Late in the day on September 25, 2017, the Congressional Budget Office and Joint Committee on Taxation staff released their report on the Graham-Cassidy bill. Their analysis was apparently of an earlier version of the bill than the one released on September 24, 2017, but the provisions described and analyzed in the CBO report are virtually the same.

The CBO found that the Graham-Cassidy meets Senate budget reconciliation rules. It would reduce the deficit over ten years by at least $133 billion, the amount that the CBO concluded that the House American Health Care Act would reduce the deficit; each title of the bill would result in at least $1 billion in deficit reduction; and the bill would not increase the deficit in the four ten-year periods beyond the ten-year budget window. On the other hand, the CBO stated that, although it did not have time to come up with point estimates (which would take several weeks), “millions” would lose coverage under the bill.

Sources Of Coverage Losses

Coverage losses would be attributable to three main causes. First, large reductions in Medicaid funding would reduce Medicaid enrollment. Second, reduction in subsidies for the individual market would reduce enrollment in that market. Third, enrollment in all markets would be lower because of the repeal of the individual responsibility requirement. These losses would be only partially offset by new programs established through the block grants and higher enrollment in employer-sponsored coverage as individual market coverage became more problematic. Losses would be particularly large starting in 2020 when major changes to federal funding streams would begin, causing market disruptions and other implementation problems.

Sources Of Spending Reductions

The bill’s projected budget deficit reduction is mainly attributable to the relatively small size of the block grants, which at $1.2 trillion for the 2020 to 2026 period are $230 billion less than the amount in the CBO’s March baseline. These cuts would more than offset lost revenue from the repeal of the mandate penalties, but the CBO estimates that at least $150 billion of the $1.2 trillion would not be spent. Medicare spending reductions would add to the deficit reduction, although employers would expand coverage, reducing tax revenues.

The CBO projects that under Graham-Cassidy states that had expanded Medicaid would by 2026 receive about 30 percent less funding than under current law, and states that failed to expand Medicaid 30 percent more. Overall, funding would be reduced 10 percent from CBO’s 2016 baseline.

Projected Changes To State Insurance Regulations

The CBO projects that most states would change their insurance regulations as permitted by Graham-Cassidy because markets would become unstable if current insurance regulations remained in place without current subsidies and mandates. Without subsidies, states that maintained ACA market rules would see healthy people fleeing the market, premiums for people with preexisting conditions rapidly rising, and insurers withdrawing from the market.

But problems would also attend changes in market rules. CBO expects that some states would increase age rating ratios from the ACA’s 3 to 1 to 5 to 1 and reduce the scope of benefits to exclude expensive services that are used by few people, such as mental health care, habilitative and rehabilitative services, and certain drugs. Some states would allow insurers to set premiums based on health status. Coverage for people with preexisting conditions and for high-cost services would become much more expensive.

Graham-Cassidy would require states to provide at least small subsidies for purchasing individual market coverage in order to change market rules. But the CBO projects that states would lack the money and programs to otherwise maintain coverage in the individual market. The main effect of Graham-Cassidy would therefore be to reduce individual market protections.

The Future Of Medicaid Expansions And Medicaid Spending

The CBO predicts that some states that have expanded Medicaid would try to continue covering the expansion group. But by 2026, covering this population would take roughly the full amount provided to states in block grants, leaving little to support others in the individual market. Covering enrollees in the individual market would also be more difficult than simply retaining Medicaid, as states would have to establish new programs to cover them.

CBO projects that states that have not yet expanded Medicaid would likely use the block grant funds to establish high risk pools for high-cost individuals, pay providers for uncompensated care, or increase Medicaid payment rates or benefits for their traditional Medicaid population. (Graham-Cassidy allows states to use up to 15 percent of their block grant for their traditional Medicaid populations; up to 20 percent with HHS permission).

CBO projects that Medicaid spending would be cut by $1 trillion over the 2017 to 2026 period because of the elimination of Medicaid expansion funding and Graham-Cassidy’s Medicaid per capita caps or block grants. States would have little flexibility under the per-capita caps for redesigning their Medicaid programs. States might commit more of their own resources to funding Medicaid, but alternatively they could cut payments to providers and health plans (which are already low in many states); eliminate optional services; or restrict enrollment through work requirements or other means. These changes could reduce enrollment or enrollees’ access to care.

A Likely Too Short Implementation Period

The CBO acknowledges that the two-year timeframe in the legislation for states to develop the institutional capacity to use the block grants and to adopt new rules is too short. States would have to adopt legislation and administrative rules and establish systems for determining eligibility of individuals for subsidies, suitability of insurers for receiving those subsidies, enrolling individuals in coverage, and making required payments on a very short time frame. In some states there might be no insurers in the individual market until new market rules were clear and insurers had time to adapt to them.

During 2016, 8.4 million people with incomes between 100 and 400 percent of the federal poverty level received premiums tax credits, roughly half the enrollment of the individual market. States might try to cover these people through Medicaid-like programs, but to do so they would have to come up with substantial additional state funding.

A Bleak Political Outlook For Graham-Cassidy

The CBO report confirms much of what the critics of Graham-Cassidy have been saying for several days. In any event, the most important number connected with Graham-Cassidy is likely three: It is being reported that Senator Collins will not support Graham-Cassidy, and with Senators Paul and McCain as firm negative votes, there are now three Republicans opposed, leaving only 49 in favor even if not other GOP no votes emerge. The bill may well be dead.