Two months ago it became clear that the Better Care Reconciliation Act, the Senate Republican leadership’s attempt to repeal and replace the Affordable Care Act, lacked the votes to pass. That legislation combined many worthy reforms to the structure of American health care, with $904 billion in cuts to Medicaid spending and subsidies for the purchase of plans on the exchanges. As a result, many powerful groups stood to lose from the passage of legislation, while few stood to immediately profit from its enactment.
Senators Lindsey Graham and Bill Cassidy have recognized that fixing the non-group health-insurance market and refocusing the Medicaid program are substantial tasks that will not be possible if coupled with enormous spending cuts. They have therefore proposed to combine the funds that CBO projects would be associated with the Medicaid expansion and premium tax credits associated with the exchanges, and to delegate these resources to the states in the form of block grants.
This simple solution goes further than BCRA in redressing the great disparity in federal Medicaid assistance between states. Indeed, it does so without concentrating cuts on low-spending expansion states such as Arizona. It also prevents states from evading spending caps by merely inflating the number of healthy, able-bodied individuals enrolled, as they could do under the BCRA.
The ACA spends more than twice as much on expanding Medicaid as it does on premium tax credits for the exchange. By consolidating funding for both entitlements, Graham-Cassidy allows states to pool resources to increase the attractiveness and stability of the individual market. In doing this, it meets a clear need, but it also facilitates more thorough reform by repealing the individual mandate and potentially allowing fairly priced, fully competitive insurance to be offered outside of the exchanges. It also greatly expands the flexibility and potential uses of Health Savings Accounts.
When an earlier draft of the proposed bill was released, Senator Graham boasted of its value pluralism, which would also allow liberal states to use funds to advance single-payer. This prospect has alarmed some conservatives. Yet the two main obstacles to single-payer are lack of money and voters’ aversion to rationing. Graham-Cassidy would reduce payments to the liberal states likeliest to institute single-payer systems, while doing nothing to make voters more enthusiastic about being denied access to care.
A more modest concern would be that, instead of helping states use Medicaid funds to bolster the non-group market, Graham-Cassidy could allow them to raid exchange subsidies for the sake of expanding Medicaid (in the hope that additional federal assistance would then be forthcoming to bail out an individual market left to collapse). This concern looms larger when one remembers the history of states’ acting in bad faith — contorting the design of their own health-care programs to claim more than their fair share of federal assistance for purposes other than that intended. Graham-Cassidy does well to limit the proportion of funds block-granted that can be used on Medicaid to 20 percent — potentially shifting the bulk of Medicaid-expansion enrollees into the mainstream individual market.
The bill’s critics are wrong to argue that it leaves 90 percent of Obamacare intact.
Similarly, one might imagine that lobbyists could pressure states to use the block-grant funds as a form of corporate welfare for their most politically powerful hospital systems. But the rules associated with the Children’s Health Insurance Program are well designed to prevent the inappropriate use of funds while allowing states flexibility to target assistance to those in the greatest need, and Graham-Cassidy does well to employ them. In fact, replacing matching funds with a fixed amount of assistance gives states their first major incentive to reduce the cost of health-care delivery by enhancing provider competition.
Graham-Cassidy has merit because it holds out the prospect of reconstructing a properly competitive insurance market. It also represents a major improvement over the current structure of Medicaid. Its critics, including Senator Rand Paul, are wrong to argue that it leaves 90 percent of Obamacare intact — that may be true of its narrow fiscal impact, but it would sweep aside that legislation’s most dysfunctional incentives and lay the groundwork necessary for further incremental improvements.