Exclusive: Inside the Trump Administration’s Debate over Expanding Obamacare

Last August, I responded to a New York Times article indicating that some within the Trump administration wanted to give states additional flexibility to expand Medicaid under Obamacare. Since then, those proposals have advanced, such that staff at the Centers for Medicare and Medicaid Services (CMS) believe that they have official sign-off from the president to put those proposals into place.

My conversations with half a dozen sources on Capitol Hill and across the administration in recent weeks suggest that the proposal continues to move through the regulatory process. However, my sources also described significant policy pitfalls that could spark a buzz-saw of opposition from both the left and the right.

The Times reported that some within the administration—including CMS Administrator Seema Verma and White House Domestic Policy Council Chairman Andrew Bremberg—have embraced the proposal. But if the plan overcomes what the Times characterized as a “furious” internal debate, it may face an even tougher reception outside the White House.

How It Would Work

After the Supreme Court made Medicaid expansion optional for states as part of its 2012 ruling upholding Obamacare’s individual mandate, the Obama administration issued guidance interpreting that ruling. While the court made expansion optional for states, the Obama administration made it an “all-or-nothing” proposition for them.

Under the 2012 guidance—which remains in effect—if states want to receive the enhanced 90 percent federal match associated with expansion, they must cover the entire expansion population—all able-bodied adults with incomes under 138 percent of the federal poverty level (just under $35,000 for a family of four). If states expand only to some portion of the eligible population, they would only receive their regular Medicaid match of 50-76 percent, not the enhanced 90 percent match.

The Internal Debate

The August Times article indicated that, after considering partial expansion, the administration postponed any decision until after November’s midterm elections. Since that time, multiple sources disclosed to me a further meeting that took place on the topic in the Oval Office late last year. While the meeting was originally intended to provide an update for the president, CMS staff left that meeting thinking they had received the president’s sign-off to implement partial expansion.

Just before Christmas, during a meeting on an unrelated matter, a CMS staffer sounded me out on the proposal. The individual said CMS was looking for ways to help give states additional flexibility, particularly states hamstrung by initiatives forcing them to expand Medicaid. However, based on my other reporting, I believe that the conversation also represented an attempt to determine the level of conservative opposition to the public announcement of a decision CMS believes the president has already made.

Why Liberals Will Object

During my meeting, I asked the CMS staffer about the fiscal impacts of partial expansion. The staffer admitted that, as I had noted in my August article, exchange plans generally have higher costs than Medicaid coverage. Therefore, moving individuals from Medicaid to exchange coverage—and the federal government paying 100 percent of subsidy costs for exchange coverage, as opposed to 90 percent of Medicaid costs—will raise federal costs for every beneficiary who shifts coverage under partial expansion.

The Medicare actuary believes that the higher cost-sharing associated with exchange coverage will lead 30 percent of the target population—that is, individuals with incomes from 100-138 percent of poverty—to drop their exchange plan. Either beneficiaries will not be able to afford the premiums and cost-sharing, or they will not consider the coverage worth the money. And because 30 percent of the target population will drop coverage, the partial expansion change will save money in a given state—despite the fact that exchange coverage costs more than Medicaid on a per-beneficiary basis.

Why Conservatives Will Object

I immediately asked the CMS staffer an obvious follow-up question: Did the actuary consider whether partial expansion, by shifting the costs of expansion from the states to the federal government, would encourage more states to expand Medicaid? The staffer demurred, saying the actuary’s analysis focused on only one hypothetical state.

However, the CMS staffer did not tell me the entire story. Subsequent to my “official” meeting with that staffer, other sources privately confirmed that the actuary does believe that roughly 30 percent of the target population will drop coverage.

But these sources and others added that both the Medicare actuary and the Congressional Budget Office (CBO) agree that, notwithstanding the savings from current expansion states—savings associated with individuals dropping exchange coverage, as explained above—the partial expansion proposal will cost the federal government overall, because it will encourage more states to expand Medicaid.

For instance, the Council of Economic Advisers believes that spending on non-expansion states who use partial expansion as a reason to extend Medicaid to the able-bodied will have three times the deficit impact as the savings associated with states shifting from full to partial expansion.

