'It will reverberate': Medicaid cuts will hurt employer health plans

Daniel Heuer/Bloomberg

President Donald Trump's proposed $2 trillion cut to mandatory federal spending will likely place Medicaid in the line of fire. But what would this mean for employers who provide health plans through private insurers? 

The House of Representatives passed a budget resolution that includes an $880 billion cut over a decade to the healthcare and energy sectors. While the budget resolution did not mention Medicaid, it's clear this kind of reduction in spend is not possible without defunding Medicaid and leaving potentially millions of Americans uninsured. According to KKF, a $880 billion loss would represent 29% of state Medicaid spending per resident. In order for states to offset the loss of federal funds, they would need to cover fewer Americans, lower the quality of benefits and pay providers lower rates.

Ultimately, this means the healthcare system will lose money, and someone has to pick up the bill. 

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"When it comes to [legislation] focused on programs like Medicaid and Medicare, we tend not to think about them as affecting the commercial market," says Alan Cohen, co-founder and chief product officer at Centivo, a health plan provider for self-funded employers. "That's probably short-sighted. It will reverberate through the healthcare system and certainly affect employer plans as well — it's classic cost shifting." 

Cohen notes that there are a few ways employers will feel the impact of Medicaid cuts. Employers with workers who opted for a Medicaid plan will fall back on their company plan, potentially causing employer premiums to go up, especially if those employees have chronic conditions or disabilities. 

Meanwhile, healthcare providers will make up the money they're losing from the constriction of Medicaid by upcharging employer plans.

"If we have more uninsured people, we have more uncompensated care," says Cohen. "Providers need to make up that gap, and the only place they can make up that gap is with employer coverage."

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It's almost guaranteed that Americans will lose insurance if this budget resolution goes through — what's more uncertain is how many will be impacted. For example, if eligibility criteria are added, like work requirements for able-bodied Medicaid recipients, then the Urban Institute estimates that over five million Americans between the ages of 19 and 55 are at risk of losing coverage. 

Notably, thanks to the Affordable Care Act's (ACA) Medicaid expansion in 2014, there is a record number of Americans who have some form of health insurance. There are 1.4 million Americans who do not have coverage, and they reside in the 10 states that chose not to expand Medicaid. 

"The ACA has been instrumental in driving the uninsured numbers down to the lowest we've seen in decades," says Cohen. "So, if we're going to undermine the ACA, then we need a replacement that does hopefully better or just as good."

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So far, Republicans have not offered any indication that another program would replace or help subsidize a weakened Medicaid. 

Cohen reminds employers that they are implicated in changes to Medicaid and that their opinion matters. When it comes to backing policy, employers should consider the healthcare system in its entirety. 

"Everyone wants a well-functioning healthcare system that's affordable and delivers high-quality care in a transparent way," says Cohen. "It is patient-centered and doesn't put companies into financial distress, and doesn't put people into financial distress. We should all keep that as our North Star."

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