With the Senate in the process of making heads or tails out of the American Health Care Act (AHCA), the bill passed by House Republicans on May 4 to rewrite major parts of the Affordable Care Act (ACA) and to revamp Medicaid funding, the financial analysts are out in force to assess what the proposal would mean for health insurers and providers.
In that vein, a new report by Standard & Poor’s (S&P) examines how two main health care market segments—Medicaid and individual—will be affected, and in turn what this means for payers and providers.
On Medicaid, the AHCA offers a titanic shift for the Senate to consider by putting a per-capita cap on federal funding pegged to beneficiary spending in the base year of 2016. States would have some flexibility to eschew the cap and go with a block grant formula instead, but for the most part the cap model would be in place for the long term care sector’s primary clients among elders and people with disabilities.
The Congressional Budget Office, which has not scored the version of the AHCA that rests with the Senate now, did so in March for a previous iteration of the legislation and said changes to Medicaid funding would result in federal spending reductions of $880 billion over 10 years.
There are also hotly disputed changes in the Republican bill to gradually end the Medicaid eligibility expansion under the ACA.
Analysts Weigh In
S&P said in its analysis that the proposed change in Medicaid funding for the expansion population would trim the number of enrollees in the program over time and “be a real test” for Medicaid stakeholders, from insurers to providers, to states and to beneficiaries.
“The bill shifts Medicaid from an entitlement program to either block grants or per-capita funding, with growth in spending likely to lag health care cost inflation. This will likely force some states either to reduce Medicaid eligibility levels or cut reimbursement to providers to offset the growing burden on state budgets,” S&P said.
In general, S&P said the ACA repeal and replace effort, which certainly will undergo a rewrite of some sort in the Senate, is a challenge for providers.
“We believe that passage of this legislation as proposed would add to credit stress in the not-for-profit and for-profit hospital sectors, which could lead to negative ratings actions over time and ultimately a negative outlook,” the analysts said. This negativity is most noted for safety-net providers that are vulnerable to Medicaid reductions.
“However, the funding reductions the bill currently proposes are spread out enough that an immediate negative outlook for 2017 is not currently warranted, in our opinion,” S&P said.
Joseph Marinucci, senior director, S&P, says it is important to remember that changing Medicaid from an open-ended payment system as it has always been to a capped system leaves the door open for trouble if there is a recession.
“The ACA was designed for recession, with buffers for a bad economy. If there are caps, there is then a stress scenario for states who won’t have the flexibility or federal budget to pay for their Medicaid budget,” he says.
S&P also said that providers are already under operating pressures “from a wide array of factors, including already weaker reimbursement growth, movement to value-based reimbursement, and rising labor costs.” This makes the possibility of a new law to follow—and the changes to Medicaid—an especially tough road for providers to navigate right now, the analysts said.