On March 5, according to Axios, House Energy and Commerce Committee Chair Brett Guthrie (R-KY) is now considering a proposal to impose a per capita cap on the Medicaid expansion as part of budget reconciliation. Chairman Guthrie, as well as other House Republican leaders, may believe that such a cap could be viewed as more acceptable to moderate House Republican members from expansion states — who have expressed serious concerns about the at least $880 billion in Medicaid cuts required under the House budget resolution — than proposals to eliminate or cut the current 90 percent Medicaid expansion matching rate. But a per capita cap on the Medicaid expansion would similarly shift significant expansion costs to states. Most, if not all, states would have to drop their expansions over time, which would result in many of the nearly 21 million low-income people who have gained coverage through the Medicaid expansion ending up uninsured.
Under current law, the federal government picks up 90 percent of the cost of the expansion on a permanent basis. As I have previously written, House Republican leaders have been discussing a proposal which would immediately eliminate or phase out the 90 percent matching rate and instead have the regular matching rate (known as the “FMAP”), which on average is about 57 percent, apply. This cut in the expansion matching rate, however, would shift large costs to states. To compensate for this massive cost-shift and close budget shortfalls, states would have to dramatically raise taxes, cut other parts of their budget like K-12 education, or as is far more likely, drop their expansions over time. 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 20.9 million low-income parents and other adults, including people with disabilities, who are now covered by the Medicaid expansion would thus lose their Medicaid coverage, end up uninsured and go without needed health care. As a result, the proposal would likely result in the effective repeal of the Medicaid expansion, even if it does not outright repeal it. In fact, this is exactly the same approach that was taken in the failed effort to repeal and replace the Affordable Care Act in 2017. Both of the leading House and Senate repeal bills in 2017 did not include provisions to explicitly repeal the expansion. Instead, they would have phased out or eliminated the 90 percent matching rate, with the House bill even labeling the section eliminating the 90 percent matching rate as “Repeal of Medicaid Expansion.”
Imposing a per capita cap on the Medicaid expansion would have a similar, harmful effect by shifting costs to states. Instead of the federal government always picking up 90 percent of expansion costs, states would receive only a fixed amount of federal Medicaid funding for each Medicaid expansion beneficiary, irrespective of states’ actual costs. (States would continue to claim federal funding at a 90 percent matching rate up to the cap, with states then responsible for all costs in excess of the cap.) A per capita cap is 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 increasingly larger each year. Moreover, the cap would also fail to account for any unexpected per-enrollee cost growth such as from a new, costly drug therapy or a new disease outbreak, which would make the federal funding cuts even larger than originally anticipated. This means that as the per capita cap becomes increasingly inadequate, the effective expansion matching rate — the share of Medicaid expansion costs financed by the federal government — would be reduced further and further below the current 90 percent rate annually.
For a highly simplified illustration of the national impact of a per capita cap on the Medicaid expansion, assume a per capita cap starting in 2026, with the cap each year based on estimated spending per expansion beneficiary in 2024 adjusted annually by medical inflation (CPI-M). As the graphic shows, the share of expansion costs picked up by the federal government would decline each year. By 2034, the effective average expansion matching rate would be only 71.2 percent instead of the current, permanent 90 percent matching rate. This is the case because the per capita cap amount would provide less federal funding each year than under current law. By 2034, federal funding per expansion enrollee would be cut by 20.9 percent, compared to what would have been provided under current law. These cuts would continue to grow larger, further cutting the effective expansion matching rate and shifting greater costs to states.
As is the case with the direct elimination or reduction of the 90 percent matching rate, states would have to contribute much more of their own funding to sustain their Medicaid expansion under a per capita cap. It is likely that most, if not all, states facing these higher costs would have no choice but to eventually drop their Medicaid expansions over the long run. (To sustain their expansions, states would have to raise taxes, cut other parts of the budget or make deep cuts to the rest of their Medicaid programs.) And while it would be a question of state law, it is likely that some of the 9 to 12 states with trigger laws could also see their expansions automatically dropped, with the federal government no longer honoring its commitment to finance 90 percent of expansion costs on a permanent basis.
Imposing a per capita cap on the Medicaid expansion should therefore be viewed as just another proposal to sharply shift expansion costs to states by lowering their effective matching rates, with the intent of undermining and eventually repealing the Medicaid expansion. That, in turn, would take away coverage from nearly 21 million low-income parents, people with disabilities and other adults. It would also have significant adverse effects on the children of expansion adults: research shows that the Medicaid expansion increases enrollment among eligible children and therefore reduces the number of uninsured children. It also improves infant health, educational and health outcomes, and overall family financial security. And, of course, it would also deter the 10 remaining non-expansion states from taking up the expansion in the future.