A closer look at Lindsey Graham's health care plan

When the revised Senate health care bill was announced last week, speculation whether the Republicans had enough votes to pass the measure was immediate. A bit under the radar, however, was tension from another source. That same day, Sens. Lindsey Graham, R-South Carolina, and Bill Cassidy, R-Louisiana, announced they have a backup bill waiting in the wings in case the current effort fails.

Now that the revised Senate bill has collapsed, with GOP Senators Mike Lee of Utah and Jerry Moran of Kansas, coming out against the bill on Monday night, the Graham-Cassidy plan may get a chance. But whether or not it actually gets legs, the proposed alternative -- at least as far as can be gleaned from Graham's July 13 press release -- sheds some important light about Republican plans to change health insurance in general and what that would mean for consumers. 

The senators' plan would turn all of the estimated $110 billion federal dollars currently spent on Obamacare into block grants to the states. What does that mean exactly? According to Graham, each state would get a lump sum of federal money to spend as they wish.

 "Vermont has expressed interest in a state-government-run and -financed single-payer system like they have in Canada. If they want to again continue down that path, they would be free to do so under this proposal," said Graham in the press release. "South Carolina, on the other hand, would likely go in a different direction and use the federal funding to make private health care more affordable and available."

In addition, the proposal seemingly would repeal the individual mandate and keep many Obamacare taxes in place, with the idea of sending that money back to the states.

"[W]e note that the setback is likely an interim step, with both the recess delay and Senator McCain's absence prolonging the Obamacare endgame until at least next week," said Benjamin Salisbury, a health care analyst with FBR Capital Markets. "We also emphasize that 'doing nothing' is an unattractive option for Republicans: It is believed that compromise with Democrats would be needed to stabilize the exchanges."   

Even if the Graham-Cassidy proposal never sees the light of day, it's important to remember that block grants, in regards to Medicaid, are part of the Republican efforts to repeal and replace Obamacare, including in the Senate's revised Better Care Reconciliation Act (BCRA) and the House's American Health Care Act (AHCA).

The federal government currently distributes Medicaid money to the states based on need. Under McConnell's Senate bill, starting in 2020, states would choose between accepting a fixed amount of money per Medicaid enrollee (called a per-capita cap) or one large but capped block grant, regardless of the number of participants.

"The notion of block grants is problematic," said Stan Dorn, senior fellow at health care advocacy group, Families USA. First, the amount of money states would receive in a block grant doesn't rise with the number of enrollees. "That would make it hard for states to pursue innovative policies to get more people enrolled and thus, more people insured," he noted.

Another worry? Periods of economic recession and high unemployment can have a negative effect on a block-grant system. During such episodes, more people turn to Medicaid just as state revenues decline. That would make it difficult for a state to maintain a balanced budget and the necessary health care benefits its population may need. To stay whole, Dorn said, states would have to decline new enrollees, decrease benefits or raise taxes.

To deal with increased costs for providing health insurance while keeping a balanced budget, cutbacks in areas other than health care could result. "It could be a decrease in funds for roads or education," Dorn speculated.

Depending on how block grants are executed, here's another consequence of such funding: The Graham proposal calls for an equal division of the $110 billion currently being spent on private insurance subsidies and Medicaid spending, including Medicaid expansion, between all states on a per capita basis. But Dorn said this would mean states that signed up for Medicaid expansion would have dramatic cutbacks in funding that could cause serious declines in service, while states that didn't sign up for Medicaid expansion would experience a windfall. 

"Without expanded coverage," he said, "all kinds of people with serious health conditions may find themselves without insurance." 

In:
• Bill Cassidy
• Patient Protection and Affordable Care Act
• Health Care
• Lindsey Graham
• John McCain
• Mitch McConnell