Will The Trump Administration Help Republicans Expand Obamacare?

Will The Trump Administration Help Republicans Expand Obamacare?

Instead of increasing the reach of Obamacare’s Medicaid expansion, which prioritizes able-bodied adults over individuals with disabilities, states need to see the tough choices ahead.
Christopher Jacobs
By

For all the allegations by the Left about how the Trump administration is “sabotaging” Obamacare, a recent New York Times article revealed nothing of the sort. Instead it indicated how many senior officials within the administration want to entrench Obamacare, helping states to expand the reach of one of its costly entitlements.

Thankfully, a furious internal battle took the idea off the table—for now. But instead of trying to find ways to increase the reach of Obamacare’s Medicaid expansion, which prioritizes able-bodied adults over individuals with disabilities, the Trump administration should instead pursue policies that slow the push towards expansion, by making the tough fiscal choices surrounding expansion plain for states to see.

What ‘Partial Expansion’ Means

At issue within the administration, and in the Times article: so-called “partial expansion” of Medicaid. Obamacare itself required states to expand Medicaid to all adults with incomes of less than 138 percent of the federal poverty line. But the Supreme Court in 2012 ruled the mandatory expansion of Medicaid unconstitutional, making the choice to expand optional for states.

Following the court’s decision, the Obama administration determined expansion an “all-or-nothing” proposition. If states wanted to receive the enhanced match rate for the expansion—which started at 100 percent in 2014, and is slowly falling to 90 percent for 2020 and future years—they must expand to all individuals below the 138 percent of poverty threshold.

However, some states wish to expand Medicaid only for adults with incomes below the poverty level. Whereas individuals with incomes above 100 percent of poverty qualify for premium and cost-sharing subsidies for plans on Obamacare’s exchanges, individuals with incomes below the poverty level do not. (In states that have not expanded Medicaid, individuals with incomes below poverty may fall into the so-called “coverage gap,” because they do not have enough income to qualify for subsidized exchange coverage.)

States that wish to cover only individuals with incomes below the poverty line may do so—however, under the Obama administration guidance, those states would receive only their regular federal match rate of between 50 and 74 percent, depending on a state’s income. (Wisconsin chose this option for its Medicaid program.)

The Trump administration has debated whether to reverse the prior precedent, and allow these “partial expansions” to qualify for the 90 percent enhanced match rate.

How ‘Partial Expansion’ Actually Costs More Money

The Times article says several administration supporters of “partial expansion”—including Health and Human Services (HHS) Secretary Alex Azar, Centers for Medicare and Medicaid Administrator (CMS) Seema Verma, and Domestic Policy Council Director Andrew Bremberg—believe that embracing the change would help to head off full-blown expansion efforts in states like Utah. An internal HHS memo obtained by the Times claims that “HHS believes allowing partial expansion would result in significant savings over the 10-year budget window compared to full Medicaid expansion by all.”

In reality, however, “partial expansion” would explode the budget, for at least three reasons. First, it will encourage states that have not embraced expansion to do so, by lowering the fiscal barrier to expansion. While states “only” have to fund up to 10 percent of the costs of Medicaid expansion, they pay not a dime for any individuals enrolled in exchange coverage. By shifting individuals with incomes of between 100-138 percent of poverty from Medicaid to the exchanges, “partial expansion” significantly reduces the population of individuals for whom states would have to share costs. This change could encourage even ruby red states like Texas to consider Medicaid expansion.

Second, for the same reason, such a move will encourage states that have already expanded Medicaid to switch to “partial expansion”—so they can fob some of their state costs onto federal taxpayers. The Times notes that Arkansas and Massachusetts already have such waiver applications pending with CMS. Once the administration approves a single one of these waivers, virtually every state (or at minimum, every red state with a Medicaid expansion) will run to CMS’s doorstep asking for the federal government to take these costs off their hands.

Third, exchange coverage costs more than Medicaid coverage, and by a wide margin. The May 2018 baseline released by the Congressional Budget Office (CBO) estimated that Medicaid expansion will cost taxpayers an estimated $59 billion this year and cover 12 million individuals—an average of $4,916 per enrollee. By contrast, the average exchange subsidy in 2018 will total an estimated $6,300. Therefore, shifting enrollees from Medicaid coverage to the exchanges will cost an average of nearly $1,400 per individual—and given the size of the populations involved, could easily run into the billions.

Medicaid expansion has already proved unsustainable, with exploding enrollment and costs. “Partial expansion” would make that fiscal burden even worse, through a triple whammy of more states expanding, existing states offloading costs to the federal government through “partial expansion,” and the conversion of millions of enrollees from less expensive Medicaid coverage to more costly exchange plans.

What Washington Should Do Instead

Rather than embracing the fiscally irresponsible “partial expansion,” the Trump administration and Congress should instead halt another budget gimmick that states have used to fund Medicaid expansion: The provider tax scam. As of last fall, eight states had used this gimmick to fund some or all of the state portion of expansion costs. Other states have taken heed: Virginia used a provider tax to fund its Medicaid expansion earlier this year, and Gov. Paul LePage (R-ME)—who heretofore has steadfastly opposed expansion—recently floated the idea of a provider tax to fund expansion in Maine.

The provider tax functions as a scam by laundering money to generate more federal revenue. Providers—whether hospitals, nursing homes, Medicaid managed-care plans, or others—agree to an “assessment” that goes into the state’s general fund. The state uses those dollars to draw down new Medicaid matching funds from the federal government, which the state promptly sends right back to the providers.

Et voila! Those providers end up with more money than they started. The provider “assessment” stands as perhaps the only government levy that the taxed populations actually encourage, because they know it will ultimately mean more dollars in their pockets

For this reason, politicians of all parties have called on Congress to halt the provider tax gimmick. Even former vice president Joe Biden called provider taxes a “scam,” and pressed for their abolition. The final report of the bipartisan Simpson-Bowles commission called for “restricting and eventually eliminating” the “Medicaid tax gimmick.”

If Republicans in Congress really want to oppose Obamacare—the law they ran on repealing for four straight election cycles—they should start by imposing a moratorium on any new Medicaid provider taxes, whether to fund expansion or anything else. Such a move would force states to consider whether they can afford to fund their share of expansion costs—by diverting dollars from schools or transportation, for instance—rather than using a budget gimmick to avoid those tough choices. It would also save money, by stopping states from bilking the federal government out of billions in extra Medicaid funds through what amounts to a money-laundering scam.

Rhetoric vs. Reality, Take 5,000

But of course, whether Republicans actually want to dismantle Obamacare remains a very open question. Rather than opposing “partial expansion” on fiscal grounds, the Times quotes unnamed elected officials’ response:

Republican governors were generally supportive [of “partial expansion”], but they said the change must not be seen as an expansion of the Affordable Care Act and should not be announced before the midterm elections. Congressional Republican leaders, while supportive of the option, also cautioned against any high-profile public announcement before the midterm elections. (Emphasis mine.)

In other words, these officials want to expand and entrench Obamacare, but don’t want to be seen as expanding and entrenching Obamacare. What courage!

Just as with congressional Republicans’ desperate moves to bail out Obamacare’s exchanges earlier this year, the Times article demonstrates how a party that repeatedly ran on repealing Obamacare, once granted with the full levers of power in Washington, instead looks to reinforce it. Small wonder that the unnamed politicians in the Times article worry about conservative voters exacting a justifiable vengeance in November.

Mr. Jacobs is founder and CEO of Juniper Research Group, a policy consulting firm based in Washington. He is on Twitter: @chrisjacobsHC.
Photo U.S. Air Force photo by Airman Joshua Green

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