Because the spending on new partial expansion states will overcome any potential savings from states shifting from full to partial expansion, the proposal, if adopted, would appreciably increase the deficit. While neither CBO nor the Medicare actuary have conducted an updated analysis since the election, multiple sources cited an approximate cost to the federal government on the order of $100-120 billion over the next decade.

One source indicated that the Medicare actuary’s analysis early last summer arrived at an overall deficit increase of $111 billion. The results of November’s elections—in which three non-expansion states voted to accept expansion due to ballot initiatives—might have reduced the cost of the administration’s proposal slightly, but likely did not change the estimate of a sizable deficit increase.

A net cost of upwards of $100 billion, notwithstanding potential coverage losses from individuals dropping exchange coverage in current expansion states, can only mean one thing. CBO and the Medicare actuary both believe that, by lowering the cost for states to expand, partial expansion will prompt major non-expansion states—such as Texas, Florida, Georgia, and North Carolina—to accept Obamacare’s Medicaid expansion.

Who Will Support This Proposal?

Based on the description of the scoring dynamic my sources described, partial expansion, if it goes forward, seems to have no natural political constituency. Red-state governors will support it, no doubt, for it allows them to offload much of their state costs associated with Medicaid expansion onto the federal government’s debt-laden dime. Once CMS approves one state’s partial expansion, the agency will likely have a line of Republican governors out its door looking to implement waivers of their own.

But it seems unlikely that Democratic-led states will follow suit. Indeed, the news that partial expansion would cause about 30 percent of the target population to drop their new exchange coverage could well prompt recriminations, investigations, and denunciations from Democrats in Congress and elsewhere. Because at least 3.1 million expansion beneficiaries live in states with Republican governors, liberals likely would object to the sizable number of these enrollees who could decide to drop coverage under partial expansion.

Conversely, conservatives will likely object to the high net cost associated with the proposal, notwithstanding the potential coverage losses in states that have already expanded. Some within the administration view Medicaid expansion, when coupled with proposals like work requirements, as a “conservative” policy. Other administration officials view expansion in all states as something approaching a fait accompli, and view partial expansion and similar proposals as a way to make the best of a bad policy outcome.

But Medicaid expansion by its very nature encourages states to discriminate against the most vulnerable in society, because it gives states a higher match for covering able-bodied adults than individuals with disabilities. In addition to objecting to a way partial expansion would increase government spending by approximately $100 billion, some conservatives would also raise fundamental objections to any policy changes that would encourage states to embrace Obamacare—and add even more able-bodied adults to the welfare rolls in the process.

Particularly given the Democratic takeover of the House last week, the multi-pronged opposition to this plan could prove its undoing. Democrats will have multiple venues available—from oversight through letters and subpoenae, to congressional hearings, to use of the Congressional Review Act to overturn any administration decisions outright—to express their opposition to this proposal.

A “strange bedfellows” coalition of liberals and conservatives outraged over the policy, but for entirely different reasons, could nix it outright. While some officials may not realize it at present, the administration may not only make a decision that conservatives will object to on policy grounds, they may end up in a political quagmire in the process.

This post was originally published at The Federalist.

Will the Trump Administration Help Republicans Expand Obamacare?

For all the allegations by the Left about how the Trump administration is “sabotaging” Obamacare, a recent New York Times article revealed nothing of the sort. Instead it indicated how many senior officials within the administration want to entrench Obamacare, helping states to expand the reach of one of its costly entitlements.

Thankfully, a furious internal battle took the idea off the table—for now. But instead of trying to find ways to increase the reach of Obamacare’s Medicaid expansion, which prioritizes able-bodied adults over individuals with disabilities, the Trump administration should instead pursue policies that slow the push towards expansion, by making the tough fiscal choices surrounding expansion plain for states to see.

What ‘Partial Expansion’ Means

Following the court’s decision, the Obama administration determined expansion an “all-or-nothing” proposition. If states wanted to receive the enhanced match rate for the expansion—which started at 100 percent in 2014, and is slowly falling to 90 percent for 2020 and future years—they must expand to all individuals below the 138 percent of poverty threshold.

