The latest Republican-led effort to overhaul the Affordable Care Act could lead to spending cuts for state education funding from Kindergarten through college, Fitch Ratings said in a new report.
The bill introduced last week by Sens. Lindsay Graham (R-South Carolina), Bill Cassidy (R-Louisiana), Dean Heller (R-Nevada) and Ron Johnson (R-Wisconsin) would keep a lot of the ACA’s regulations intact though it would eliminate the individual and employer mandate and shift insurance subsidies and Medicaid funding for coverage of poor Americans to block grants controlled by states.
In restructuring Medicaid to a “per-capita cap funding mechanism” the new Senate legislation would replace Medicaid’s existing open-ended entitlement structure paid for via a match of funds between the states and federal government. If a particular state Medicaid program is faced with a large number of people in need of expensive medicines or treatments, more federal dollars would flow to the state. States also see an uptick in Medicaid patients when companies lay off workers.
But the Graham-Cassidy legislation would make major changes that could hurt state finances.
“As total Medicaid spending represents approximately one-third of state budgets, the fundamental changes proposed could challenge that flexibility,” Fitch analyst Eric Kim wrote. “Negative implications for entities that rely on state support, including school districts, cities, counties, and public higher education institutions could be more significant given their generally more constrained budgetary flexibility.”
Because federal dollars for Medicaid account for about 20% of state budgets, Fitch “believes substantial Medicaid cuts would require states to make material budget adjustments over the next decade and beyond.”
“In a time of already muted revenue growth, spending cuts could affect K-12 and higher education the most,” Fitch report said.