On Friday, January 17, Politico and other news outlets reported that the House Budget Committee distributed to the House Republican Caucus a new 50-page list of mandatory spending and tax proposals that may be included in budget reconciliation legislation.  The new list includes not only the draconian Medicaid cuts of up to $2.3 trillion over ten years that were proposed in a one-page document circulated one week earlier by Representative Jodey Arrington (R-TX), the chair of the House Budget Committee, but also includes a number of additional damaging Medicaid cuts.  While the earlier Arrington document described the Medicaid cut proposals in only a few words, the new list includes some clarifying detail.  It also includes cost estimates for proposals but, as with the earlier document, the list does not indicate the basis of such cost estimates.  The list is yet another glaring sign that House Republican leaders intend to make severe cuts to the Medicaid program as part of budget reconciliation.

Based on its limited policy details, the new House Budget Committee list proposes the following Medicaid cuts:

• 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 list claims the proposal would cut federal spending by up to $900 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.  This proposal would eliminate the 90 percent matching rate and instead have 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 20.9 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.  This 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.  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 list claims the proposal would cut federal spending by up to $561 billion over ten years.

• Restricting state use of provider taxes to finance state Medicaid costs.  Under current law, states have 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.  All states but Alaska rely on such taxes to help finance their Medicaid programs.  However, provider taxes and assessments must comply with three federal requirements: they must be uniform and broad-based and cannot hold taxpayers harmless.  The hold harmless requirement can be satisfied under a longstanding safe harbor if the tax does not exceed six percent of patient revenues.  Under the list, this safe harbor would be phased down to 3 percent by 2028.  (The earlier Arrington document included a proposal to restrict state use of provider taxes but did not include these details related to phasing down the safe harbor threshold.)  According to an older survey of state Medicaid programs, 44 states had at least one tax that would no longer qualify for a safe harbor under this proposal.  This restriction on existing and new provider taxes would 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.  The list claims the proposal would cut federal spending by $175 billion over ten years. 

• 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 lower the minimum FMAP rate, though there is no detail on 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 list claims the proposal would cut federal spending by up to $387 billion over ten years.

• Eliminating the enhanced matching rate for certain Medicaid administrative costs.  Under current law, the matching rate for states’ administrative costs related to Medicaid is generally set at 50 percent.  Certain administrative functions, however, qualify for a higher FMAP.  For example, replacement or upgrade of state Medicaid claims or eligibility systems is eligible for a 90 percent FMAP (and for a 75 percent matching rate for subsequent costs associated with operating such systems).   Implementation and operation of an immigration status verification system is eligible for a 100 percent FMAP, operation of a Medicaid Fraud Control Unit (MFCU) is eligible for a 75 percent FMAP and survey and certification of nursing homes is eligible for a 75 percent FMAP.  Eliminating these enhanced administrative matching rates would shift substantial costs to states and make it less likely that states would be able to adequately sustain these vital administrative functions over time, let alone improve their administration of Medicaid in these and other areas.  This proposal was not previously included in the earlier Arrington document.  The list claims this proposal would cut federal spending by $69 billion over ten years.    

• Lowering the Medicaid matching rate for the District of Columbia.  Under federal law, the regular FMAP for the District of Columbia is set at 70 percent.  (If the District’s FMAP was set based on the FMAP formula, it 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 list 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 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 list claims the proposal would cut federal spending by $18 billion over ten years.

• Reducing the matching rate for states covering undocumented immigrants with their own funds.  Under current law, except for emergency services, states cannot provide federally funded Medicaid coverage to individuals who are undocumented immigrants.  Some states, however, use their own funds to provide coverage.  The coverage may be similar to what is provided in Medicaid or it could be more limited.  For example, more than one-quarter of states provide coverage to children irrespective of immigration status and a modest number of states provide coverage to some adults.  This proposal would appear to cut the regular Medicaid matching rate for any states providing coverage to undocumented immigrants, even though the coverage, even if it is Medicaid-like, is not part of a state’s federally financed Medicaid program and is funded solely by state funds.  The list does not specify what the FMAP reduction would be but it would shift costs to states providing state-only coverage.  That would necessitate either cuts to a state’s Medicaid program, rolling back state-only coverage for undocumented children and other individuals, or both.  This proposal was not previously included in the earlier Arrington document.  The list does not include a cost estimate for this proposal.

