California Government Update

California’s $20B Problem: Obamacare Repeal Threatens 4M Californians

By Tom McMorrow | Steve Coony | Delilah Clay

The repeal of the Affordable Care Act (ACA) could ultimately cost California as much as $20 billion in annual federal spending on the state’s Medicaid program, Medi-Cal. Putting this in perspective, $20 billion represents nearly 18% of all state General Fund spending, projected at $113 billion this year. A total of $20 billion is also roughly what the state already pays from its own General Fund for Medi-Cal costs.

Replacing a $20 billion deficit in healthcare spending with state funds alone would require California to either raise new taxes or reduce spending significantly or both.

  • Raising the state income tax to cover a $20 billion shortfall would require nearly a 25% increase. This increase would be in addition to California’s November vote to raise taxes by a projected $8 billion, nearly half of which is designated to help pay the state’s share of various healthcare costs.
  • Reducing the number of Californians insured under the ACA to address a $20 billion cut in federal ACA funding would require cutting off health coverage to nearly 4 million individuals insured under Medi-Cal or the state’s private health benefits exchange, Covered California.

Repeal of the ACA presents a greater risk to California than any other state, not only because its population represents more than 10% of the nation’s total, but because the state fully embraced the promise of the Affordable Care Act. 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 health exchange. Of the 32 states that adopted Medicaid expansion, California covered more of its previously uninsured than any other state by far, and did so with strong bipartisan support from both Governor Jerry Brown and his predecessor, Governor Arnold Schwarzenegger, as well as the Legislature.

Congressional Republican plans to repeal and replace the ACA over the years have centered on (1) rolling back the Medicaid eligibility expansion, (2) cutting subsidized payments for insurance through health benefits exchanges like Covered California, and/or (3) fundamentally altering the current state and federal shared funding responsibilities within Medicaid through the use of capped or constrained-growth federal block grants to the states. Each plan puts California at risk.

First, rolling back eligibility for the nearly 3 million Californians who gained Medi-Cal coverage under the ACA would result in the loss of over $15 billion a year in federal funding.

Second, 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.

Third, early estimates of the impact for California indicate that block grant funding, as proposed by House Speaker Paul Ryan, could result in a 26% or $14.3 billion cut in federal spending supporting Medi-Cal.

Combining either capped block grant funding or rollback of expansion with elimination of Covered California subsidies approaches $20 billion. Combining all three proposals could put the total lost federal support to California at over $20 billion.

There have been many scenarios floated publicly to date by President-elect Trump’s transition team and/or the congressional Republican leadership as to how to repeal and replace the ACA. One common denominator is that the ACA’s expansion of Medicaid coverage will be rolled back in some form, all but ensuring a significant increase in the number of uninsured Californians barring a successful state effort to pay its own way to cover the resulting uninsured.

California’s Democratic legislative leaders have vowed to fight repeal and to step in to ensure that any resulting federal funding gaps to the state will not move millions of Californians from being insured to uninsured.

The Democratic leaders’ pledge 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 is to come up with as much as $20 billion a year to maintain ACA-like coverage for the recently insured may be the greatest test for California’s newly sworn-in 2017-2018 Legislature, and a legacy issue for Governor Brown.



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