Senate Republicans couldn’t agree on a way to repeal and replace Obamacare. So now they’re contemplating a totally different approach: Blow it up and let the states sort it out.

The latest attempt to resuscitate the GOP's repeal bid would reshape the nation’s health care system by sharply curtailing the federal government’s role and placing the future of Obamacare in the hands of governors. But Republican senators will have a hard time overcoming the internal divisions that doomed their three attempts last week to unravel the Affordable Care Act.


The proposal spearheaded by Sens. Bill Cassidy of Louisiana and Lindsey Graham of South Carolina would send billions of dollars in federal funding set aside for Obamacare directly to states in the form of annual block grants, and give them near-complete control over how to use the money. States could pour funds into ensuring Obamacare continues to function, they said. And those states that don't would also be free to scrap their health care systems and start anew with little federal interference.

“We attempt to establish fairness for all Americans in terms of the support they receive from the federal taxpayer,” Cassidy said in a floor speech last week.

But in practice, it’s not likely to be that simple. The so-called Graham-Cassidy plan would still force deep health spending cuts, as well as set new limits that would end Medicaid’s open-ended entitlement status and threaten subsidies designed to help people afford coverage. Each element could raise objections from moderate GOP senators. That comes on top of keeping nearly all of Obamacare’s taxes, a likely deal-breaker for conservatives still intent on scrapping the entire law.

POLITICO Pulse newsletter Get the latest on the health care fight, every weekday morning — in your inbox. Email Sign Up By signing up you agree to receive email newsletters or alerts from POLITICO. You can unsubscribe at any time. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

And the federal funds sent to the states would come with few strings attached, creating the potential for a patchwork of markets that could make it even more complicated for insurers and patients to navigate an already-complex health care system.

In short, there’s something for everyone to dislike in the proposal — making it a long shot for a Republican Senate running short on both time and enthusiasm for following through on a seven-year pledge to repeal Obamacare.

“What it does is make the federal government spend the money with very little in the way of accountability,” said Judith Solomon, a vice president for health policy at the left-leaning Center on Budget and Policy Priorities.

But in Graham-Cassidy, Republican leaders are seeking a quick fix that can get the repeal effort back on track. Cassidy, Graham and Sen. Dean Heller (R-Nev.) met Monday with top aides to President Donald Trump, and there are efforts also underway to get the endorsement of conservatives Mike Lee of Utah and House Freedom Caucus Chairman Mark Meadows (R-N.C.). Cassidy described meetings with Health and Human Services Secretary Tom Price and governors as “productive.”

Under the latest version of the proposal, red states could get near-free rein over their health insurance markets, paving the way for a rollback of such Obamacare pillars as the individual mandate and tight regulations on insurance companies. Blue states like California, meanwhile, could keep much of the status quo in place without having to worry about further federal efforts to repeal the law.

“The best way to repeal and replace Obamacare is to give each state the resources and responsibility for health care,” Wisconsin Gov. Scott Walker, chairman of the Republican Governors Association, said in a statement. “Governors and other state leaders are more effective, more efficient and more accountable to the public.”

Still, gaining that broad flexibility comes with the downside of far fewer federal dollars. The Graham-Cassidy plan proposes block granting all the federal funding for Obamacare starting in 2020 at a level that Solomon estimates is 16 percent lower than current law.

The plan would also limit the annual growth of that funding, deepening reductions over time to as much as 34 percent — or $83 billion — lower than under Obamacare. That could force difficult trade-offs for officials knowing that a dollar spent on one program — like Obamacare’s Medicaid expansion — means a dollar less spent on another, like tax credits to help people purchase individual insurance plans.

States under the Graham-Cassidy proposal would be required to match as much as 5 percent of the federal dollars they receive by 2025, according to the amendment text — a concept that some deep red states have already cited as their reason for rejecting Obamacare funding to expand Medicaid.

“Now you’re asking them to pay a match not only for Medicaid expansion, but also for the premium credits and subsidies that have been totally federally funded,” Solomon said.

The block grant concept could create intense competition among states, as each vies for a bigger slice of the overall pie. Cassidy and Graham have touted the plan as a way to ensure that states get the level of funding that they need, but it also risks leaving some with significantly less.

States that expanded Medicaid under Obamacare could end up among the biggest losers under a Graham-Cassidy plan that ends the greater funding given to expansion states and tilts money toward their non-expansion counterparts, potentially putting Republican congressmen in states such as California, New York and New Jersey in a difficult position.

“That gets you right back into some of the issues that they had with repeal and replace,” said Chris Sloan, a senior manager at health care consultancy Avalere. “You’re going to start ticking off specific delegations.”

It also risks upsetting the insurance industry, which has proved a powerful opponent to the repeal efforts to date. The Graham-Cassidy proposal could generate massive uncertainty in pockets across the nation as individual states race to remake their insurance markets. Broadly uniform regulations and benefit standards would be upended in favor of a patchwork of wildly varying markets, forcing insurers to reevaluate their participation — and prospects for making a profit — across a new frontier for health care.

Just the threat of repealing Obamacare has insurers hedging their bets this year, Sloan said, with companies requesting higher premiums and pre-emptively pulling out of shaky markets. Giving states the ability to drastically alter the market on their own risks driving the uncertainty to new heights.

“It does set up the situation where a lot of states could do things that the health plans think are bad for the industry,” Sloan said. “It’s hard to imagine health plans really supporting something like this.”