According to press reports, at a January 4th meeting of the House Republican caucus, House Energy and Commerce Committee Chair Brett Guthrie (R-KY) presented policy options to deeply cut federal Medicaid spending, including a proposal to convert Medicaid to a per capita cap, as part of budget reconciliation legislation this year. Now, according to a Politico article from January 10th, Representative Jodey Arrington (R-TX), chair of the House Budget Committee, is widely circulating among House Republicans a document with a list of mandatory spending cut proposals, including draconian cuts to Medicaid, that could be used to partially offset trillions of dollars in tax cuts for the wealthy and corporations and satisfy a pledge of House Republican leadership to make at least $2.5 trillion in cuts to mandatory spending as part of budget reconciliation.
According to the document, the seven Medicaid proposals listed would together cut federal spending by $2.3 trillion over ten years (though the document does not indicate the basis of such cost estimates). These proposals are each described in only a few words but they seem to largely mirror the Medicaid cuts in the fiscal year 2025 budget resolution reported out of the House Budget Committee in March 2024 and in other House Republican and conservative budget plans. Based on the details of the Medicaid cut proposals in those plans, the Arrington document appears to propose the following:
- Converting Medicaid to a per capita cap. Under the current federal-state financial partnership, the federal government pays a fixed percentage of states’ Medicaid costs, whatever those costs are. A per capita cap would instead radically restructure Medicaid financing: states would receive only a fixed amount of federal Medicaid funding on a per-beneficiary basis, irrespective of states’ actual costs. These funding caps are typically designed to fail to keep pace with expected growth in health care costs in order to severely cut federal Medicaid spending, with those cuts growing larger and larger over time. Moreover, the caps would also fail to account for any unexpected cost growth such as from another public health emergency or a new, costly drug therapy, which would make the federal funding cuts even larger than originally anticipated. The document claims the proposal would cut federal spending by up to $918 billion over ten years.
- Eliminating the enhanced matching rate for the Medicaid expansion. Under current law, the federal government picks up 90 percent of the cost of the expansion on a permanent basis. Just as the March 2024 budget resolution proposal did, the document likely entails eliminating the 90 percent matching rate and instead having the regular matching rate (known as the “FMAP”), which on average is about 57 percent, apply. Such a sharp cut in the expansion matching rate, however, would shift large costs to states. As a result, it is very likely that most or all expansion states would eventually drop their expansions over time in the face of this massive cost shift. Moreover, nine states have “trigger” laws that automatically drop the expansion if the expansion FMAP is lowered: Arizona, Arkansas, Illinois, Indiana, Montana, New Hampshire, North Carolina, Utah and Virginia. In addition, three other states have trigger laws authorizing the state Medicaid agency to drop the expansion or requiring state legislative reconsideration (Idaho, Iowa and New Mexico). Many of the 21.7 million low-income parents and other adults who are now covered by the Medicaid expansion would thus lose their Medicaid coverage, end up uninsured and go without needed health care. Elimination of the expansion matching rate would also certainly deter the 10 remaining non-expansion states from taking up the expansion in the future. As a result, the proposal would likely result in the effective repeal of the Medicaid expansion, even if does not explicitly repeal it. The document claims the proposal would cut federal spending by up to $690 billion over ten years.
- Restricting state use of provider taxes to finance state Medicaid costs. Under current law, states have longstanding flexibility in how they finance their share of the cost of Medicaid. For example, states are permitted to institute taxes and assessments on hospitals, nursing homes and other health care providers as well as on Medicaid managed care plans so long as the provider taxes and assessments are uniform and broad-based and do not hold taxpayers harmless. All states but Alaska rely on such taxes to help finance their Medicaid programs. The document does not specify how existing state use of provider taxes and/or states’ ability to expand or apply new taxes would be limited but the document claims the proposal would cut federal spending by $175 billion over ten years. Restrictions on provider taxes produce federal savings because states would be unable to replace revenues raised by such taxes with other sources such as income taxes and sales taxes. As a result, states would end up cutting their Medicaid programs in response, which would therefore reduce federal Medicaid spending as well.
