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.

CBO’s Assumptions about the Health Care Law

In its re-estimate of the health care law in light of the Supreme Court’s ruling and new cost estimate for repealing the legislation, the Congressional Budget Office made some interesting assumptions that are worth examining in greater detail.

First, CBO opined that “the Supreme Court’s decision upholding the constitutionality of the ACA’s provision requiring most individuals to obtain insurance coverage or pay a penalty tax does not change CBO and JCT’s assessment of the mandate’s effect on coverage.”  Some observers had argued that the Court’s ruling upholding the mandate as a tax rather than a penalty would undermine CBO’s behavioral assumptions – because the mandate can be easily circumvented by paying the tax, and individuals would not feel they were “breaking the law” by doing so.  CBO generally declined to change its assumptions regarding compliance with the mandate in light of the ruling, although it did allow that the Court’s decision will likely result “in an increase in the number of people who will be eligible for hardship exemptions [from the mandate], which will slightly reduce the prevalence of coverage and thus the strength of the social norm to obtain insurance.”

Second, CBO assumed that the law’s Medicaid maintenance of effort requirements “were not directly affected by the Court’s decision” and remain in place.  However, there is significant uncertainty and ambiguity about this assumption.  While the Administration believes the requirements were unaffected by the ruling, some states believe the Court’s decision nullified the maintenance of effort mandates, have said they will not be bound by those mandates, and are prepared to litigate their position accordingly should the Administration attempt to enforce requirements that states believe have been nullified by the Court.

Third, and perhaps most importantly, CBO assumed HHS would give states significant flexibility in determining how they will expand their Medicaid programs:

CBO anticipates that, instead of choosing to expand Medicaid eligibility fully to 138 percent of the FPL [federal poverty level] or to continue the status quo, many states will try to work out arrangements with the Department of Health and Human Services (HHS) to undertake partial expansions.  For example, some states will probably seek to implement a partial expansion of Medicaid eligibility to 100 percent of the FPL, because, under the ACA, people below that threshold will not be eligible for subsidies in the insurance exchanges while people above that threshold will be if they do not have an offer of affordable coverage from an employer and meet other eligibility requirements.  Other states may seek to expand coverage to levels above their existing thresholds but below 100 percent of the FPL….How the current Administration and future ones will respond to states’ interest in pursuing these various approaches is unclear.

This is very much an open question, given that HHS has not opined on the impact of the Court’s ruling – except to deny states flexibility to modify their Medicaid programs.  If HHS takes a similarly absolute “all-or-nothing” approach to the entire Medicaid expansion, CBO’s assumptions could be vastly different indeed.

Finally, as one observer noted, CBO’s score of the law’s repeal “also assumes that a controversial tax on high-cost health insurance plans goes into effect as scheduled in 2018, though critics argue Congress will act to avoid that.”  If Congress does act to avoid that tax, then the law will INCREASE the deficit – because the $111 billion in revenue from this insurance tax on the middle class (to say nothing of the additional $216 billion in various tax-related interactions) outweighs the $109 billion in supposed deficit savings CBO assumes.  It’s pretty ironic that, given candidate Obama’s “firm pledge” not to raise taxes on the middle class, the only thing keeping Obamacare from raising the deficit is a tax increase on the middle class.

Summary of CBO Analysis of PPACA

This afternoon the Congressional Budget Office released their re-estimate of the health care law in light of the Supreme Court’s ruling, along with a new cost estimate for repealing the legislation.  In sum, CBO said that the Supreme Court ruling will:

  • Decrease the net cost of the law by $84 billion through 2022;
  • Result in about 3-4 million additional individuals remaining uninsured; and
  • Raise premiums on the individual market by 2 percent, or about $400 per family – that comes in addition to the $2,100 per family premium increase CBO previously predicted back in 2009.

To be clear, in re-estimating the impact of the law’s Medicaid expansion – which the Court’s ruling made optional – CBO did NOT attempt to determine which states would and would not expand their Medicaid programs.  When assessing the outcome of the ruling, CBO concluded that:

