This commentary originally appeared in Real Clear Policy on October 20, 2015.
Jeb Bush released his Obamacare repeal-and-replace plan last week, which closely resembles the one put forward by Wisconsin governor Scott Walker a couple months ago, as well as the plan floated by Sens. Orrin Hatch and Richard Burr and Rep. Fred Upton last year. That means Republicans are beginning to coalesce around sound policies to repeal and replace Obamacare, which they have promised to do.
The main thing all these plans have in common is that they would repeal Obamacare's coverage expansion and replace it with a refundable tax credit for anyone who doesn't have an offer of coverage through their employer. (This is an idea that Sen. Marco Rubio has endorsed, too.) Bush's plan has a particular focus on medical innovation and expanding consumer-direct care through greater use of health savings accounts (HSAs).
But the boldest part of Bush's plan is the way it would empower states to take control of health care, and particularly how they would be able to change Medicaid, the state health-care program for the poor and disabled. Bush's plan would allow states to replace Medicaid's federal-match funding scheme with a "single allotment" of federal funds, which states could decide how to use. According to the plan, the federal government wouldn't "regulate the approaches states decide to take, but it would hold states accountable for outcomes since they are receiving federal funding."
This is pretty close to a description of a Medicaid block grant: a fixed amount of federal funds combined with maximum flexibility for a state to reform its Medicaid program without seeking federal approval for changes. Under Bush's plan, states could use federal funds to do any number of things, including "supplement the new tax credit so that low-income individuals have a fully funded HSA to meet all of their out-of-pocket costs."
It's possible to read the plan as saying Medicaid enrollees would get the same refundable tax credit offered to those who don't have employer-sponsored insurance, and that Medicaid dollars would further supplement that subsidy to cover out-of-pocket costs. But as Avik Roy noted at Forbes, "The plan isn't clear on whether this is meant to dramatically reduce subsidies for coverage for those with lower incomes, or whether the idea is to actually supplement Medicaid spending with additional tax credits."
Either way, it would likely be an improvement for those currently on Medicaid, who generally have worse access to doctors and as a result have far worse health outcomes than those with private insurance. Using federal Medicaid funds to subsidize private health insurance for the poor has long been discussed among conservative health-care wonks. The problem is that federal Medicaid rules won't allow it.
But with the kind of flexibility outlined in Bush's plan, a state could get its Medicaid spending under control and prevent its program from overwhelming the budget. In Texas, for example, moving some Medicaid enrollees into private insurance plans could save the state $4 billion annually, increasing to $6 billion by 2023. With a colleague of mine at the Texas Public Policy Foundation, economist Vance Ginn, Imodeled what it would cost to move nondisabled risk groups — pregnant women, children, and adults eligible for welfare — into private coverage compared with official cost projections under the status quo. We examined per-member, per-month enrollment and cost data for these groups and compared it to the cost of silver and gold plans currently offered on the individual market through the federal exchange established under Obamacare.
We calculated these subsidies on a sliding scale based on income: Those who earn less would pay less (or nothing at all) and those who earn more would pay more. For example, the subsidy for those earning less than 50 percent of the federal poverty level (FPL) would be equal to the total cost of the premium, those earning between 50 and 75 percent FPL would receive a subsidy worth 98 percent of the premium, and so on.
That means some Medicaid enrollees would have out-of-pocket costs, of course. A pregnant woman earning close to 100 percent FPL, or about $920 a month, could be offered a gold plan, which has a $435 monthly premium. Medicaid would subsidize 90 percent of that premium, which means she would have to pay $44 a month out of pocket. Today in Texas, the state Medicaid program pays, on average, $718 per month per pregnant woman. Enrolling them in gold plans through the exchange would therefore save taxpayers $327 per Medicaid patient per month. Meanwhile, the patients themselves would receive higher-quality care from private insurers.
Costs could come down even more under a comprehensive repeal-and-replace plan. Bush's proposal, for example, would return control of individual health-insurance markets to the states, allowing them to roll back costly Obamacare regulations like mandated benefits for Qualified Health Plans sold on the exchanges. That would "enable a new market where insurers could offer plans with premiums equal to the newly-created tax credit." In states that supplemented this tax credit with Medicaid funds, eligible enrollees could chose a plan with a low premium and deposit any additional Medicaid dollars into an HSA account.
To be sure, these reforms would mean Medicaid programs would look very different from state to state. But that's already the case. Thirty states have expanded Medicaid under Obamacare so far; hence their programs look much different than, say, that of Texas, where Medicaid is more narrowly tailored to low-income groups and those with disabilities.
But all states, expansion or no, are going to have to find ways to control the growth of Medicaid spending and provide more cost-efficient care to those currently enrolled in the program. Proposals like Bush's, which empower states to take charge of both Medicaid and their respective private health-insurance markets, point the way forward. It's going to be up to each state to make a plan. They should start now.
John Daniel Davidson is director of the Center for Health Care Policy at the Texas Public Policy Foundation.