House Republican leaders continue to threaten debt default unless the Biden Administration and Congressional Democrats accede to their demands for severe budget cuts.  So far, House Republicans have not spelled out the specific budget cuts they are seeking as the price for agreeing to raise the debt ceiling, including to Medicaid. But last year’s Republican Study Committee (RSC) fiscal year 2023 budget plan offers a disturbing roadmap of the kind of radical Medicaid cuts House Republicans may demand. It would cut total federal Medicaid, CHIP and Affordable Care Act marketplace subsidy spending by nearly half over the next decade, relative to current law. Notably, about three-quarters of the House Republican caucus are now members of the RSC.

How would the RSC budget plan cut Medicaid?

• Under the current federal-state financial partnership, the federal government pays a fixed percentage of states’ Medicaid costs, whatever those costs are. In contrast, under Medicaid block grants, federal funding would be capped, with states receiving only a fixed amount of federal Medicaid funding, irrespective of states’ actual costs.  The RSC budget plan would convert Medicaid to five block grants for each of the following groups: children, seniors, people with disabilities, pregnant women and all other beneficiaries.
• The block grants would be annually adjusted only for population growth in the state for each of the five groups, even if actual Medicaid enrollment rises significantly faster due to a recession, a natural disaster or a public health emergency. There would be zero annual adjustment for annual health care cost growth, whether due to typical year-to-year health care inflation, a new drug or device or ongoing demographic changes (i.e., as seniors’ average per-beneficiary health and long-term care needs sharply rise as the average age for seniors on Medicaid increases and seniors become more frail).
• The RSC budget plan would cut the federal Medicaid matching rate (FMAP) to a uniform 50 percent for all states, beneficiaries, services and functions. Currently, states with lower relative average per-capita income receive higher FMAPs than states with the highest average per-capita income who receive the minimum FMAP of 50 percent.  For example, in fiscal year 2023, Mississippi has a FMAP of 77.9 percent.  Under the Affordable Care Act, the FMAP for the Medicaid expansion is 90 percent on a permanent basis and certain administrative functions, such as upgrades of state Medicaid claims and eligibility computer systems are eligible for a 90 percent FMAP.  This means that the federal government will not only set a cap on federal Medicaid funding but require states to pay a much larger share of Medicaid costs below the cap.
• The RSC budget plan would also “effectively” eliminate state use of provider taxes, which nearly all states use to finance a portion of the state share of Medicaid costs. Without provider taxes, states would likely be unable to even draw down all of their highly inadequate Medicaid block grant amounts because they will be unable to generate sufficient alternative revenues to finance their contribution to the cost of their Medicaid programs (up to the federal funding cap).
• According to the budget summary tables in the RSC budget plan, together with a related proposal to block grant the Affordable Care Act’s marketplace subsidies, block granting Medicaid would cut federal spending by $3.64 trillion over 10 years. That constitutes a 49 percent cut, relative to the Congressional Budget Office’s May 2022 baseline 2023-2032 spending levels for Medicaid, CHIP and ACA marketplace subsidies. By the tenth year (2032), the cut would equal a nearly 54 percent reduction.
• Like other Medicaid block grant proposals, the RSC budget plan would also appear to eliminate many existing federal requirements for state Medicaid programs in the areas of eligibility and benefits. For example, it would eliminate minimum income eligibility levels for children. In addition, states would no longer have to cover any non-elderly non-disabled parents.  And if states continue to cover any parents as well as other non-elderly adults, low-income individuals would not be eligible unless they worked and had earnings above a certain threshold (and met other onerous work requirements).

Facing such drastic reductions in federal Medicaid funding, states will have no choice but to institute truly draconian cuts to eligibility, benefits and reimbursement rates. That would likely drive tens of millions into the ranks of the uninsured and severely reduce access to health care and long-term services and supports needed by low-income children, families, seniors, people with disabilities and other adults. Moreover, because Medicaid is the largest source of federal funding for states, block granting Medicaid would also likely lead to deep budget cuts to other state spending like for K-12 education.