Trump’s New Hail Mary For O’Care Repeal Is A Total Freaking Mess

Senate Republicans eager to rescue their flailing Obamacare repeal effort — or at least, eager not to be blamed if it fails — are clinging to a vague idea reportedly being pitched by top Trump administration officials that they say will mitigate the replacement bill’s massive cuts to Medicaid.

The idea is being called a “wraparound” by GOP senators, and they say the goal would be to funnel the low-income people who would lose Medicaid coverage into private plans, using a combination of tax credits for private insurance, the legislation’s stabilization fund and existing Medicaid revenue streams.

Sen. Bill Cassidy (R-LA) said “it certainly can work,” and Sen. Rob Portman (R-OH) called the idea, coupled with a proposed extra $200 billion for the bill’s stabilization fund, “progress.”

The idea sounds tidy enough in principle, but runs into massive problems when one delves into the details of how to pay for it. To make the idea work, experts tell TPM, Republicans would need to massively increase the money they’re willing to spend on assistance for lower income people, and face legal challenges doing so, through Obamacare repeal’s legislative process.

“You could write down on paper how this would work, but the question is where the money would come from,” Larry Levitt, a vice president of the Kaiser Family Foundation, told TPM.

Centers for Medicaid and Medicare Administrator Seema Verma is leading the talks with wavering senators trying to win them over on the idea. The CMS would not answer TPM’s questions about the specifics of the idea, pointing instead to a Verma statement from last weekend that said “CMS is ready to partner with states to develop options that work best for their low income population.”

According to what has been fleshed out in other reports and in conversations with senators and experts, the idea would look something like this: States would seek to move low-income people who lost their Medicaid coverage into private plans. The tax credits offered under the GOP legislation would subsidize their premiums. Because, however, the GOP bill decreases the value of Obamacare’s insurance tax credit by setting the benchmark plan at a far lower actuarial level — meaning the percentage of medical costs the insurer is required to cover — those low-income people would still face daunting out-of-pocket costs that would make insurance unaffordable.

The “wraparound” would come in the additional funding that states would be offered to help offset some or all of those out-of-pocket costs. Where that money would come from is a little bit murkier.

The obvious candidate is the bill’s stabilization fund. But herein lies a simple math problem. The Republican legislation cuts $756 billion in Medicaid funding, and the stabilization fund is just of fraction of that. The latest legislation offers $182 billion, but it’s stretched in a couple different ways. Another $200 billion is reportedly being considered for the final bill.

“If you’re still going to take more than $700 billion out of the Medicaid program, you still have significant problems,” Sen. Susan Collins (R-ME) said, according to the Wall Street Journal.

Furthermore, that pot of money would dry up by 2026, at which point, the Medicaid shortfall facing states will be even steeper than when the bill first goes into effect, due to how its Medicaid overhaul is structured.

Another idea being floated is opening up traditional Medicaid funding to subsidize the out-of-pocket costs. If you think of the 58 percent actuarial value of the GOP bill’s benchmark plans being the first 58 percent of a low-income person’s coverage costs being paid for via the tax credits for premiums, states would seek traditional Medicaid funding at the typical match rate for the other 42 percent that comes in the form of a deductibles. That federal match rate is around 50 percent, depending on the state.

In this scheme, the federal government would cumulatively be picking up around 80 percent of a low-income person’s coverage costs, not so far off from the enhanced match rate under the ACA’s Medicaid expansion that the GOP bill rolls back.

However, this pitch runs into serious legal and financial obstacles. Medicaid isn’t currently allowed to be used this way. Republicans could write an amendment to their Obamacare bill explicitly allowing for it. But that would blow up the overall cost of the legislation, both due to the increase in Medicaid funding and because the tax credits for insurance would be more widely used if low-income people weren’t facing high deductibles. If the Senate bill costs the government more than the House version, Republicans can’t use reconciliation — and avoid a Democratic filibuster — to pass it.

Another idea being hinted at is using a combination of Medicaid and Obamacare waivers that already exist to open up traditional Medicaid funding. Here, too, the cost presents a significant problem. Both waivers require the program they’re being used for to be budget neutral. In fact, the only requirement of the Obamacare waivers, known as 1332 waivers, under the Republican bill is that they don’t increase the federal deficit.

“You can’t make money come out of thin air through this process,” said Matt Fiedler, a Brookings scholar who previously worked for the Obama administration. “Ultimately the money has to be there to provide coverage for folks and if the bill doesn’t provide it up front, there’s nothing the administration can do on the back end to fill that gap.”

Stepping back, the big-picture irony is that for the idea to work, it would require the government to spend more money than what Medicaid expansion under Obamacare costs currently. Subsidizing private insurance is more expensive than Medicaid for the federal government because Medicaid pays providers a cheaper rate.

So any serious attempt to supplant Medicaid with private insurance must acknowledge this fact. Spending more money than the current system is not allowed by the reconciliation process, and it’s certainly not the goal of most Republicans pushing repeal either.