A Republican bill that would turn Obamacare into a block grant program for states would reduce overall federal healthcare funding to states by $215 billion through 2026, and could reduce spending by as much as $4 trillion over 20 years, a new analysis found.
The Graham-Cassidy bill, which many Republicans hope can get a vote in the Senate next week, would take Obamacare funding for the Medicaid expansion and subsidies on the individual market and distribute it to states through block grants. It would provide around $1.2 trillion to states from 2020 to 2026, and then after that the funding would have to be reauthorized again by Congress.
But the analysis from the consulting firm Avalere Health said the bill wouldn’t hand out the same amount of money that it would under current law, and that by 2026, all the states together would get $215 billion less.
The funding under the bill expires in 2026, creating a funding cliff in 2027, and Avalere anticipated more spending reductions after that.
Supporters of the bill spearheaded by Republican Sens. Lindsey Graham of South Carolina and Bill Cassidy of Louisiana say funding would be reauthorized by Congress, but Avalere said it can’t say for certain. Even if the funding is reauthorized, it could be “constrained by the need to offset the costs,” Avalere said. “As such, by 2027, states would see significantly larger declines in funding compared to current law.”
Avalere projected total federal funding to states would be cut by $489 billion through 2027.
In the following decade, the cuts would likely grow due to a shift to lower Medicaid growth rates in 2026 and if the block grants don’t get funded beyond 2026. The bill seeks to eventually convert all of Medicaid to a per-capita system, which provides money to states per beneficiary. Avalere said t he growth rate for those caps would slow down in 2025.
The combination of lower rates and block grant funding sunsetting in 2026 means that there would be significant cuts to states through 2036, Avalere found. It projected that overall from 2020 to 2036 federal funding gets cut by $4.15 trillion from 2020 to 2036.
“Federal funding restrictions range from $4 billion in South Dakota to $800 billion in California,” the firm said.
Avalere found that the states that expanded Medicaid would be hit the hardest by the cuts, which is the point of the Graham-Cassidy bill. The senators argue a handful of states are getting the lion’s share of Obamacare funding now.
“Medicaid expansion states and states that have enrolled a high number of people in insurance affordability programs would be most adversely impacted,” said Elizabeth Carpenter, Avalere’s senior vice president.
By 2026, 34 states and the District of Columbia would see funding cuts, and seven states would see cuts higher than $10 billion. There would be 16 states that see an increase in funding.
So far, 19 states have not expanded Medicaid under the Affordable Care Act.
Avalere did not estimate other major changes to state insurance markets that can be made through state waivers. The bill lets states waive key Obamacare insurer mandates such as a requirement that keeps insurers from charging people with pre-existing conditions more money, a practice called medical underwriting.
The state would have to prove to the federal government that getting a waiver won’t prevent people with pre-existing conditions from getting affordable and adequate coverage.
It remains unclear what the criteria for getting such a waiver would be, but Cassidy told the Washington Examiner that states can set up a high-risk pool or reinsurance program to defray costs.
Avalere referred to a prior score from the nonpartisan Congressional Budget Office that looked at waivers in a House Obamacare repeal bill. That score found that while more flexibility leads to lower average premiums, it would “substantially increase costs of those individuals with significant medical costs and those who would be at risk of medical underwriting.”
