Graham-Cassidy and 50 states of chaos

Sponsors of the latest bill to “repeal and replace” the Affordable Care Act (ACA) have not road-tested their talking points against reality. Implementation matters, as I know from helping transform the ACA from a bill into an integral part of America’s health-care system.

Sens. Bill Cassidy (R-La.) and Lindsey Graham (R-S.C.) claim their legislation “gives states the resources and regulatory flexibility to…lower premiums and expand coverage.” In fact, its design would make it impossible to maintain coverage and implementation challenges could result in worse coverage than before the ACA was enacted.

Let’s start with the impact on states that adopted the ACA’s expanded coverage. The Graham-Cassidy bill would block grant the ACA’s funding for state’s Medicaid expansions and Health Insurance Marketplaces.

{mosads}This block grant would be lower than current spending, and it would shift resources away from states that expanded Medicaid and set up their own Marketplaces to those that didn’t. For example, California would lose an estimated $78 billion from 2020 to 2026. It is impossible to cover the same number of people after such a major funding cut.

Additionally, states interested in continuing tax credits that shield consumers from premium increases couldn’t do so under a slow-growing block grant. As such, people buying individual market insurance would pay extra for this unnecessary Washington-created financial shortfall every year.

And, insurers would leave even the best state markets if Congress does not early and sufficiently extend the block grant funding which the Graham-Cassidy bill sunsets in 2026. Congress’s track record does not bode well: it will likely fail to reauthorize the Children’s Health Insurance Program before its September 30 deadline, and it has chipped away funding for other block grants over time.

Second, states not interested in expanding coverage could use the Graham-Cassidy block grants for other health care spending. For example, states that rejected the ACA Medicaid expansion could use their funding for health savings accounts or other non-coverage options, rather than providing affordable and comprehensive coverage for their citizens.

Moreover, states with budget problems (or a desire to provide tax cuts) could substitute this federal funding for their own current expenditures. Meaning the money that could finance uninsured people’s coverage could instead be used for prison health care, public hospital payments, or state employee or retiree health benefits.  Experience in other block grant programs suggests that a flexible dollar is fungible—resulting in even less health coverage.

Next, turn to the 38 states whose residents buy private individual market insurance through HealthCare.gov. The Department of Health and Human Services does most — if not all — of the work in helping people sign up for coverage (e.g., running the website, call center, and in-person assistance for consumers). Under this bill, states would have about 18 months to recreate a private insurance marketplace — far less than the three to four years that was barely enough for Massachusetts and the ACA Marketplaces. People would surely fall through the cracks.

Putting aside these technical hurdles: political gridlock could prevent a state from acting prior to the Graham-Cassidy start-date in 2020. As the last eight months in Washington prove, consensus, even under single-party rule, is not a foregone conclusion. And the intense, partisan divide over health policy exists in state capitols, too: just look to past and present fights over the Medicaid expansion in Juneau, Richmond, and Raleigh. In short, this could create “50 states of chaos.”

However, state’s failure to implement changes on time is not consequence-free under the Graham-Cassidy bill. Inaction would likely blow up a state’s individual health insurance market.

The bill would keep as the default that insurers accept and charge fair premiums to people with pre-existing conditions, although states could get waivers to let insurers charge them more or provide them less benefits. And it would eliminate the requirement that people buy coverage when they can afford it (i.e., the individual mandate). But unlike previous bills, its default is no financial support for premiums.

As state experience shows,this combination could be lethal. Without the individual mandate (a stick) or premium tax credits (a carrot), fewer healthy people would pay rising premiums, with those willing to pay more being those who really need it. The Congressional Budget Office estimated that this combination would ultimately lead to the collapse of the individual market in most of the country. People who buy insurance on their own, such as farmers, fishermen, and family-owned businesses, would have no options at all. They would be worse off than they were before the ACA became law.

Even under the best-case scenario, the Graham-Cassidy bill’s funding cuts and structural changes would mean millions of Americans would no longer be able to afford coverage. But in reality, this bill could result in broken markets and coverage gaps worse than those the ACA set out to fill.

Jeanne Lambrew is the former deputy assistant to President Obama for health policy and currently is a Senior Fellow at The Century Foundation.