Providers say proposed extra Medicaid funding for commercial plans may not work

There are numerous unanswered questions about a proposal aimed at getting the Republican Senate plan to repeal and replace the Affordable Care Act passed. GOP leaders are trying to sway moderates to support their bill by offering billions in new funding to shift Medicaid enrollees into commercial health plans.

Moderate GOP senators in Medicaid expansion states are worried the GOP bill, the Better Care Reconciliation Act, would phase low-income adults out of Medicaid and into private plans with unaffordable deductibles and coinsurance. So Senate leaders reportedly propose to spend as much as $200 billion through 2026 to help poor people, particularly in the 31 expansion states, pay those steep out-of-pocket costs in private plans.

But providers and policy experts fear there wouldn't be enough money available to offer low-income people coverage in commercial plans that are comparable to Medicaid's comprehensive benefits and just as affordable. In addition, they warn that some Medicaid beneficiaries are too sick to be adequately served by standard marketplace plans.

"To the extent they're talking about a wholesale move of beneficiaries into the private market, it will absolutely blow up the private marketplace and leave beneficiaries in terrible shape," said Sara Rosenbaum, a Medicaid expert at George Washington University. "It would be a catastrophe for private insurance and those who need it."

Details of the proposal, which CMS Administrator Seem Verma has been discussing with Republican senators in closed-door meetings, have not been released. It may be unveiled this week when Senate Majority Leader Mitch McConnell tries to win the votes of 50 or the 52 Republican senators to proceed with debate on repeal or repeal-and-replace legislation.

The proposed additional funding presumably would end in 2026, after which states would have to find ways to make the private coverage affordable for poor people or else see their uninsured rates soar. It's also not clear whether some of the extra money to supplement private coverage would come from Medicaid itself, which could raise legal issues about the use of federal Medicaid dollars.

"The challenge is whether the amount of money that they've allocated really is going to be enough to achieve something where you don't have people losing coverage or paying substantially more," said Chris Sloan, a senior manager with healthcare analytic consulting firm Avalere Health.

In addition, experts say if the provision succeeded in getting more low-income people to sign up for private plans, it would sharply increase costs to the federal government for premium tax credits and cost-sharing subsidies. That could jeopardize its passage on a straight party-line vote under Senate budget reconciliation rules, which require such bills to not raise federal deficits.

The proposal, dubbed the Medicaid wraparound, is similar to the model that Arkansas implemented in 2013 when it accepted the ACA's Medicaid expansion funding to enroll adults with incomes up to 138% of the federal poverty level into private plans offered on the ACA insurance exchange.

Under Arkansas' so-called private plan option, the federal government paid the state extra dollars to ensure that the private exchange plans provided the same benefits as Medicaid and limited enrollee cost-sharing to nominal amounts. That private-market approach enabled the state's then-Democratic governor to convince the Republican-led Legislature to approve the Medicaid expansion.

"It worked relatively well," Sloan said.

Sloan acknowledged, however, that the Arkansas model was made possible by the ACA's guarantee that the federal government would permanently pick up at least 90% of the cost of covering Medicaid expansion enrollees.

Another reason it has worked is because Arkansas carefully carved out the medically frail population from the private-plan option and kept them in standard Medicaid, Rosenbaum noted.

"The Arkansas option works OK for people who are young and healthy," Rosenbaum said. "The big costs are for people who are older, sicker, and disabled. Private plans just don't do what Medicaid does."

In addition, the Obama administration waived the standard requirement for approving state Medicaid waivers that the waiver model not cost the federal government more money.

Research has shown that it's more expensive to cover low-income people through commercial plans than through Medicaid, largely because Medicaid pays providers substantially lower rates.

In contrast to Arkansas' implementation of the private-plan option, under the Senate's BCRA bill, states would face the challenge of making private plans affordable to poor people while receiving what the Congressional Budget Office projects would be $756 billion less in federal Medicaid funding over 10 years. The cuts, which grow even steeper in the second 10 years, dwarf the extra funding Senate GOP leaders reportedly are proposing for covering low-income people.

"If you're still going to take more than $700 billion out of the Medicaid program, you still have significant problems," Sen. Susan Collins (R-Maine), a moderate opposed to the BCRA's Medicaid cuts, told the Wall Street Journal.

The Urban Institute estimated that without the proposed wraparound funding, only about 1.3 million out of the 13.3 million people covered under ACA's Medicaid expansion would enroll in private plans under the BCRA because of the premiums and cost-sharing requirements.

The Urban Institute also estimated that enrolling Medicaid expansion beneficiaries in commercial plans would hike federal costs by $76 billion in 2022. The higher price tag associated with the provision would sharply reduce the bill's federal budget savings. The CBO has not yet issued a score of the provision's cost impact.

The Urban Institute report concluded that the reported $200 billion in additional funding proposed by Senate GOP leaders would only be enough to cover little more than two years of higher costs associated with moving Medicaid expansion enrollees into marketplace plans.

"This new proposal not only will fail to restore the coverage lost in Medicaid, but it does so in a less efficient and less accountable fashion," said Leighton Ku, a professor of health policy at George Washington University.

Speaking more broadly about the BCRA's impact, Sloan said providers would face an increase in uninsured patients and uncompensated care because many Medicaid expansion states would end their expansion programs given the BCRA's phaseout of expansion funding by 2024. In addition, he predicted many states would cut their provider payment rates because the bill would cap the growth of per capita federal Medicaid payments below the rate of actual growth.

"If you're a critical-access hospital or you're a disproportionate-share hospital where you get a lot of people with Medicaid or low-income people on the insurance exchanges, they're the ones in the position by far to lose out the most from this," Sloan said.