I previously warned about how imposing a per capita cap on the Medicaid expansion would effectively lead to a sharp cut to the current 90 percent matching rate for the 40 states and the District of Columbia that have adopted the expansion. This would shift significant costs to states, force them to drop their expansions over time, and likely result in many of the nearly 21 million low-income people who have gained coverage through the Medicaid expansion ending up uninsured. Now, KFF and the Urban Institute have both issued new state-specific estimates of the impact of a per capita cap on the Medicaid expansion. They confirm that states would have to dramatically increase their own spending by $246 billion (according to KFF) or $230 billion to $276 billion (according to the Urban Institute) over the next ten years in order to maintain their expansions. Otherwise, they would have to terminate their Medicaid expansions.
Under current law, the federal government picks up 90 percent of the cost of the expansion on a permanent basis. As I have written, for months, House Republican leaders have been openly discussing a proposal which would immediately eliminate or phase out the permanent 90 percent expansion matching rate and instead apply the regular matching rate (known as the “FMAP”) which, on average, is about 57 percent. This cut in the expansion matching rate, however, would shift large costs to states. For example, KFF has separately estimated that states would have to increase their own spending by $626 billion over the years. To compensate for this massive cost-shift and balance their budgets, 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 Arizona, the trigger is pulled if the expansion FMAP falls below 80 percent.) 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 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.”
The House Energy and Commerce Committee is expected to take up budget reconciliation legislation on Wednesday May 7th which would institute at least $880 billion in ten years in cuts to mandatory spending as required under the budget resolution — most or all of which would be achieved through cuts to Medicaid. It is possible that instead of an explicit cut to the 90 percent expansion matching rate, the Committee may consider a proposal to impose a per capita cap just on the Medicaid expansion. This is a proposal that was floated in March by House Energy and Commerce Committee Chair Brett Guthrie (R-KY) and which has apparently resurfaced in recent days on the belief 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 large Medicaid cuts required under the budget resolution — than proposals to directly eliminate the current 90 percent Medicaid expansion matching rate.
However, imposing a per capita cap on the Medicaid expansion would have a similar, harmful effect by shifting substantial 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. (And while it would be a question of state law, as my colleague Adam Searing explains, it is likely that some states would interpret their trigger laws broadly and see their expansions automatically dropped, as the federal government would no longer be honoring its commitment to finance 90 percent of expansion costs on a permanent basis.)
KFF now estimates that under an illustrative per capita cap, states would have to increase their own spending by $246 billion over the next ten years in order to sustain their expansions. That is because as the per capita cap increasingly cuts federal funding for the Medicaid expansion over time, the effective matching rate for the expansion would decline, falling from 90 percent to 69 percent, on average, by 2034. Along with the District of Columbia, four expansion states with higher regular FMAPs — West Virginia, New Mexico, Kentucky and Arkansas — would actually receive an effective matching rate for the expansion that is lower than even their regular matching rates by 2034. The Urban Institute similarly finds that under two illustrative per capita caps that they modeled, expansion states would have to increase their own spending by $230 billion to $276 billion over the next ten years. This would constitute an increase in states’ current expansion spending by between 133.3 percent and 159.8 percent. Both KFF and the Urban Institute include state-specific estimates of the cost shift to expansion states under these illustrative per capita cap proposals.
As is the case with the direct elimination or reduction of the 90 percent matching rate, faced with such massive cost shifts, 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. (As noted, to sustain their expansions, states would have to dramatically raise taxes, deeply cut other parts of the budget like education, or make severe cuts to the rest of their Medicaid programs. Unlike the federal government, states must balance their budgets.) 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 the effective expansion matching rates, with the intent of undermining and eventually repealing the Medicaid expansion, as the KFF and Urban Institute estimates confirm. That, in turn, would take away coverage from nearly 21 million low-income parents, people with disabilities, near-elderly adults and others. 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.