• Changing the formula used to calculate Medicaid matching rates.  As noted above, 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.  (In addition to the minimum FMAP of 50 percent, there is also a maximum FMAP of 83 percent.)  The list includes a proposal that would “rebalance Federal Matching Rates to be more fair to states with more people with lower incomes.”  No other details are provided.  This proposal would likely mean that some states would see their FMAPs lowered and other FMAPs would see their FMAPs increased, relative to current law.  It is unclear if this proposal is intended to produce net reductions in federal spending or is intended to be budget neutral overall.  At the very least, those states seeing a FMAP decrease under this proposal would face a cost-shift and would likely have to institute cuts to their Medicaid programs as a result.  This proposal was not previously included in the earlier Arrington document.  The list does not include a cost estimate for this proposal. 

• Imposing onerous Medicaid work reporting requirements.  This proposal would be similar 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 effectively 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 list claims the proposal would cut federal spending by $100 billion over ten years.

• Eliminating Medicaid and CHIP eligibility for certain legal immigrants.  Under current law, legal immigrants are generally not eligible for Medicaid for the first five years they are in the United States.  Some immigrants, however, are immediately eligible including refugees, asylees and citizens of Compact of Free Association (COFA) nations.  In addition, states have the option to provide Medicaid and Children’s Health Insurance Program (CHIP) coverage in the first five years to lawfully residing children and pregnant women: 37 states do so for children and 31 states do so for pregnant women.  This proposal would “remove specified categories” of legal immigrants from eligibility for federal health care programs including Medicaid and the Affordable Care Act’s marketplace subsidies but the list does not indicate what those categories would be.  House Budget Committee Chair Arrington has previously proposed to entirely eliminate Medicaid and CHIP eligibility for groups like asylees and those admitted into the United States for humanitarian reasons such as those granted Temporary Protected Status, among others, whether within the first five years or after.  As a result, this proposal would result in many of the most vulnerable immigrants losing their Medicaid and CHIP coverage, ending up uninsured and forgoing needed care.  A version of this proposal was included in the earlier Arrington document but it appeared to apply only to eligibility for marketplace subsidies, not also to Medicaid and CHIP.  The list does not include a cost estimate for just the Medicaid and CHIP element of this proposal but the list claims the overall proposal for all federal health programs would cut federal spending by $35 billion over ten years.

• Reducing Medicaid and CHIP eligibility by modifying how the Federal Poverty Level (FPL) is annually adjusted.  Under current law, the U.S. Census Bureau’s Official Poverty Measure (OPM) is adjusted annually by general inflation (the Consumer Price Index for All Urban Consumers or CPI-U).  The OPM is then used as the basis for setting the federal poverty guidelines (commonly known as the Federal Poverty Level or FPL) issued by the Department of Health and Human Services which are used to determine eligibility for a variety of federal programs including Medicaid and the Children’s Health Insurance Program (CHIP).  This proposal would require the use of the chained CPI (the Chained Consumer Price Index for All Urban Consumers or C-CPI-U) for the annual adjustments to the FPL for “federal means-tested welfare programs.”  The list does not specify what programs would be affected by the use of chained CPI but it appears that it would apply to any program that determines eligibility based on the FPL, including Medicaid and CHIP.  Using the chained CPI would result in lower estimates of annual inflation than the current use of CPI-U, as the Congressional Budget Office has previously noted.  The list claims that CPI-U overstates inflation but research actually indicates that inflation may tend to rise faster for low-income households than for households overall.  The chained CPI would therefore lead to smaller annual adjustments to the FPL and as a result, the income eligibility limits for Medicaid and CHIP (e.g. the maximum amount of income a family can earn for a household of that size) would be lower than they otherwise would be in any given year, with the reductions growing larger over time.  In other words, assuming that this proposal would also apply to Medicaid and CHIP, using chained CPI would impose an automatic annual cut to Medicaid and CHIP eligibility, with the magnitude of the cut becoming sharper each year.  This proposal was not previously included in the earlier Arrington document.  The list does not break out a specific reduction in federal spending related to Medicaid and CHIP.  It claims that the proposal would reduce federal spending by $5 billion over ten years (but that seems like a large underestimate as CBO has estimated that using chained CPI would alone reduce federal health program spending — Medicaid, CHIP and marketplace subsidies — by $27.5 billion over ten years.)

