California is facing a $20 billion healthcare emergency. That’s how much the state stands to lose in annual federal spending if Republicans repeal the Affordable Care Act.
Putting this in perspective, $20 billion represents nearly 18% of all state general fund spending, projected at $113 billion this year. That amount is also roughly what the state already pays from its general fund for Medi-Cal costs. Even a nation-state like California cannot absorb an 18% budget shortfall without severely damaging public health and its economy.
Repeal presents a greater risk to California than any other state, not only because of its large population, but also because the state fully embraced the promise of health insurance reform.
The ACA offered states significant federal incentives if they chose to expand healthcare coverage for previously uninsured residents, using a combination of increased eligibility thresholds for Medicaid (previously 100% of poverty level, now up to 138%) and federal subsidies for individuals who purchased healthcare plans through California’s exchange. Of the 32 states that adopted Medicaid expansion, California covered more of its previously uninsured than any other state by far. It did so with strong bipartisan support from both Gov. Brown and his predecessor, Gov. Arnold Schwarzenegger, as well as the Legislature.
How the state attempts to maintain ACA-like coverage for the recently insured may be the greatest test for California’s newly sworn-in Legislature.
Congressional Republican plans to repeal and replace the ACA have centered on rolling back the Medicaid eligibility expansion, cutting subsidized payments for insurance through exchanges like Covered California or altering the current state and federal shared funding responsibilities within Medicaid through the use of capped or constrained-growth block grants to the states. Each plan puts California at risk.
Rolling back eligibility for the nearly 3 million Californians who gained Medi-Cal coverage under the ACA would result in the loss of more than $15 billion a year in federal funding.
The potential loss of federal subsidies to the estimated 1.2 million individuals who now purchase federally subsidized health coverage through Covered California amounts to almost $5 billion a year.
Early estimates of the impact for California indicate that block grant funding, as proposed by House Speaker Paul Ryan, could result in a 26% cut, or $14.3 billion, in federal spending supporting Medi-Cal.
Combining either capped block grant funding or rollback of expansion with elimination of Covered California subsidies approaches that $20 billion figure. Combining all three proposals could put the total of lost federal support to California at more than $20 billion.
Replacing such a deficit in healthcare spending with state funds alone would require California either to raise new taxes or reduce spending significantly, or both.
But how? Raising the state income tax to cover a $20 billion shortfall would require nearly a 25% increase. Alternatively, reducing the number of Californians insured under the ACA to address the gap would require cutting off health coverage to nearly 4 million individuals.
California’s Democratic legislative leaders have vowed to fight repeal. If they fail, they’ve said they will step in to protect the millions of Californians who would lose their insurance.
That pledge, however, presents an unprecedented challenge. Prior to the ACA, California was home to the nation’s highest uninsured population, estimated to be 6.5 million in 2013. Since that time, California’s uninsured population dropped by nearly half, down to 3.3 million in 2015, almost entirely because of the ACA. How the state attempts to maintain ACA-like coverage for the recently insured may be the greatest test for California’s newly sworn-in Legislature.
California leads the nation in job creation, across manufacturing, agriculture, technology and, yes, the healthcare sector. Our $2.5 trillion economy is the nation’s jobs engine. If Donald Trump really wants to be a “jobs president,” as he has said, he should announce that the state of the economy and the health of millions outweigh the Republicans’ ideological opposition to Obamacare.
Tom McMorrow is a partner at the law firm Manatt, Phelps & Phillips, where he is responsible for California policy practice.