New story: Leading option in Senate is for deeper Medicaid cuts than House. Growth rate at CPI-U starting in 2025 https://t.co/BtBWUBcLP3
— Peter Sullivan (@PeterSullivan4) June 19, 2017
What is going on here?
Medicaid which was scheduled to take a 27% federal cut in spending under the House version of the AHCA, is getting cut even more in the Senate.
Why is this?
It is a function of reconciliation rules. The Senate bill has to reduce the deficit by at least as much as the House passed bill. Any dollar that is spent on beefing up opioid addiction spending or creating a multi-billion fund for NICU babies so that Senators can claim it passes the Kimmel test or slowing down the Medicaid expansion phase out from three years to seven years or anything else has to be paid for elsewhere in the bill.
There are three major sets of pay-fors in the AHCA. The first is reducing or slowing down tax cuts that accrue overwhelmingly to upper income individuals. The second is to cut funding for the individual market/Exchanges. The third is Medicaid.
The Republican Party has a strong revealed preference for tax cuts for upper income individuals above almost all else. That is the one policy plank that holds that party together. So pushing back the Medicare tax increment on investment income is unpossible within the political realities of the Republican caucus.
The Senate bill has been focused on taking off some of the most pointy edges of the individual market problems in the House bill, or at least sanding them down to avoid some attack ads in October 2018. So taking money out of there does not make sense within the internal logic of the Senate bill.
That leaves Medicaid as the sole pay for that does not have either strong and broad consensus support or immediate political logic. And here the power of compound interest comes into play. Switching to CPI-U instead of CPI-M or CPI-M+1 is a massive cut. Below is the difference in the CPI-U and CPI-M since 1/1/2000 with spending index at 100 for 1984.
What does this mean? May 2017 CPI-M had 2.7% growth from May 2016. CPI-U only had 1.9% Applying that to the $344 billion the Federal Government spent on Mediciad in 2015 (from the NHE fact sheets Table 03 Line 11), that is a difference of $2.75 billion dollars in the first year. And then it compounds. Over a ten year budget window, it is a $150 billion dollar or more in cuts adding to the current $800 billion dollars already scheduled to be cut. The Senate rumor has the change in formula not start until the end of the budget window so the total in-window cut may only be $20 or $30 billion dollars incrementally but the long run growth curve is incredibly compressed. It further shrinks the federal role for Medicaid finance over time. It is a slower shrinkage than the FY-18 budget proposal where by the end of the budget window, federal funding for Medicaid would be cut in half compared to present baseline but it will get to that point fairly quickly outside of the budget window.
Grabbing money out of Medicaid by lowering the index growth rate is a massive cut of future growth. It is also fairly subtle as I know the number of people whose eyes have not glazed over by now in this brief explanation can fit into a large booth at the local Cracker Barrel. It kicks Medicaid harder while allowing for attack ad insulation and large tax cuts.