engler.

As the federal cap started to bite, states would have to boost their own Medicaid spending by 30% to 40% to maintain current benefits and payment rates, and "I cannot fathom that happening," he said. Barring that, states would have to slash eligibility, benefits and payment rates.

That scenario is giving state policymakers—including Republican governors such as Nevada's Brian Sandoval, Michigan's Rick Snyder and Ohio's John Kasich—nightmares. They and other governors and state lawmakers have signaled their opposition to the GOP's proposed Medicaid caps and rollbacks.

Smith said that while he respects Roy's Medicaid reform views, he sees the program differently based on his many years as a Medicaid and budget official. "Perhaps Mr. Roy hasn't had face-to-face discussions with people with disabilities who, with tears in their eyes, describe how budget-driven program restrictions threaten the care they depend on to live," Smith said.