However, some states wish to expand Medicaid only for adults with incomes below the poverty level. Whereas individuals with incomes above 100 percent of poverty qualify for premium and cost-sharing subsidies for plans on Obamacare’s exchanges, individuals with incomes below the poverty level do not. (In states that have not expanded Medicaid, individuals with incomes below poverty may fall into the so-called “coverage gap,” because they do not have enough income to qualify for subsidized exchange coverage.)

States that wish to cover only individuals with incomes below the poverty line may do so—however, under the Obama administration guidance, those states would receive only their regular federal match rate of between 50 and 74 percent, depending on a state’s income. (Wisconsin chose this option for its Medicaid program.)

How ‘Partial Expansion’ Actually Costs More Money

The Times article says several administration supporters of “partial expansion”—including Health and Human Services (HHS) Secretary Alex Azar, Centers for Medicare and Medicaid Administrator (CMS) Seema Verma, and Domestic Policy Council Director Andrew Bremberg—believe that embracing the change would help to head off full-blown expansion efforts in states like Utah. An internal HHS memo obtained by the Times claims that “HHS believes allowing partial expansion would result in significant savings over the 10-year budget window compared to full Medicaid expansion by all.”

In reality, however, “partial expansion” would explode the budget, for at least three reasons. First, it will encourage states that have not embraced expansion to do so, by lowering the fiscal barrier to expansion. While states “only” have to fund up to 10 percent of the costs of Medicaid expansion, they pay not a dime for any individuals enrolled in exchange coverage. By shifting individuals with incomes of between 100-138 percent of poverty from Medicaid to the exchanges, “partial expansion” significantly reduces the population of individuals for whom states would have to share costs. This change could encourage even ruby red states like Texas to consider Medicaid expansion.

Second, for the same reason, such a move will encourage states that have already expanded Medicaid to switch to “partial expansion”—so they can fob some of their state costs onto federal taxpayers. The Times notes that Arkansas and Massachusetts already have such waiver applications pending with CMS. Once the administration approves a single one of these waivers, virtually every state (or at minimum, every red state with a Medicaid expansion) will run to CMS’s doorstep asking for the federal government to take these costs off their hands.

Medicaid expansion has already proved unsustainable, with exploding enrollment and costs. “Partial expansion” would make that fiscal burden even worse, through a triple whammy of more states expanding, existing states offloading costs to the federal government through “partial expansion,” and the conversion of millions of enrollees from less expensive Medicaid coverage to more costly exchange plans.

What Washington Should Do Instead

Rather than embracing the fiscally irresponsible “partial expansion,” the Trump administration and Congress should instead halt another budget gimmick that states have used to fund Medicaid expansion: The provider tax scam. As of last fall, eight states had used this gimmick to fund some or all of the state portion of expansion costs. Other states have taken heed: Virginia used a provider tax to fund its Medicaid expansion earlier this year, and Gov. Paul LePage (R-ME)—who heretofore has steadfastly opposed expansion—recently floated the idea of a provider tax to fund expansion in Maine.

The provider tax functions as a scam by laundering money to generate more federal revenue. Providers—whether hospitals, nursing homes, Medicaid managed-care plans, or others—agree to an “assessment” that goes into the state’s general fund. The state uses those dollars to draw down new Medicaid matching funds from the federal government, which the state promptly sends right back to the providers.

For this reason, politicians of all parties have called on Congress to halt the provider tax gimmick. Even former vice president Joe Biden called provider taxes a “scam,” and pressed for their abolition. The final report of the bipartisan Simpson-Bowles commission called for “restricting and eventually eliminating” the “Medicaid tax gimmick.”

If Republicans in Congress really want to oppose Obamacare—the law they ran on repealing for four straight election cycles—they should start by imposing a moratorium on any new Medicaid provider taxes, whether to fund expansion or anything else. Such a move would force states to consider whether they can afford to fund their share of expansion costs—by diverting dollars from schools or transportation, for instance—rather than using a budget gimmick to avoid those tough choices. It would also save money, by stopping states from bilking the federal government out of billions in extra Medicaid funds through what amounts to a money-laundering scam.

