PRESS MEMO: New Estimates of the Loss of Federal Funding to Pennsylvania from the Senate Health Care Bill

MEMO

To: Editorial Page Editors, Editorial Board Members, Columnists, and Other Interested Parties

From: Marc Stier, Director, Pennsylvania Budget and Policy Center

Date: July 7, 2017

Re: New Estimates of the Loss of Federal Funding to Pennsylvania from the Senate Health Care Bill


The Manatt Health Group and the Robert Wood Johnson Foundation have released a new study of the impact of the Senate health care bill, the Better Care Reconciliation Act of 2017, on the states. Their estimates of the impact of the bill confirms our recent study showing that Pennsylvania will suffer devastating reductions in federal funding for Medicaid. It also offers some more fine-grained detail on the nature of these reductions.

The new study provides two sets of estimates of how much federal funding each state loses – one if the state keeps the Medicaid Expansion and a second if it does not. According to the study, if Pennsylvania eliminates the Medicaid Expansion in 2021, the state stands to lose $30.1 billion in federal funding between 2020 and 2026 – $25 billion as a result of the elimination of federal funding for the Medicaid Expansion, and $5.1 billion as a result of the impact of per capita caps on traditional Medicaid. The Manatt / Robert Wood Johnson study projects that 594,000 fewer Pennsylvanians will be insured as a result of the end of the Medicaid Expansion. We expect another 260,000 fewer people to have health insurance or long-term care as a result of reductions in the per capita caps on traditional Medicaid and slightly over 400,000 fewer to be insured through the health care marketplace / exchange or by employer based insurance. All together, we now project that 1.3 million fewer people will have health insurance in Pennsylvania as a result of the Senate health care bill.

If, on the other hand, Pennsylvania keeps the Medicaid Expansion, it will lose $13.7 billion during the six-year period – $7.7 billion in Medicaid Expansion funding and $6.6 billion in traditional Medicaid due to the per capita caps. The state loses more in traditional Medicaid if it keeps the Medicaid Expansion than if it does not because without the Medicaid Expansion some individuals become eligible for traditional Medicaid, which continues to be reimbursed by the federal government, albeit at lower levels of funding. 

It might initially seem counter-intuitive that keeping the Medicaid Expansion allows Pennsylvania to receive more federal funding than if it gives up the Medicaid Expansion. But even at the lower reimbursement or capped rate for the Medicaid Expansion, substantial federal money will flow into the state to serve the Expansion population. 

But, despite the additional federal funds, maintaining the expansion will cost the state far more than not doing so, again because federal funding is reduced and the state has to pick up a substantial part of the cost of serving the large Expansion population. 

Keeping the Medicaid Expansion and making up for the impact of per capita caps will cost the state $13.7 billion over six years, more than double the cost of providing the same level of benefits for the traditional Medicaid population while ending the Medicaid Expansion. This additional cost is precisely why we think that our state, which is already suffering from a structural deficit that may approach $3 billion a year in the next few years, and that shows no inclination to raise recurring revenues to close that structural deficit, is likely to eliminate the Medicaid Expansion by 2021.

These losses in funding and health insurance coverage will be devastating to hundreds of thousands of people and to state finances. As we will show in reports coming out in the next few days, the impact on the state’s economy will also be devastating. 

Note that the study only examines the impact of per capita caps on the traditional Medicaid program through fiscal 2026. As a result of the Senate adopting Pennsylvania Senator Pat Toomey’s Medicaid proposal, starting in that year the inflation rate for the per capita caps drops from the Medical Care component of the Consumer Price Index (CPI-M) or CPI-M +1 for seniors and the disabled to the Consumer Price Index (CPI-U). The Congressional Budget Office projects the CPI-M to be 3.7% while the CPI-U is projected to be 2.4%. As a result, federal funding for traditional Medicaid will decline much faster after 2026 than before.  We hope to have details from Manatt / Robert Wood Johnson next week about the additional cost to Pennsylvania. But our own projections of the impact of per capita caps shows that the loss in funding for fiscal years 2027 to 2035 will be 75% more than what it is for the years 2020 to 2025. If the Manatt / Robert Wood Johnson study comes to same conclusion, the state will lose $8.7 billion in this period in funding for traditional Medicaid and $52.73 billion in total Medicaid funding as a result of both the per capita caps on traditional Medicaid and the ending of the Medicaid expansion. 

 

Comparing the Manatt / Robert Wood Johnson with our previous work 

In the interest of transparency, we want to point to some of the differences between the Mannat / Robert Wood Johnson study and our previous reports. 

Previously, we had projected that 530,000 would lose insurance through the ending of the Medicaid Expansion by 2026. The Manatt/ RWJ study suggests that the total will be higher – 594,000 – by 2026. It appears that our earlier number understated the total because we had thought that the Senate bill, like the House bill, would allow the state to “grandfather” people on the Medicaid Expansion at the current 90% federal reimbursement rate until they left the program. The Senate bill, however, gradually reduces the reimbursement rate and does not allow anyone to continue to be reimbursed at the higher rate. The result, we believe, is that the state will be forced to drop the Medicaid expansion in 2021.

Our projection of how much the state would lose in federal funding was based on the assumption that the Medicaid expansion would continue in Pennsylvania, albeit with fewer people receiving coverage. We projected that the this would cost the state $19 billion between 2020 and 2025 (which would be around $23 billion between 2020 and 2026). This is a good deal higher than the Manatt / RWJ estimate of $13.7 billion. Because we are not privy to the details of the Manatt Medicaid Financing Model, we cannot be entirely sure why their numbers are lower than our own, which is based on data from the Pennsylvania Department of Human Services. But the main reason is probably that the Manatt model begins with the projection that total Medicaid enrollment in the state would be 2.7 million in 2021, while our model projects that the enrollment would be 3.3 million that year. We have found, in the past, that the data the state reports to Center for Medicare and Medicaid Services, which we believe is the source of the Manatt data, typically is slightly out of date compared to the data we can secure in state. 

At any rate, while lower than our own, the Manatt / RWJ projection of the loss of federal funding as a result of the Senate health care bill is horrifying enough. We see no way that the state will be able to raise $30 billion in new revenues over six years, or $5 billion a year, to continue the Medicaid Expansion or to make up for the impact of Medicaid caps on the program in the state. The consequences for the people of Pennsylvania will be devastating, as over 1.3 million fewer people will have health insurance as a result of this law.