AHCA: Huge Increase in State Costs

In the February 2017 forecast, Minnesota Management & Budget and the State Council of Economic Advisors warned of potential downside risk to the state budget resulting from changes in federal policy. Earlier this month, one of these threats came into sharper focus, as conservatives in Washington unveiled the American Health Care Act (AHCA).

According to a preliminary assessment from the Minnesota Department of Human Services (DHS), the AHCA would translate in billions of lost federal dollars to the State of Minnesota, and the loss of or significant cuts to health care coverage for over one million Minnesotans. The setback dealt to the AHCA last week in Congress does not mean an end of conservative health care initiatives or the threats they pose to state finances. All the more reason for Minnesotans to be wary of huge tax cuts that could undermine future state fiscal solvency.

The AHCA would repeal the Affordable Care Act (ACA), which was enacted in 2010, and reduce federal support across the entire Medicaid program. According to DHS, the replacement of the ACA with the AHCA would have a detrimental impact on the financing of public health care programs in Minnesota:

First, the AHCA significantly reduces federal spending on Medicaid by establishing per capita caps (i.e., capping the amount of funding per enrollee). Second, the bill ends the enhanced federal funds now available to help states cover adults who are eligible for the Medicaid expansion. And third, it eliminates federal funding for MinnesotaCare.

The impact of AHCA on Minnesota’s Medicaid and MinnesotaCare programs would begin on January 1, 2020—half way through Minnesota’s 2020 fiscal year. By the end of the FY 2020-21 biennium (June 30, 2021), the state would lose $2.5 billion in federal funding, according to DHS estimates. State loses under the AHCA would quickly escalate over the course of the next decade, reaching $10.4 billion by the FY 2029-30 biennium. According to DHS projections, the cumulative ten-year loss of funding for Minnesota under the AHCA would be nearly $35 billion by FY 2030.

The share of Minnesota public health care costs borne by the federal government would shift dramatically over time under the AHCA, according to DHS estimates. In 2016, 41.8 percent of the cost of these programs were borne by the state, while 58.2 were borne by the federal government. By 2030, the state share would increase to 65.4 percent, while the federal share would drop to 34.6 percent, assuming enactment of the AHCA.

To add insult to injury, DHS finds that Minnesota would fare worse than most over states under the AHCA in terms of federal funding losses:

Federal funding cuts under the caps will not account for any program savings or efficiencies that Minnesota has produced and from which the federal government has benefited over the last several years. This punishes our state for being an early innovator, implementing reforms that have saved money and lowered rates. Minnesota has created efficiencies through efforts to reform care delivery and purchasing, streamline the program and change how we deliver long‐term care so people can remain living in their homes while they receive community‐based health care. Minnesota has accomplished this all while ensuring a comprehensive coverage continuum.

According to the DHS analysis, the loss of federal funding would likely be borne by patients in terms of lost coverage and increased co-pays and deductibles, or the loss of services, and by private market consumers and employers through higher premiums. In addition, providers would likely see reduced reimbursements and increased uncompensated care costs, while Minnesota counties would likely be hit by reductions in federal funding for a variety of Medicaid services, which could ultimately translate into higher property taxes.

While the most vulnerable Minnesotans would losing health care coverage or access to vital services and consumers and employers would see higher premiums under the AHCA, a Congressional Budget Office analysis indicates that high income households and corporations would benefit from repeal of several taxes associated with the ACA, including “an increase in the Hospital Insurance payroll tax rate for high-income taxpayers, a surtax on those taxpayers’ net investment income, and annual fees imposed on health insurers.”

Given conservative antipathy to the ACA, the setback dealt to the AHCA last week does not mean other legislation will not eventually be bought forward. In order to appease the far-right congressional conservatives who blocked passage of the AHCA last week on the grounds that it maintained too many of the features of the ACA, future measures could be even more draconian in terms of their impact on states’ budgets.