NC Budget and Tax Center, Trump Administration

Analysis: GOP health care bill will exacerbate budgetary challenges to all states and local governments

As reported yesterday, members of the U.S. House narrowly (217-213) pushed through the Republican plan for repealing and replacing the Affordable Care Act. The latest version came without any analysis by the nonpartisan Congressional Budget Office.

One of the major implications of this bill is the fact that it shifts financial burdens of uncompensated care onto states and local governments. To this point, yesterday, the National League of Cities President, Matt Zone, released the following statement that makes it clear that cities across America cannot afford the proposed bill:

“Congress cannot promise to fix the American health care system and stick the bill on local governments. By threatening Medicaid funding, withdrawing services for drug addiction and mental health during the nation’s deadliest drug epidemic, and reducing funding for preventative medicine and wellness programs, today’s health care bill threatens to leave millions of Americans uninsured.

When the federal government pulls back on its commitment to health care, local governments, states and health care providers are left to pay the bills of increasing rates of unreimbursed care.

Local governments simply cannot afford this health care bill. We urge the Senate to stand with cities and American families and scrap this flawed piece of legislation. The National League of Cities calls on senators to fight for a health care bill that protects and promotes healthy communities without passing the financial burden onto local governments.”

Fitch Ratings, a global leader in credit ratings and research, agrees. Yesterday Fitch released a statement that concludes that as a result federal funding cuts to Medicaid, all states are at risk of facing serious budgetary challenges, which will likely accelerate for all states over time.

Their statement calls out major concerns with recent amendments to the original American Health Care Act (AHCA), such as the inclusion of Medicaid block grant option and the state incentive to establish high risk pools. Fitch reports:

“Fitch is concerned that given prior state and federal experience with high-risk pools, the federal funding proposed under the AHCA may be insufficient to fulfil the statutory requirements. Those states that choose to establish such pools under the AHCA may face pressure to provide additional funding to support them.”

“States generally maintain significant flexibility to deal with fiscal challenges, including shifts in federal funding, while maintaining fundamental credit quality. As Medicaid represents approximately one-third of state budgets, the fundamental changes proposed could challenge that flexibility. 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.”

“Fitch will continue to closely monitor legislative developments around the AHCA, which could have implications for states’ credit quality and for the credit quality of related public finance entities that depend on state funding. Medicaid changes that significantly reduce federal funding to states will cause states to consider a broad mix of spending cuts or revenue increases to maintain long-term fiscal balance. In a time of already muted revenue growth, spending cuts could affect K-12 and higher education the most, as those are the other largest areas of state spending outside of Medicaid.”

In North Carolina, the federal government currently pays for 66 percent of Medicaid’s costs, and the state pays the remaining 34 percent, resulting in a 2 to 1 federal “match.” Any cut in federal funding to the Medicaid program would shift costs to North Carolina and pose a risk to the state and its ability to balance the budget and meet other existing needs.

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