AHCA Effects on Medicaid

The proposal by congressional Republicans to replace the Affordable Care Act (ACA) would cause large reductions in Colorado’s Medicaid membership and a huge drop in federal funding for the low-income health coverage program. 

The American Health Care Act (AHCA) is currently being considered in Congress, and it could fail or be amended. The bill as of March 16 would significantly alter Colorado’s Medicaid program beginning in 2020. 

A new analysis based on a computer model created by the Colorado Health Institute (CHI) finds that the AHCA would result in:

•    A $340 million cut in federal funding for Colorado in 2020, the first year that Medicaid reforms would take effect;

•    A total loss of $14 billion in federal funding for Colorado over the first decade of the AHCA’s Medicaid changes;

•    And 600,000 fewer Medicaid members by 2030, most of whom would likely become uninsured.

The AHCA proposes two large changes for Medicaid: a payment model of per capita allotments and a limit on eligibility. The per capita funding system alone would result in multi-billion-dollar losses for the state over the course of a decade. Together with the AHCA’s eligibility restrictions, the changes would mean a $14 billion cut for Colorado by 2030. (See Figure 1.)

It would set up tough choices for state lawmakers, who would face the option of cutting off hundreds of thousands of people from Medicaid or making historic cuts to the state budget to pay for them.

Per Capita Allotments

The AHCA plans to fund Medicaid through per capita allotments, which give a set amount to the state for each of its enrollees based on their demographic group — children, adults, elderly or disabled. 

Per capita allotments would affect the state budget, but they would not directly affect individual enrollees. Currently, the federal government matches state spending on Medicaid dollar-for-dollar, with an enhanced match for people covered through the ACA’s Medicaid expansion. Critics of this system say it gives states an incentive to spend too much on Medicaid. Under a per capita system, funding would be set to a base level in 2016. Funding would grow with enrollment and be inflated each year based on the medical component of the Consumer Price Index (CPI). 

However, funding under per capita allotments would grow slower than it would under today. That is because actual health care costs grow faster than the medical CPI, which measures the price of goods and services but not the quantity of consumption. For example, the price of maternal depression screenings might stay the same, but the quantity of those screenings has risen as more doctors and patients have recognized their value. But under the AHCA’s per capita system, funding would not rise to match increased demand.

As a result, Colorado’s federal Medicaid funding would drop, slowly at first and then quickly. By 2026, Colorado would expect to get $1 billion less in federal Medicaid funding per year compared with the current system. And by 2030, the cumulative loss of federal funding for Colorado Medicaid under the per capita system would be $6 billion — even if the ACA’s expansion population were left in place. (See Figure 2.)

Eligibility Restrictions

The other major change proposed by the AHCA would tighten eligibility for Medicaid. This change would affect both the state budget and individual Medicaid members’ health coverage.

The ACA expanded eligibility for Medicaid to up to 138 percent of the federal poverty level. Adults without children make up the largest part of the ACA expansion. The federal government is scheduled to pay 90 percent of the cost of these enrollees as of 2020 — an ACA feature known as the enhanced federal match.

The AHCA would start to roll back the expansion in 2020. Starting that year, it would not fund new Medicaid members at the ACA’s enhanced matching rate. Also, current Medicaid members who lose their eligibility could not rejoin the program and receive the enhanced match. 

It’s common for Medicaid members to cycle on and off the program. Historically, more than 20 percent of the membership gains or loses eligibility every year. This provision of the AHCA would quickly whittle away at Medicaid eligibility, and by 2030, hardly anyone would be left from the ACA expansion.

Colorado’s Medicaid membership expanded rapidly under the ACA and is now roughly one quarter of the state population. CHI projects that Colorado Medicaid membership will be just under 1.6 million in 2020, when the AHCA’s reforms would begin. CHI also projects that Medicaid’s rapid growth will taper off over the next decade and reach 1.8 million by 2030 — a bit more than a quarter of the projected state population that year.

It’s doubtful that Colorado could continue paying for people in the ACA expansion without the enhanced federal match. CHI projects that by 2030, 600,000 people who would have been eligible for the ACA expansion would not be covered at the enhanced federal match under the AHCA. People covered under the ACA expansion were mostly uninsured before the ACA took effect. CHI expects that most people in this group would lose their Medicaid eligibility under the AHCA and become uninsured again.

Conservative Republicans have proposed changing the AHCA to immediately end funding for the ACA expansion. That plan would result in a much faster loss of federal funding and Medicaid membership in Colorado. But by 2030, the effects of an immediate end to expansion would be about the same as the AHCA’s plan to gradually cut eligibility. (See Figure 3.)

The Congressional Budget Office analysis of the AHCA proposal released on March 13 projects faster turnover in Medicaid membership, in part because of AHCA provisions that make it harder to qualify for Medicaid and maintain eligibility. CHI’s analysis does not take these provisions into account, so it is possible that Colorado Medicaid funding and membership would drop faster than our current estimates.

Conclusion and Options

Colorado stands to lose substantial funding and Medicaid enrollment through the AHCA. The combination of per capita allotments and eligibility restrictions would cause a $14 billion cumulative loss for the state budget by 2030.

A projected 600,000 Coloradans would lose their Medicaid eligibility by 2030, and it’s unlikely that people who lose coverage would become insured in the private market. 

State legislators would have four broad options for dealing with the funding crisis that would result. They could cut Medicaid eligibility, cut benefits to the extent allowed by law, cut provider pay or find unspecified innovations to save money. Of the four, only cuts to eligibility seem likely to be able to fully bridge the gap in federal funding.

Federal health reform remains a work in progress, and it’s possible that the AHCA could undergo significant changes. CHI will update this analysis if such changes occur.