Rhetoric vs. Reality, Take 5,000

But of course, whether Republicans actually want to dismantle Obamacare remains a very open question. Rather than opposing “partial expansion” on fiscal grounds, the Times quotes unnamed elected officials’ response:

Republican governors were generally supportive [of “partial expansion”], but they said the change must not be seen as an expansion of the Affordable Care Act and should not be announced before the midterm elections. Congressional Republican leaders, while supportive of the option, also cautioned against any high-profile public announcement before the midterm elections.

In other words, these officials want to expand and entrench Obamacare, but don’t want to be seen as expanding and entrenching Obamacare. What courage!

Just as with congressional Republicans’ desperate moves to bail out Obamacare’s exchanges earlier this year, the Times article demonstrates how a party that repeatedly ran on repealing Obamacare, once granted with the full levers of power in Washington, instead looks to reinforce it. Small wonder that the unnamed politicians in the Times article worry about conservative voters exacting a justifiable vengeance in November.

This post was originally published at The Federalist.

Who Really Proposed the Obamacare Bailout in the Trump Budget?

Maybe it was Colonel Mustard in the conservatory with the revolver. Or Professor Plum in the library with the candlestick.

The story behind the Obamacare bailout proposed in last week’s budget has taken on a mysterious tone, akin to a game of Clue. My Thursday story focusing on the role played by White House Domestic Policy Council Chair Andrew Bremberg prompted pushback from some quarters about the actual perpetrator of the proposal. As a result, I spent a good chunk of Friday afternoon trying to gather more facts—and found definitive ones hard to come by.

As to the accuracy of my initial theory, people I trust and respect arrived at strikingly different views. However, I found surprising unanimity on one count: No one—but no one—wants to take credit for inserting the proposal to pay $11.5 billion in risk corridor claims. As someone told me: “You raise a valid question. If Andrew Bremberg didn’t insert the proposal into the budget”—and this person didn’t think he did—“then how did it get in there?”

Therein lies a huge problem. To call the inclusion of a $11.5 billion proposal in the president’s budget that no one in the administration seemed to know about, or wants to take credit for, a prime example of managerial incompetence would put it mildly. Either career staff inserted it in the budget, and the political staff did not have the antennae or bandwidth to understand its consequences and take it out, or a few political appointees and career staff hijacked the budget process, with most other individuals unaware of the situation until the budget’s public release.

To borrow a politically loaded phrase, someone—or a group of someones—colluded to get this language included in the budget. Its inclusion could cost federal taxpayers literally billions of dollars.

Why It Matters

By submitting a budget proposal to “request mandatory appropriations for the risk corridors program,” the White House completely undermined and undercut the arguments its own Justice Department had made in court a few short weeks ago, that the federal government owes insurers nothing.

In other words, whomever inserted this policy U-turn into the budget, just as the judges ponder a ruling in the insurer lawsuits, may have effectively “tanked” the government’s case. Either by leading to an adverse ruling, or by prompting the Justice Department to settle the case at a much higher cost, this move could cost taxpayers billions.

A Pro-Life Administration, Or Not?

Unfortunately, it gets worse. While the budget did include new funds for insurers, including the controversial risk corridors bailout described above, it did not include a single word proposing that such funds prevent taxpayer dollars from going to plans that cover abortion.

There’s a reason for the deafening silence: Republicans know that any legislation that funds insurers and provides robust pro-life protections will not pass. Democrats will object to its inclusion. Given the choice between passing up on an Obamacare bailout or abandoning their pro-life principles, Republicans have given every expectation that they will choose the latter course. (They shouldn’t bail out Obamacare regardless, but that’s a separate story.)

Regardless of who proposed these, it doesn’t take a detective to understand how a policy reversal that could cost taxpayers billions and a pending U-turn by Republicans to fund abortion coverage represent a major one-two punch against conservatives. But the mysterious origins and mangled management of the risk corridor proposal adds a further layer of insult to injury, a triple whammy of a tough week for the administration.

This post was originally published at The Federalist.