- Lowering the minimum Medicaid matching rate. Under current law, a state’s regular Medicaid matching rate, or FMAP, is calculated under a formula based on the state’s per capita income relative to that of the nation. But no state’s FMAP may be set below the minimum rate of 50 percent. Similar to a proposal from the Paragon Institute, the document would appear to significantly lower the minimum FMAP rate, though there is no indication what the new minimum threshold would be. This would have the effect of cutting federal Medicaid funding and shifting substantial costs in ten states — California, Colorado, Connecticut, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Washington and Wyoming — that currently have a minimum 50 percent matching rate. These states would likely have to make deep cuts to their Medicaid programs in response. The document claims the proposal would cut federal spending by $387 billion over ten years.
- Lowering the Medicaid matching rate for the District of Columbia. Under federal law, the regular FMAP for D.C. is set at 70 percent. (If D.C.’s FMAP was set based under the FMAP formula, D.C. would instead receive the minimum FMAP of 50 percent.) The document likely entails cutting the District’s FMAP down to at least 50 percent from the current 70 percent (which was put in place to take into account the high levels of need for Medicaid coverage among the District’s low-income residents) and even lower if the minimum FMAP overall is also reduced. This would shift large costs to the District government and require the District to make damaging cuts to its Medicaid program, including cutting eligibility, benefits and provider payment rates. The document claims the proposal would cut federal spending by $8 billion over ten years.
- Eliminating the additional incentive for states to take up the Medicaid expansion. Under current law, since enactment of the American Rescue Plan Act in 2021, if remaining non-expansion states newly adopt the Medicaid expansion, they will receive an additional five percentage point increase in their regular federal Medicaid matching rate (FMAP) for two years, no matter when they newly expand. (The increase does not apply to the Medicaid expansion itself or other Medicaid spending that is not subject to the regular FMAP.) These incentives were a key factor in North Carolina’s adoption of the Medicaid expansion, which was first implemented in December 2023. Removing this incentive would make it less likely that the remaining 10 non-expansion states eventually take up the expansion and leave the nearly 2.9 million low-income adults who could newly gain eligibility uninsured (including 1.5 million people in the “coverage gap”). The document claims the proposal would cut federal spending by $18 billion over ten years.
- Imposing onerous Medicaid work reporting requirements. It is likely that this proposal in the document refers to the work reporting requirement included in a House-passed debt ceiling bill in 2023. That provision would have imposed a mandatory Medicaid work reporting requirement for all states that would apply to the entire Medicaid population such as people with disabilities, including those receiving SSI benefits. (Research shows that 91 percent of Medicaid beneficiaries who can work already work or are attending school, are caregivers or cannot work because of disability or illness.) While the provision made available exemptions for certain groups, there was actually no requirement that states automatically exclude such groups or have systems in place to facilitate automatic exemptions. The bill would also have barred federal Medicaid funding for coverage of anyone who fails to meet the work reporting requirement. As a result, this new requirement would have substantially cut federal Medicaid funding and threatened health coverage and access to needed health care services for millions of low-income beneficiaries, not because low-income people are not working but because they would be unable to overcome a whole new set of bureaucratic hurdles and red tape. According to the Congressional Budget Office, 1.5 million people on Medicaid would lose their coverage under the 2023 proposal, although this was likely a significant underestimate of its harmful impact. The document claims the proposal would cut federal spending by $120 billion over ten years.
Under the Medicaid proposals listed in the Arrington document, states would face drastic cuts in federal Medicaid funding. Faced with massive cost-shifts from the federal government — along with new restrictions on how states can finance their share of Medicaid costs — states will have no choice but to institute severe cuts to Medicaid eligibility, benefits and provider reimbursement rates. Such cuts will be further worsened by the onerous red tape created by work reporting requirements that cause many eligible low-income beneficiaries to be disenrolled. As a result, these proposals would take away coverage and access from tens of millions of low-income children, families, seniors, people with disabilities and other adults who rely on Medicaid. Moreover, because Medicaid is the largest source of federal funding for states — accounting for 56.1 percent of all federal funding for state budgets in 2024 — these large cost-shifts to states would also threaten deep, damaging budget cuts to other state spending including for K-12 education.
