Fitch Report: Proposed Medicaid Cuts Could Impact States’ Credit Ratings

Medicaid is more than simply the nation’s largest health insurer for children. It’s also the largest source of federal funds to states. The Better Care Reconciliation Act (BCRA) bill that stalled in the Senate earlier this week would cut federal payments to states by $772 billion over the next 10 years and establish a platform for the federal government to “dial down” for even more spending cuts in the future.

As we’ve explained, the implications for children are not pretty. A recent report from Fitch Ratings, “Senate AHCA Includes Medicaid Repeal and Replace Provisions for States,” shows that this is also the case for states and entities that rely on state support, including school districts, cities, counties, and public universities.

Here’s the 1 minute 43 second video version:

For those who prefer the written word, you can read the Fitch report.

For those who want the two sentence take-away: “Imposing capped federal spending shifts the risk for higher costs, whether due to new treatment regimes, health emergencies, or other events, away from the federal government and to states, providers, and enrollees. … Those entities more reliant on state aid, including Medicaid funding, would be particularly exposed.” Those entities could include state mental health, developmental disability, and public health agencies; state and local education agencies and districts; rural hospitals and nursing homes; and regional centers of excellence like children’s hospitals.

Just as each state’s Medicaid program is different, so is each state’s credit rating. Credit ratings are important because the lower the credit rating, the more it costs the state to borrow. To see where your state stands, check out this compilation by the California’s Treasurer. Since federal Medicaid payments to states currently account for about 20 percent of state budgets, it’s a safe bet that the huge cost shift in the Senate version of the health care bill—which ramps up to $158 billion in 2026 alone and continues to climb from there—won’t materially improve the credit rating of any state.

The Fitch Ratings report should be on the summer reading list for all those state and local agencies, school districts, university systems, health care providers, and other entities that receive Medicaid funding or otherwise depend on state funds which could be diverted to make up for the shortfall in federal funding under the cap. State policymakers should ask their credit rating agencies whether the Senate Medicaid cap is right for them.

 

Andy Schneider is a Research Professor of the Practice at the Georgetown University McCourt School of Public Policy.

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