In addition to the above Medicaid cuts, the House Budget Committee list includes provisions to repeal or rescind four rules related to Medicaid and CHIP that were finalized by the Biden Administration over the last year.  (The earlier Arrington document stated it would repeal “major” health rules from the Biden Administration but did not provide any specific information about what rules would be repealed or rescinded.)  The four rules include:

• Rule related to eligibility and enrollment.  A two-part rule finalized in September 2023 and March 2024 by the Centers for Medicare and Medicaid Services (CMS) significantly improves Medicaid and CHIP eligibility and enrollment systems and procedures by making it easier to apply for, enroll in and renew Medicaid and CHIP coverage.  In its regulatory impact analysis, CMS estimated that together the regulation would increase Medicaid and CHIP enrollment among eligible individuals by nearly 2.2 million, especially among seniors and people with disabilities.  The list claims this repeal of this rule would cut federal spending by $164 billion over ten years. 

• Rule related to access to care.  A rule finalized in May 2024 by CMS improves access to care by ensuring greater payment rate transparency, enhanced review of payment rate adequacy and the impact of payment rate cuts, increased quality of care and oversight in home- and community-based services and greater beneficiary input at the state level.  Rescinding or repealing this rule would likely result in more inadequate provider networks, less transparency and oversight, and reduced access to needed services including long-term services and supports especially home- and community-based services.  The list claims this repeal of this rule would cut federal spending by $121 billion over ten years.  

• Rule related to managed care.  A rule related to Medicaid managed care finalized in May 2024 by CMS enhances access standards, increases transparency and oversight of “State Directed Payments,” clarifies standards related to Medical Loss Ratios for Medicaid managed care organizations, standardizes plan coverage and oversight of certain non-traditional services (known as “In Lieu of Services or ILOS services) and improves assessment of plan quality of care.  It is unclear from the list whether this rule would be entirely repealed or whether repeal would just apply to the rule’s provisions related to State Directed Payments (SDPs).  Under SDPs, states can essentially require Medicaid managed care plans to increase provider rates or set minimum rates for that type of provider in order to improve access.  With the recent growth in SDPs, the rule requires greater state reporting of SDP arrangements (including provider-specific data) and state submission of evaluation reports.  To increase access in four key service areas —  inpatient hospital services, outpatient hospital services, nursing facility services, and qualified practitioner services at an academic medical center — states are permitted to require rates up to the Average Commercial Rate.  The list states this proposal would “impose limits on SDPs” so it likely involves not just rescinding the managed care rule (or potentially just the SDP portion of the rule) but also instituting additional, unspecified limits on state use of SDPs.  But this would have the effect of reducing payments to providers and likely reducing provider participation and beneficiary access, while actually reducing transparency related to such arrangements.  If the entire rule would be repealed, it would also reduce transparency and oversight of managed care plans overall.  The list claims this provision would cut federal spending by $25 billion over ten years. 

• Rule related to nursing home staffing.  A rule finalized in May 2024 by CMS increases staff level requirements for nursing homes under both Medicaid and Medicare and requires greater reporting of compensation for direct care and support staff, among other provisions.  As KFF has noted, “the adequacy of staffing in nursing homes has been a longstanding issue, and the high mortality rate in nursing facilities during the COVID-19 pandemic highlighted and intensified the consequences of inadequate staffing levels.”  The rule is intended to address some of these serious issues that have affected quality of care for nursing home residents, 63 percent of whom are covered by Medicaid.  The list claims that repealing this rule would cut federal spending by up to $22 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, cuts to eligibility through the elimination of eligibility for some immigrants and through changes in the calculation of the Federal Poverty Level, and by rolling back regulations including those that simplify eligibility and enrollment for eligible individuals and thereby increase participation.  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 major budget cuts to other state spending including for K-12 education, which constitutes the largest share of states’ general fund budgets.