  • About one-third of the potential newly eligible Medicaid population will reside in states that will fully expand coverage under the law’s parameters (i.e., up to 138 percent of poverty).  These individuals will be enrolled in Medicaid, as they would have been prior to the ruling.
  • About one-half of the potential newly eligible Medicaid population will reside in states that will partially expand coverage under Medicaid (i.e., more than exists currently, but not up to 138 percent of poverty).  CBO assumed that 40 percent will reside in states that expand up to 100 percent of the poverty level, and 10 percent will reside in states that expand Medicaid to some level below 100 percent of poverty.  Under this scenario, those with incomes between 100-138 percent of poverty will receive Exchange subsidies, while those individuals with incomes under 100 percent of poverty will either be enrolled in Medicaid, if their state has expanded the program to cover them, or will not obtain access to coverage if their state has not expanded Medicaid to cover them (because individuals with incomes below the poverty level are not eligible for Exchange subsidies under the statute).
  • About one-sixth of the potential newly eligible Medicaid population will reside in states that will NOT expand coverage under the Medicaid expansion at all in the next decade.  Under this scenario, those with incomes between 100-138 percent of poverty will receive Exchange subsidies, while all those individuals with incomes under 100 percent of poverty will not obtain access to coverage (because individuals with incomes below the poverty level are not eligible for Exchange subsidies under the statute).
  • CBO also concluded that “about one-fifth” of those already eligible for Medicaid will no longer enroll in the programs – diminishing the “woodwork effect,” whereby individuals come “out of the woodwork” and discover they have been eligible for Medicaid for some time.

In total, CBO concludes that about 6 million fewer people will be enrolled in Medicaid under the law due to the ruling and its impacts; between 2-3 million of these will receive subsidies on insurance Exchanges in lieu of Medicaid coverage, while between 3-4 million will remain uninsured, thus diminishing the law’s reduction in the number of uninsured Americans.

With respect to the budgetary impacts of these changes, CBO estimates that the federal government will save $6,000 in Medicaid costs for each individual that does not enroll in the Medicaid program.  Conversely, CBO estimates each individual who receives an Exchange subsidy instead of joining the Medicaid expansion will cost the federal government a net of $3,000 – that’s the difference between the amount the taxpayers will spend on insurance subsidies ($9,000) and the amount taxpayers would have spent on Medicaid coverage instead ($6,000).  On net, CBO believes the Court ruling will reduce Medicaid spending by $289 billion, while increasing spending on Exchange subsidies by $210 billion (with a further $5 billion impact of interactions).

Finally, CBO included the following paragraph on page 15 of its analysis of the Court ruling:

The additional enrollees [i.e., those previously projected to enroll in Medicaid, but who will now receive Exchange subsidies in light of the Court’s ruling] are likely to spend more on health care, on average, than those previously expected to purchase insurance through the exchanges because people with lower income generally have somewhat poorer health.  As a result, CBO and JCT now estimate that the premiums for health insurance offered through the exchanges, along with premiums in the individual market, will be 2 percent higher than those estimated in March 2012.

As noted above, this 2 percent increase – or nearly $400 for a family, given an average premium of $19,200 per year – comes in addition to the $2,100 per family premium increase CBO previously predicted when the law first passed.  Recall that candidate Obama repeatedly promised premiums would go down by $2,500.  This development takes him even further away from keeping that promise.

Obamacare’s Medicaid Shambles

The Washington Post has a new story this morning on Democrat governors’ concern about Obamacare’s massive Medicaid expansion, coming ahead of this weekend’s National Governors Association summer meeting.  Among the story’s highlights:

  • “At least seven Democratic governors have been noncommittal about their willingness to go along with expanding their Medicaid programs, the chief means by which the law would extend coverage to millions of Americans with incomes below or near the poverty line.”
  • “‘Unlike the federal government, Montana can’t just print money,’ Gov. Brian Schweitzer (D) said in a statement Wednesday.”
  • “Asked at a forum Wednesday to describe state reactions to the Supreme Court ruling, Dan Crippen, executive director of the National Governors Association, offered a one word reply: ‘confusion.’”
  • “Last week, [Democrat Arkansas Governor Mike] Beebe asked officials at the Centers for Medicare and Medicaid whether, in the event of an unforeseen future fiscal calamity, Arkansas would be able to tighten its eligibility rules and still get the full federal match for those who continued to qualify for its Medicaid program.  To date, Beebe has received no answer.”
  • “In a letter to the governors Tuesday, [HHS Secretary Kathleen] Sebelius assured them, ‘I appreciate that states have questions.’  However, she offered little in the way of specific guidance, promising instead to address their concerns at a series of meetings scheduled in various cities across the country beginning July 31.”

Liberal advocacy groups have attempted to claim that states should not turn down the “free” money Obamacare will offer to the states in the form of a higher Medicaid match.  But this money is NOT free, in two respects.  First, the federal match comes from the massive new federal taxes needed to fund Obamacare – taxes which will harm economic growth and jobs nationwide.  Second, the state share of the Medicaid spending – including new administrative costs that easily could exceed $10 billion – will have to come from somewhere too: From cuts to education, transportation, and other state priorities, or from yet more destructive tax increases imposed at the state level.

Even some Democrat governors understand that money does not grow on trees, and the massive Medicaid expansions included in Obamacare will have major costs.  Unfortunately, the Administration and its liberal allies continue to ignore the fiscal implications of this unsustainable law, resulting in the current implementation shambles less than 18 months before Obamacare’s coverage expansions are scheduled to “go live.”