“Graham-Cassidy-Heller-Johnson Proposal.”

Good morning Chairman Hatch, Senator Wyden, and distinguished members of Committee. Thank you for the invitation to participate in this hearing on the Graham-Cassidy-Heller-Johnson legislative proposal (referred to hereafter as "Graham-Cassidy").

I am Cindy Mann, a partner at Manatt, Phelps & Phillips. At Manatt, I work with states, health care providers and provider organizations, foundations, and consumer organizations, on matters relating to health care coverage, delivery system reform, and financing, focusing primarily on publicly financed coverage and particularly, Medicaid and the Children's Health Insurance Program (CHIP). I also currently serve as an advisor to the Bipartisan Policy Center on the future of health care. Prior to joining Manatt, from June 2009 through January 2015, I served as Deputy Administrator for the Centers for Medicare & Medicaid Services (CMS) and as Director of the Center for Medicaid and CHIP Services. In that capacity, I was responsible for federal policy and oversight of Medicaid and CHIP and for supporting state implementation of those programs. While at CMS, much of my focus was working with states as they implemented provisions of the Affordable Care Act. Prior to joining CMS, I was a research professor at Georgetown University's Health Policy Institute and founded the Center for Children and Families, a research and policy organization focused on children's coverage. I also served as the Director of the Family and Children's Health Programs Group at the Health Care Financing Administration (now CMS), where I directed federal implementation of CHIP and Medicaid with respect to children, families and pregnant women from 1999 to 2001. I have over 30 years of experience in these matters both at the federal level and in states.

My testimony today highlights the impact of the legislative proposal introduced by Senators Graham, Cassidy, Heller, and Johnson to repeal and replace the Affordable Care Act, focusing particularly on the impact on Medicaid and the 74 million people served by the Medicaid program. My testimony draws, in part, on an analysis of the Graham-Cassidy proposal prepared by Manatt Health on behalf of the Robert Wood Johnson State Health & Value Strategies Project; that report is attached.

Graham-Cassidy proposal would create new and far reaching risks for people, states and the health care system.

* Through funding reductions and caps, it puts coverage at risk for virtually every group of individuals covered through "traditional" Medicaid, including one out of three children in the nation as well as millions of elderly and people with disabilities whose long term care services are covered by Medicaid.

* It will also harm--and in some cases pose life-threatening harm --to the 23 million people projected to be covered through the Medicaid expansion and the Marketplace in 2019, who, by the terms of this proposal, will lose their coverage on December 31, 2019.

* And for those purchasing coverage in the individual and small group market, Graham-Cassidy will trigger in the very short term new levels of destabilization and higher premiums by maintaining guaranteed issue while ending the individual mandate without any replacement mechanism to promote enrollment of healthier individuals.

These and many additional issues are an unequivocal sign that we must devise a better approach, rooted in a bi-partisan process in Congress with input from states, consumers, and health care providers.

Graham-Cassidy Builds on a Deeply Flawed Bill

Graham-Cassidy builds on and incorporates most of the provisions of the Better Care Reconciliation Act (BCRA), which the Senate rejected this summer. Although some provisions have been modified, Graham-Cassidy largely adopts BCRA' s general framework and, in particular, the far-reaching changes it proposed to Medicaid - changes that go far beyond repealing and replacing the Affordable Care Act. Like BCRA, Graham-Cassidy would cut federal Medicaid funding deeply and fundamentally restructure Medicaid financing for the "traditional" (pre-expansion) Medicaid population. In addition, Graham-Cassidy takes a step beyond BCRA by terminating not only the enhanced funding for the Medicaid expansion but also the legal authority for states to cover low-income parents and other adults even with regular matching payments. n2

More specifically, Graham-Cassidy would :

* Impose deep cuts to Medicaid that grow over time. While there is no score yet for the Graham-Cassidy proposal, the Congressional Budget Office (CBO) projected that the rejected BCRA bill upon which Graham-Cassidy is based would have cut Medicaid by $756 billion over ten years. n3 The cuts grow over time as the trend rates used to make the annual adjustments to the per capita caps drop beginning in 2025. Although Graham-Cassidy provides a modestly more generous trend rate than BCRA, under both proposals, the deepest cuts occur just beyond the CBO's 10-year budget scoring window.

* Fundamentally change financing for most of the Medicaid program. Graham-Cassidy would eliminate the federal government's guarantee to share with states the cost of all qualifying Medicaid expenditures by imposing per capita caps on federal spending for nearly all populations. Since Graham-Cassidy ends the Medicaid expansion, the consequences of this major change in financing falls solely on those enrolled in the "traditional" Medicaid program: newborns and other children, very low-income parents, pregnant women, and low-income seniors and people with disabilities.

