Capping Per Enrollee Spending Could Reduce Federal Medicaid Expenditures by $532 billion to Nearly $1 Trillion Over 10 Years Depending on How States Respond and Result in as Many as 15 Million People Losing Medicaid Coverage by 2034

As Congress considers ways to cut Medicaid spending to help finance the extension of federal tax cuts, a new KFF analysis finds that imposing a cap on federal spending per Medicaid enrollee—known as a “per capita cap”—could trigger a decrease in federal Medicaid spending over a 10-year period of $532 billion to almost $1 trillion, depending on how states respond to the cuts. An estimated 15 million people could lose Medicaid coverage by 2034, if states were to respond to the change by reducing their own Medicaid spending and curtailing eligibility.

The size of the cuts and which states would be hit hardest would depend on how states respond, and also whether the policy is combined with other changes, such as ending the 90% federal match for the Affordable Care Act’s Medicaid expansion.

The analysis shows that if states choose to increase their own Medicaid spending to offset federal reductions and maintain coverage and benefits, federal Medicaid spending would fall by $532 billion and state costs would increase by the same amount. State responses to federal cuts may vary. 

However, if Congress at the same time eliminates the enhanced federal matching rate for the Medicaid expansion (another significant policy being discussed, and which was examined by a previous KFF analysis), the impact would be bigger. Federal Medicaid spending cuts could range from $1 trillion–if states offset costs–to $2.1 trillion–if states respond by cutting state spending and eligibility over 10 years, with 30 million people losing Medicaid coverage by the end of the period.

In a party-line vote, the Republican-controlled House last night passed a budget resolution that would target cuts to Medicaid of up to $880 billion or more over a decade to help pay for tax cuts.

“The current proposals being discussed by Congress would lead to the largest Medicaid spending cuts and enrollment declines in the program’s history with an unprecedented cut in federal Medicaid funding to states,” said KFF President and CEO Drew Altman. “As our polling and focus groups with voters show, Americans, including many Trump voters, are not expecting, nor would they want, cuts to Medicaid, which would be felt across the country.” 

The analysis examines the potential impacts of two of the Medicaid proposals being discussed that would generate significant federal savings. It looks at the combination of them because lawmakers may pursue multiple, simultaneous changes to the program that would have interacting effects. Other proposals being discussed reportedly include imposing Medicaid work requirements, reducing the minimum federal matching rate, restricting states’ use of provider taxes to finance their share of Medicaid spending, and repealing certain Medicaid regulations. Future KFF analyses will examine these proposals as well.

Under the current system, the federal government reimburses states for a share of Medicaid enrollees’ costs, with no upper limit on expenditures, and states pick up the rest. Capping the federal contribution would force states to choose how to offset the funding reductions and could lead to increases in the uninsured rate and reduced revenue for health plans, hospitals and nursing homes.

Other key takeaways of the analysis include:

• Maintaining current Medicaid benefit levels and enrollment would require states to pay $1,500 more per enrollee under a per capita cap, or up to $2,300 more per enrollee under a per capita cap that is combined with the elimination of the enhanced Medicaid expansion match rate, by FY 2034.
• Decreases in Medicaid enrollment would vary by state and could be as high as 57% in some states if Congress implements both per capita cap financing and the elimination of the Medicaid expansion match.
• Spending reductions under a per capita cap would compound in future years as the per enrollee cap levels diverge further from spending levels expected without the cap, limiting states’ ability to meet changing program needs.

All states would be affected by a per capita cap, but the magnitude would vary due to differences in the mix of the types of Medicaid enrollees in each state. The effects would vary across eligibility groups because spending for different groups is expected to grow at different rates over time.  Also, the elimination of the enhanced Medicaid expansion match rate would only affect the 40 states and the District of Columbia that have adopted the expansion. 

For detailed state-by-state impacts of the proposed Medicaid financing changes on spending and enrollment, see Appendix Tables 1 and 2.

A related report released this week highlights the experiences and opinions of Medicaid enrollees who participated in five virtual focus groups that KFF conducted in January with enrollees who voted for President Trump or for Vice President Harris. Despite differences in political leanings, participants reported having favorable experiences with Medicaid and concerns about potential cuts to the program. While some Trump voters enrolled in Medicaid believed there is fraud in the program and were open to work requirements, they also didn’t think that President Trump would follow through on cuts to Medicaid because they believed he understood their financial struggles.

Medicaid covers one in five people in the U.S., and accounts for nearly $1 out of every $5 spent on health care. It covers 41% of all births, nearly half of children with special health care needs, and five in eight nursing home residents.