On March 20, 2024, the Republican Study Committee (RSC), whose members comprise more than three-quarters of the House Republican caucus, announced its fiscal year 2025 budget plan.  The budget plan proposes to cut total federal Medicaid, Children’s Health Insurance Program (CHIP) and Affordable Care Act marketplace subsidy spending by nearly 54 percent over the next decade, relative to current law.

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 (including parents).
• 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 (for example, if seniors’ average per-beneficiary health and long-term care needs sharply rise as the average age for seniors on Medicaid in a state significantly 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 regular FMAPs than states with the highest average per-capita income who receive the minimum FMAP of 50 percent.  For example, in fiscal year 2025, Mississippi’s regular FMAP will equal 76.9 percent.  This will also affect the territories; for example, in 2025, Puerto Rico’s FMAP will equal 76 percent and the other territories’ FMAP will equal 83 percent.  Moreover, 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 overall 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 that would appear to block grant the Affordable Care Act’s marketplace subsidies, block granting Medicaid and instituting the other Medicaid cuts included in the RSC budget would cut federal spending by $4.5 trillion over 10 years. That constitutes a 53.7 percent cut, relative to the Congressional Budget Office’s February 2024 baseline spending levels for Medicaid, CHIP and ACA marketplace subsidies for fiscal years 2025-2034.  By the tenth year (2034), the cut would equal a 57 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 appear to 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 also met onerous work reporting requirements.

Facing such drastic reductions in federal Medicaid funding, states will have no choice but to institute truly draconian cuts to eligibility, benefits and provider 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 such as K-12 education.