Administration’s Budget Proposal Includes $1.4 Trillion in Medicaid Cuts

The Administration today released a budget proposal for the fiscal year that starts on October 1 (FY 2019).  On the Children’s Health Insurance Program (CHIP), the budget proposal is irrelevant.  The budget proposes to extend CHIP through 2019; as Kelly Whitener explains, the Bipartisan Budget Act signed into law last week extends CHIP through 2027.  It is also irrelevant on Medicaid for this calendar year.  We don’t even have a federal budget for the fiscal year that ends on September 30; once that gets sorted out (hopefully by March 23, the next drop dead date), that FY 2018 budget will likely be the placeholder (via a Continuing Resolution) for FY 2019 until after the mid-term elections on November 6.

There is an important reason to understand the Administration’s Medicaid FY 2019 budget proposal: it could well be back in play next spring.  To get ready, here’s what you need to know.

The Administration is proposing to cap federal Medicaid payments to states and to cut federal Medicaid spending by $1.439 trillion – that is trillion with a “t” – over the ten year period 2019 – 2028. [1]  That is about 26% of what the Administration projects federal Medicaid spending would otherwise be, and within shouting distance of the $1.455 trillion cost of the tax cuts enacted in December.

Of course, you wouldn’t know it from reading the Administration’s budget narrative.  It proposes to “Test Innovative Medicaid Drug Coverage and Financing Reforms.”  It “Provides States with Flexibility to Modernize Medicaid.”  It “Improves Program Integrity.”  It’s only when you get to “Repeals & Replaces Obamacare and Reforms Medicaid Financing” with its cut of $1.389 trillion in federal Medicaid spending that it becomes clear where the story line is going.

“Repeal and Replace” will be based on “legislation modeled closely after the Graham-Cassidy-Heller-Johnson (GCHJ) bill.”  As you’ll remember, this was the triple whammy for children and families unveiled by Senators Graham and Cassidy last September.  The Congressional Budget Office estimated on a preliminary basis that Graham-Cassidy would result in the loss of health insurance coverage for “millions,” cap federal Medicaid payments to states, and give states the option of imposing work requirements on parents with children over age 6.

While Graham-Cassidy has a lot of moving pieces, the basic point is to cap federal Medicaid payments to the states.  The Administration’s budget proposes to build on Graham-Cassidy to cut $1.389 trillion over 10 years.  But let’s be clear: that’s just the opening bid.  It assumes federal spending increases at the rate of the Consumer Price Index (CPI-U).  Once a cap is in place, it can – and almost certainly will – be dialed down by future Congresses (CPI-U minus 0.5, CPI-U minus 1.0, etc.) to extract additional federal spending cuts at the expense of states and localities.

Graham-Cassidy failed in the Senate last fall, and it is unlikely to be considered before the mid-term elections this November.  But if the Administration has its way, Congress will revisit the proposal soon after election season is over. Between now and then, there is much educating to be done about the implications of the Administration’s proposed $1.4 trillion “Reform in Medicaid Financing.”


[1] Medicaid 2019-2028 baseline spending is $5.450 billion; proposed Medicaid spending is $4.011 billion.  OMB, An American Budget, FY 2019, Table S-4.

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