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Graham-Cassidy Affordable Care Act (ACA) Repeal-And-Replace Bill

This week, our In Focus section reviews the bill put forward last week by Senators Lindsey Graham (R-SC) and Bill Cassidy (R-LA) to repeal and replace the Affordable Care Act (ACA). General consensus, the HMA Roundup included, viewed ACA repeal-and-replace efforts as largely defeated at the end of July, with the Senate’s failure to pass the Better Care Reconciliation Act. There is, however, an emerging view, which was shared by several speakers at last week’s HMA conference, that the Graham-Cassidy bill has a real chance of passing the Senate ahead of the September 30 deadline, at which point the reconciliation process expires and a bill would require 60 votes to pass the Senate. Below, we highlight key provisions of the Graham-Cassidy bill that impact federal funding to states, state Medicaid programs, and the Exchange and individual insurance markets, including both a block grant program targeted at higher-income and Medicaid expansion populations and a Medicaid per capita cap funding structure.

Block Grant Program

The Graham-Cassidy bill proposes eliminating funding for the Medicaid expansion, Exchange tax credits and cost-sharing reduction (CSR) payments, and basic health plan by 2020. Instead, the funding from these programs would be replaced by block grants aimed at providing state flexibility under a capped funding structure. The bill sets a capped amount of funds ($200 Billion by 2026) to be distributed among states through the block grant mechanism. The initial allocation to states would be based on current spending, grown forward to 2020. This base amount would then be adjusted by one-sixth of the difference between the 2020 base amount and the 2026 targeted amount. As a result, over the six year period, block grant funding allocations would gradually shift to states proportionate to their total share of the population between 50 and 138 percent FPL. Block grants are not contingent on state matching funds. States can apply for waivers with significant flexibility in how they utilize block grant dollars, including:

  • Providing premium support to purchase coverage;
  • Contracting with insurers and managed care plans to encourage market participation;
  • Providing direct payment to providers for health care services;
  • Establishing high-risk pools and reinsurance programs;
  • Providing funding to reduce out-of-pocket costs for consumers; and
  • Utilizing up to 20 percent of the block grant to fund the state’s traditional Medicaid program.

The block grants under Graham-Cassidy aim to provide funding parity across states for individuals between 50 and 138 percent FPL on a per capita basis. The bill would also include a risk-adjustment formula, which can adjust per beneficiary funding to states to account for higher cost population variation across states. The Senators have published an illustrative model of the impacts on per member funding, which shows several states with higher per capita spending (including Massachusetts and Oregon) losing funding on a per beneficiary basis, and the majority of states receiving increased funding on a per beneficiary basis by 2026. However, the model may not fully capture the impact of block grants on reduced federal funding to states, and does not include the impact of the Medicaid per capita payment reforms to be implemented alongside the block grants, as detailed below.

Medicaid Per Capita Payment Reforms

While the block grants described above target the Medicaid expansion and expansion-like population, Graham-Cassidy would also implement a Medicaid per capita cap funding structure as was proposed under the Better Care Reconciliation Act. However, Graham-Cassidy would increase growth rates in per capita funding, utilizing the CPI-Medical inflator through 2024, for older adults and individuals with disabilities.

Options to Mitigate Funding Shortfalls

The Graham-Cassidy bill provides several options to states to address funding shortfalls under the new structures.

  • States may restore penalties associated with the employer and individual coverage mandates, which are both repealed under the bill.
  • States may continue to provide funding that would have otherwise been in place under a federal matching fund structure.
  • Any state that faces a budget shortfall under the Graham-Cassidy bill as compared to the BCRA bill’s structure grown by CPI-M, may continue to receive scheduled Disproportionate Share Hospital (DSH) funding cuts under the ACA. States must provide matching funds on any DSH dollars received.
  • In early years of implementation, 2020 through 2024, states may effectively borrow funds from 2025 and 2026 allotments to support transition to the new funding structure.

Additional Provisions of Graham-Cassidy

The bill includes a number of additional provisions, including:

  • Repealing a number of ACA taxes, including the Medical Device Tax, a tax on health savings accounts, and a tax on over-the-counter medications;
  • Repealing the ACA’s Prevention and Public Health Fund;
  • Eliminating the option for states to expand Medicaid as of September 1, 2017;
  • Granting flexibility to states to institute work requirements in Medicaid and increase frequency of eligibility redeterminations;
  • Phasing down the Medicaid provider tax threshold from the current level of 6 percent to 4 percent by fiscal year 2025;
  • Providing states the option to cover inpatient psychiatric hospital services to individuals between 21 and 65 as of October 1, 2018; and
  • Allowing individuals to purchase catastrophic health plan coverage, and include catastrophic coverage in the individual and small group market risk pools.

Graham-Cassidy to Receive Limited CBO Assessment Next Week

The Congressional Budget Office (CBO) announced on September 18 that it would provide a limited assessment of the Graham-Cassidy bill early next week, the week of September 25. The CBO’s analysis will address budgetary impacts and compatibility with the reconciliation process, but will not address coverage and premium impacts or the longer-term impact on the federal deficit. As noted above, the Senate’s ability to use the reconciliation process to pass an ACA repeal-and-replace bill expires after September 30.