There’s No Painless Way to End the Medicaid Expansion

Update (6/8/17): Reports that senators are considering a longer phase-down of the Medicaid expansion do not represent a compromise. A phaseout – no matter the exact length — is the same as ending the expansion for the reasons we describe below.

As the Senate develops its version of the House’s American Health Care Act (AHCA) it should bear this in mind: There is no “glide path” to ending the Medicaid expansion. Ending federal funding for the Medicaid expansion, even with a supposed “phase out,” means millions across the 31 expansion states (plus D.C.) will start losing coverage. Fast.

Likewise, states will start feeling the fiscal pain. Fast.  This can’t be changed even with radical restructuring of the AHCA.

How do we know this? The nonpartisan Congressional Budget Office (CBO) analyzed the AHCA, passed by the House in early May, and confirmed that millions of adults who have health insurance through Medicaid expansion now will become uninsured if the AHCA becomes law.

How the AHCA ends the Medicaid expansion

The AHCA ends the Medicaid expansion by essentially freezing enrollment of people in the program and cutting funding.

Starting in 2020, the funding the federal government gives to states for people in the Medicaid expansion (known as “enhanced federal match”) will apply only to people enrolled in 2019 and only for as long as they are continuously enrolled in the expansion.

Here’s how it would work: Imagine a seasonal worker covered through the Medicaid expansion, with the state getting a 90 percent federal match.  Say that person gets an uptick in jobs in the summer and her income goes up and she is no longer eligible for Medicaid so drops out of the program.

In the winter, when jobs are fewer, her income goes down and she enrolls in Medicaid again. The state would only get the standard match rate, not the higher rate for people in the expansion—potentially 40 percent less in federal help. And that is only if the state continued to offer coverage to adults at all.

Why the expansion ends fast

Once people can’t reenroll in the expansion, funding and coverage will fall off fast. CBO’s March 24 analysis of the House bill shows that, in 2020, people would start losing Medicaid coverage at a very fast rate, and state Medicaid funding cuts would also start piling up. More than 80 percent of enrollees and increased federal funding to states would be gone within four years, half gone within the first year of the phase down starting.

Here’s why the losses happen so quickly:

Lower-income adults—that’s who’s enrolled in the Medicaid expansion—have frequent income fluctuations. There are lots of reasons for this—many low-wage jobs are seasonal or temporary, low-wage workers’ jobs are less secure.  (And let’s remember, most people covered by the Medicaid expansion are working.)

Those frequent income changes can make it common for people to lose and regain Medicaid eligibility (known as “churning”) from year to year and even month to month. A comprehensive study of Medicaid churn found that about 40 percent of Medicaid enrollees had a disruption in coverage within the first six months, and 50 percent within a year. After four years, only 19 percent of Medicaid enrollees maintained continuous coverage.

Under the House repeal bill, this drop would occur even faster because states are discouraged from keeping people continuously enrolled. The Congressional Budget Office estimates that 60 percent of enrollees would be dropped from the program within the first two years of the Medicaid expansion phase out beginning, and a full 95 percent would be dis-enrolled within five years.

Since Medicaid expansion eligibility is tied to income, people in the program similarly move in and out of coverage. The problem with repeal proposals like the AHCA is that, when people try to get back into the program, states will get a lot less money. Some experts predict that, because of churn, there will be almost no enhanced match left “within a year or so.”

In some states the expansion would end even faster

There are at least seven states where their residents will feel the pain of lost coverage, and their economies will take a hit, even faster. These states—Arkansas, Illinois, Indiana, Michigan, New Hampshire, New Mexico and Washington—have passed legislation requiring expansion be terminated, usually within months, of the enhanced matched being reduced.

In those states, the expansion would end immediately when the enhanced match ends for new enrollees. Other states are likely to pull out of the expansion altogether in 2020, or before, in anticipation of budget shortfalls.

States are unlikely to offer Medicaid coverage to adults once the Medicaid expansion ends

The odds are that most of the 31 states currently covering adults through the Medicaid expansion won’t be offering coverage for adults who don’t qualify for the added federal match. Or if they do, it will be skimpy at best.

That’s because states will have to put in a lot more state money to pay for adults’ coverage (either raising taxes or cutting funding elsewhere).

Before the ACA, only seven states covered the adults who are now covered under the Affordable Care Act’s Medicaid expansion.  States that did offer coverage often froze or ended their programs because of budget constraints. There was a federal requirement for states to provide some coverage to parents, but eligibility was often quite low. Arkansas capped parents’ eligibility at 16 percent of poverty.

States’ failure to offer Medicaid coverage to adults at the standard match level was precisely why the ACA included a higher match rate for that population.

Most of the 15 million people who have gained coverage through the Medicaid expansion will find themselves uninsured again. It also means that for state residents who see their circumstances change and income drop sometime in the future—a layoff, an accident, an injury—Medicaid won’t be a safety net for them.

There’s no way to blunt the fiscal hit to states

Just as churn is going to mean a fast unraveling of the Medicaid expansion and a fast uptick in the number of uninsured, it will also mean a fast loss of federal funding. That has economic consequences that can ripple throughout state economies and extend to non-expansion states.

One study found that ending the Medicaid expansion in 2019 would result in more than 1.1 million jobs lost by 2023 and more than $1 trillion in lost business output across multiple sectors of state economies.

Because expansion funds would dry up rapidly under the AHCA, states would likewise feel the economic effects rapidly. While states that expanded Medicaid would be hit hardest, because commerce spans across states, all states would be hurt to some extent.

The lack of a “glide path” ending to the expansion isn’t just a function of the AHCA. No matter how the Senate might try to restructure it, ending or “phasing down” the federal funding will mean that across 31 states and the District of Columbia, millions of adults 18 to 64 who have health insurance now will become uninsured.

Millions who face tough economic times in the future and need Medicaid’s safety net will become uninsured. That’s the exact opposite of the election promises made about covering everyone. And the residents of those 31 states will remember that.