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How the GOP would cut billions more from Medicaid with a single letter

A change in funding for Medicaid under a GOP bill could have profound consequences over the long term. (Eric Gay/Associated Press)

With a small tweak to a relatively obscure part of the Republican health-care bill, GOP senators would make deep, permanent cuts to a low-income insurance program that covers tens of millions of Americans.

The Republican health-care bill wouldn't just unravel the Affordable Care Act, also known as Obamacare. Republicans are also planning to restructure Medicaid, a program established by President Lyndon B. Johnson in 1965 that provides health insurance to poor households, pregnant women and elderly patients.

Already, the version of the bill the House passed last month included drastic reductions in Medicaid outlays of about $834 billion over 10 years. GOP senators' own version of the bill, which they made public Thursday, could go even further over the long term.

Both the House and Senate bills aim to set a per-person cap on Medicaid spending in each state. That cap would adjust annually to take into account inflation. Through 2025, both bills would adjust the cap based on a measure of how rapidly medical costs are expanding — a measure known as the CPI-M.

Starting in 2025, however, the Senate bill would change the formula, instead funding Medicaid based on a measure of how rapidly all costs are rising (technically, the Consumer Price Index for urban consumers, or just CPI-U).

General costs, however, typically rise more slowly than medical costs. After 2025, the increases to Medicaid would no longer be able to keep pace, with the gap growing each year. After a decade or two, that discrepancy would add up to of hundreds of billions of dollars.

“It’s a very small issue in 2026 but, potentially, a very huge issue by 2040,” said Marc Goldwein, policy director at the Committee for a Responsible Federal Budget, an organization that advocates reducing the federal deficit.

In a brief analysis published online Wednesday, before the Senate's bill became public, the nonpartisan Urban Institute found that the differences between the two measures of inflation could add up to about $467 billion over 10 years, other things being equal.

The GOP bill would also make a number of other changes to the health-care system. Coming up with an exact number for the effect of changing the measure of inflation is complicated. And while the Congressional Budget Office has said it will publish forecasts for the Republican bill next week, its report might not reflect the effects of using the overall price index instead of just the medical component.

That is because CBO's most detailed estimates are limited to the next 10 years, and any projections beyond that point are usually vague and approximate. Under the new GOP bill, the change in the index would not take effect until 2025. That does not leave enough time for the change to a different measure of inflation to take full effect.

For instance, next week's CBO report might be able to describe in general terms how the change from CPI-U to CPI-M would save the government money. It is unlikely, though, that CBO will be able to give detailed estimates of how many fewer people Medicaid would be able to cover in the future. (Under the Senate bill, those people would have the opportunity to purchase private insurance in the individual market, with some financial help from the government.)

Some experts suggested that Republicans were trying to conceal the significance of the change. After all, it is just one letter.

“They’re trying to hide how much they’re taking out of the program,” said Linda Blumberg, an economist at the Urban Institute. “If you put it at the end of the budget window, it doesn’t look as bad. Don’t be fooled. This is a very dramatic difference.”

“The bill’s proponents will take credit for budgetary savings in the long run while ducking the long-run effects on the number of people in America who have health insurance,” said Douglas Elmendorf, a former CBO director.

“This is worse than a gimmick,” he said. “It does game the scoring process, and it disguises the damaging effects of the bill.”

Proponents of the legislation deny any budgetary legerdemain. Instead, they argue, Republican senators had to make sure that there was enough money in the bill to maintain consumers' and insurers' confidence in the system as they adjust to the new law.

“There's, I think, an overabundance of caution up front to make sure that markets get stabilized and coverage gets maintained to the extent possible,” said Douglas Holtz-Eakin, another former CBO director. “They made sure there's enough money in there up front to, sort of, assuage those concerns.”

Obamacare contained a similar provision. The law called for a change to the index used to calculate federal subsidies for Americans buying individual private insurance several years after taking effect. Elmendorf said that that aspect of Obamacare was also objectionable but not as consequential as the change from CPI-U to CPI-M in the GOP bill.

Those Obamacare subsidies might have become less generous over time, but households would still be able to benefit from them as long as they were able to put up their share of the premium. By contrast, the limitations on funding for Medicaid could force states to cut the rolls to save money, leaving some consumers without any affordable options.

“Republicans have been selling the line they had a way to provide health insurance to everyone at lower cost than through the Affordable Care Act structure. That selling point is false,” he said. “If you fake some things, that helps. That’s what they’re doing.”

Carolyn Y. Johnson contributed to this report.