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States worry that health care overhaul could leave them picking up the giant tab

John W. Schoen

As President Donald Trump prepares to unveil details of his plan to overhaul the nation's health insurance system, much of the focus will be on the more than $500 billion spent every year on Medicaid.

The joint state-federal program for low-income households grew rapidly under the 6-year-old Affordable Care Act and has been consuming a larger share of many state budgets every year.

Now, governors across the country worry that a key element of the proposed GOP overhaul will leave the states stuck with an even bigger bill.

A Medicaid proposal by GOP governors, a draft of which was obtained by the Associated Press, urges Congress to change Medicaid from an open-ended federal entitlement to a program designed by each state and funded with fixed block grants within a financial limit.

States currently run the Medicaid program and pay part of the cost; Washington pays the rest based on a formula that varies from state to state, no matter how much the program costs. The new proposal would replace those reimbursements with a fixed payment. That would leave the states on the hook for extended coverage or rising costs beyond those capped federal contributions.

Trump met Monday with a group of governors as Congress began to take up proposals to "repeal and replace" the health care law, one of Trump's main campaign promises.

"It's an unbelievably complex subject. Nobody knew that health care could be so complicated," Trump told the governors.

The reaction from the governors has been mixed.

Republican Gov. Gary Herbert of Utah told a news conference that he supports the GOP plan to cap federal funding and give states more flexibility. But Republican Gov. Brian Sandoval of Nevada says he's concerned his state could be "punished" under that plan.

That assessment was echoed in a recent report from the Urban Institute, which said wealthier states would likely get bigger block grants and higher spending caps, based on current levels of Medicaid spending.

"These proposals would lock in these spending differences," the report said.

Trump also met Monday with health insurance executives, some of whom are worried that the uncertainty over the health care law's future is spilling into the marketplace.

Without offering specific details, Trump said the current health insurance market is "going to absolutely implode" and called on the executives to work with the government to plot a path forward.

"We must work together to save Americans from Obamacare," he said.

Trump is expected to provide more detail in a major speech scheduled for Tuesday night. The Medicaid block grants proposal dates back to the Reagan administration. Proponents argue that the change would give states more flexibility to innovate with their programs. The proposal was also backed by House Speaker Newt Gingrich in 1995 and President George W. Bush in 2003.

But critics of the plan, including some GOP governors, fear it would simply shift a greater financial burden onto already tight state budgets.

The nonpartisan Congressional Budget Office has estimated that the block grant systems could cut Medicaid spending by as much as a third over the next decade. A recent report by the consulting firms Avalere Health and McKinsey & Company said the change would create funding gaps for states.

That would force states to cut Medicaid benefits, shift more cost to Medicaid patients, raise state taxes, cut other state spending — or a combination of those moves. Rising Medicaid costs have already put pressure on many state budgets, forcing spending cuts on other services.

The change could also reduce or eliminate coverage for millions of people. Under the Affordable Care Act, an option to expand Medicaid was enacted by 31 states and the District of Columbia.

(The Associated Press contributed.)

Watch: Trump meets with health care CEOs




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