* Shift all of the risk of higher costs onto states. Under the proposal, states would bear the full risk of all costs that exceed the trend rates, which are set below expected levels of health care spending in order to achieve federal savings. By contrast, under current law, states and the federal government share the risk of unanticipated costs due, for example, to higher drug costs, new cancer treatments, or health emergencies like the opioid crises. States that are not able to shoulder significant new costs will need to reduce provider payment rates and benefits, increase beneficiary costs, or reduce eligibility.

Marketplace Health-Care Grants

The Graham-Cassidy proposal makes further structural changes to the health coverage landscape--beyond BCRA--by ending the tax credits and cost sharing subsidies available to people to purchase coverage in the marketplace. In place of these subsidies and the funding for Medicaid expansion, Graham-Cassidy establishes a "Market-Based Health Care Grant" block grant. Like other block grants, the total amount of federal funding for this block grant is not adjusted overt time to reflect changes in enrollment, use of services, or cost of care. In addition, the block grant would be temporary; funding is available only through 2026. States would be at full risk for any costs above the block grant funding--should they take on the massive new responsibilities that the federal government sends their way--and for all costs when the block grant ends in 2026. There is no guarantee whether and at what level federal funding would be available beginning in 2027.

Manatt Health analyzed the Graham-Cassidy proposal on behalf of the Robert Wood Johnson Foundation's State Health & Value Strategies Project. n4 While there are various analyses estimating the impact of the block grant component of the proposal, all estimates to date point in the same direction: the majority of states will lose federal funding under Graham-Cassidy, with some experiencing particularly large losses.

Key takeaways from Manatt' s analysis are noted here:

* Total funding is below current law levels with much deeper cuts for some states.

o Over the 2020 to 2026 period, the block grant would provide 6.4% less federal funding than under current law with the gap growing over time; in 2026, national funding for the block grant is nearly 9 percent below current law spending projections.

o The proposal radically alters the allocation of funding relative to current law, leaving many states with very deep cuts in funding. Over the 2020 to 2026 period, 29 states receive less in federal funding with an average reduction of 19 percent. Some states will see their funding cut by half.

* No state is a "winner".

o The overall level of the block grant does not adjust for actual costs or enrollment; some states may receive adjustments in their allocations but at the expense of other states and all states are at risk for costs over the capped allotments.

o Notably, these block grant allocations are in addition to other deep funding reductions in the proposal.

* The time-limited funding creates added risks for states. Under the proposal, the block grant ends in 2026, leaving states to take on substantial obligations with no guarantee of future funding.

States will be granted broad flexibility on how they use these funds. The funds can be used for many purposes in addition to coverage, and states will inevitably be faced with many competing pressures for how to spend these funds. Individuals who have gained coverage through Medicaid expansions and subsidized marketplace coverage have no assurance that they will receive any coverage, never mind coverage that is as affordable or comprehensive as that which is guaranteed under current law.

Implementation Challenges

Beyond the precipitous drop in funding and the sweeping programmatic changes advanced by this proposal, it is critical to consider the enormity of the responsibilities that will be shifted to states. States will have a very short time to consider how they will proceed and to then actually implement changes to launch new coverage and initiatives. It is no exaggeration to say that the Graham-Cassidy proposal will result in chaos for our health care system and most notably for the millions of people who have coverage through Medicaid and the Marketplaces today.

n1 Application for admission to the District of Columbia Bar pending. Practicing under the supervision of Jill DeGraff, a member of the District of Columbia Bar. Admitted to practice in New York and Massachusetts.

n2 An exception is made for previously covered Native Americans under certain circumstances.

n3 Congressional Budget Office letter to the Honorable Mike Enzi re: H.R. 1628, the Better Care Reconciliation Act of 2017: An Amendment in the Nature of a Substitute [ERN17500], as Posted on the Website of the Senate Committee on the Budget on July 20, 2017, available at: https://www.cbo.gov/system/files/115th-congress-2017-2018/costestimate/52941-hr1628bcra.pdf.

n4 We conducted two analyses. First we calculated unadjusted block grant allotments based on the basic formulas in the bill to show the state-by-state distribution of funding under the proposal. Given the amount of discretion that is included in the proposal for the Secretary of HHS to adjust the allotments, we also calculated illustrative state-by-state allotments using a Medicare price index to adjust allotments to account for differences in wages, input costs, and similar factors that impact health care spending. While our assumptions are necessarily uncertain, the analysis demonstrates that adjustments could result in significant-- and unknowable-- changes to a state's allocation. Update: State Policy and Budget Impacts of New Graham-Cassidy Repeal and Replace Proposal (September 19, 2017), available at: http://www.statenetwork.org/resource/update-state-policy-and-budget-impacts-of-new-graham-cassidy-repeal-and-replace-proposal/.

Read this original document at: https://www.finance.senate.gov/download/09252017-mann-testimony-&download=1