The Obamacare repeal is a state budget time bomb

John Neurohr |

This piece originally ran in Pennlive on January 26, 2017.

You think Pennsylvania has budget problems now? Wait until the Affordable Care Act is gone.

That’s probably a parochial, Harrisburg-centric way of looking at the consequences of repealing Obamacare.

The ACA has benefited Pennsylvanians in so many ways that its eventual repeal will be terribly painful.

We recently released a report that shows that 1.1 million Pennsylvanians will lose insurance and additional 3,250 deaths will occur each year as a result.

We pointed to almost $1.6 billion in revenues that hospitals will lose, which may lead some of them–especially in urban centers and rural areas—to close.

And we showed that repeal of the ACA will cost over 137,000 Pennsylvanians their jobs, while reducing the state’s gross domestic product (GDP) by over $75 billion.

All those consequences are striking. But there is another consequence that is particularly important for Pennsylvanians to recognize.

Put simply, if an ACA repeal were to go into effect next year, a budget deficit that the IFO conservatively estimates at be $1.7 billion dollars will, instead, reach $3.1. billion.

If repeal is put off until 2019, when the IFO projects the budget deficit to be 2.6 billion, the budget deficit will instead reach roughly $3.8 billion.

Why will ACA repeal have such a dramatic effect on the state budget?

One part of the story is that the impact of ACA repeal on the Pennsylvania economy will be felt on state tax revenues. We estimate that the state will lose roughly $300 million in revenues per year when repeal goes into effect.

The other part of the story is that the ACA has been saving the state huge sums of money every year in three different ways, all of which will be lost if the ACA is repealed.

First, the ACA created either new mechanism to save money in, or new funding for existing federal and state programs.

One example is the Medicaid Drug Rebate Program, which created a national drug rebate for Medicaid. Until the passage of the ACA, the program only applied to fee-for-service care.

Because the ACA allows Pennsylvania to take advantage of these discounts in its traditional Medicaid Managed Care program, the state saves at least $500 million per year.

Another example is the Children’s Health Insurance Program (CHIP). The ACA increased the federal match rate for CHIP, and for some other Medicaid services for children, up to 89 percent.

That is saving the state $90 million in the 2016-17 fiscal year.

Second, the expansion of Medicaid enabled many Pennsylvanians to move from traditional Medicaid, which is reimbursed at a rate of about 52 percent by the federal government, into expanded Medicaid, which is reimbursed at a rate of 95% next year and 90 percent starting in 2019.

This includes two groups of people: those with severe health difficulties covered under the Medically Needy Only and those who fall under the Medical Assistance for Workers with Disabilities Program. Together, these programs cost the state about $100 million annually.

Third, the ACA paid for health care received by many individuals and families who had previously received care through one or another state program.

One example is PACE and PACENET, which draws on the lottery fund to help low-income seniors purchase prescription drugs. PACE and PACENET expenditures were reduced by the Medicare Part D Prescription Drug Program, but that program has a notorious coverage gap—the “donut hole.”

The Affordable Care Act has a number of provisions that will gradually close the donut hole by 2020. They save the state roughly $70 million per year in PACE and PACENET right now.

Another example is the Medical Assistance—General Assistance program, which provided health insurance for 80,000 adults at a cost of $600 million per year prior to the ACA. The Medicaid expansion portion of the ACA now covers those 80,000 Pennsylvanians. If the ACA is repealed, they go back to the MA-GA program and the state is on the hook for that $600 million once again.

Add up all these ways in which the state has saved money under the ACA and the total is $1.36 billion. Add the $300 loss in tax revenues, and the impact on the budget is $1.66 billion in 2017—and given a health care inflation rate that continues to run higher than the general rate, much more by 2019.

The ACA does place some burden on the state, as it must fund a small part of the Medicaid expansion. In 2017 and 2018, only 5% of the Medicaid expansion or about $230 million, is paid for by the state, while in subsequent years 10%, or about $460 million has to be covered by Pennsylvania. But even when one subtracts the cost to the state of expanding Medicaid, the benefit of the ACA to the state budget is substantial.

So the potential repeal of the ACA should scare all of us in Harrisburg, and across the state, who care about finding our way out of the state’s fiscal morass. ACA repeal will put us deeper in the hole. Political leaders in our state–of both parties–need to stand up and tell the federal government to stop the movement to repeal the ACA until an adequate replacement is in place.