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Republican ideas for healthcare reforms could spell trouble for U.S. states

[January 27, 2017] By Robin Respaut and Hilary Russ

SAN FRANCISCO/NEW YORK (Reuters) - President Donald Trump's push to fulfill a campaign promise to replace Obamacare, his predecessor's signature healthcare plan, with the help of a Republican-controlled Congress, could add to U.S. states' financial strain.

That is because a key component of the 2010 law allowed states to expand Medicaid, the government health insurance program for low-income Americans, and collect extra dollars that came with expansion.

Thirty-one states and the District of Columbia chose to expand Medicaid enrollment through Obamacare, formally known as the Affordable Care Act.

(Graphic - http://fingfx.thomsonreuters.com/gfx/rngs/USA-OBAMACARE-MUNICIPALS/010031LN3PD/index.html)

While Republicans have not agreed to specific plans, one idea gaining traction has been to convert the current system, in which states share the cost of Medicaid enrollees with the federal government, into fixed payments, or block grants, sent to the states.

Trump's nominee to run the U.S. Department of Health and Human Services, U.S. Representative Tom Price, has long advocated such a plan.

The Kaiser Family Foundation estimates a repeal of Obamacare and a cap on federal Medicaid spending, such as through a block grant or a per capita cap, could cut Medicaid funding by 41 percent over the next decade. That would likely handicap states' ability to respond to larger enrollments during recessions.

"It will have clear implications for state budgets," said Robin Rudowitz, the Washington-based associate director at Kaiser's Program on Medicaid and the Uninsured. "States could raise revenue and spend less in other areas, but these are not easy choices to make."

The foundation is a nonprofit focused on health issues.

Faced with inflexible federal funding, states might also decide to limit Medicaid eligibility or freeze new enrollment, reducing the number of people covered.

In a letter to congressional leaders on Tuesday, the National Governors Association pleaded with lawmakers not to "shift costs to states."

New Jersey, one of many states struggling with ballooning public pension costs and modest revenue growth, expanded Medicaid under Republican Governor Chris Christie.

That state could lose up to $3 billion in federal aid if the Affordable Care Act is repealed and have to spend $1 billion more from its budget, Democratic state lawmakers there said this week.

MONEY FLOWS FROM THE HEART

Medicaid sits at the heart of the federal-state fiscal relationship. Over $330 billion in federal Medicaid dollars flowed to states in fiscal year 2016, accounting for more than half of all federal grants sent to state and local governments and the largest individual program, according to Standard & Poor's.

In 2015, the federal government paid about 60 percent of total Medicaid costs while states paid 40 percent.

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A small group of demonstrators stand outside of of a hotel before former South Carolina Senator Jim DeMint, president of the The Heritage Foundation, speaks at a "Defund Obamacare Tour" rally in Indianapolis, Indiana, U.S. August 26, 2013. REUTERS/Nate Chute/File Photo

Medicaid enrollment also tends to spike during an economic downturn, just as state revenues are most strained, spurring the federal government to send more money to states.

Despite calls from Trump to Republican lawmakers on Thursday for swift action on replacing Obamacare and on other priorities, changes will likely still take time to work out.

House of Representatives Speaker Paul Ryan said the agenda would take more than 100 days and said the goal "is to get these laws done in 2017," without guaranteeing an Obamacare replacement would be enacted by the end of December.

With so many details still up in the air, public officials are hard-pressed to craft budgets that directly respond to their concerns.

New York City Mayor Bill de Blasio on Tuesday said his next budget would hold a record amount of money in reserve and seek at least $1 billion of savings citywide to compensate for "a huge amount of uncertainty" emanating from Washington.

In California, Medicaid enrollment jumped from nearly 8 million in 2012 to more than 14 million today, thanks in part to federal healthcare reforms.

In a letter earlier this month to U.S. House Majority Leader Kevin McCarthy, Democratic California Governor Jerry Brown pleaded that Congress consider reforms that do not burden state budgets.

"That would be a very cynical way to prop up the federal budget - and devastating to millions of Americans," Brown wrote to the Republican congressman from California.

However, Brown's proposed budget this month did not include a contingency for a potential repeal of Obamacare or the threat of changes to the federal tax code.

"Until there is a change in policy at the federal level, we will continue to budget under the current rules of the road," said California Finance Department spokesman H.D. Palmer.

(Reporting by Robin Respaut in San Francisco and Hilary Russ in New York; editing by Daniel Bases and Jonathan Oatis)

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