House GOP Eyeing Cuts of Nearly One-Third in Projected Federal Medicaid Spending

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This post was updated on Jan. 21 to clarify that deficit reductions under consideration are reductions in federal spending.

According to a document made public by Politico, House Republicans are considering federal deficit reductions of $5.5 trillion, which includes $2.3 trillion cuts in Medicaid, $2.7 trillion cuts in other spending, and $0.5 trillion in new tax revenues. Reductions could help offset the costs of extending expiring tax cuts. The document includes several Medicaid policy changes that could reach the $2.3 trillion total with the vast majority of savings (86%) coming from imposing a per capita cap, reducing the Affordable Care Act (ACA) expansion match rate, and lowering the match rate (FMAP) floor from the current 50% level. Policies to limit the use of provider taxes, impose work requirements, change the match rate for DC, and repeal the incentive for states to newly adopt the Medicaid expansion that was passed in the American Rescue Plan Act account for the remaining savings. These policy changes would fundamentally change how Medicaid financing works. Cuts of this magnitude would put states at financial risk, forcing them to raise new revenues or reduce Medicaid spending by eliminating coverage for some people, covering fewer services, and (or) cutting rates paid to physicians, hospitals, and nursing homes.

If the House and Senate pass a budget resolution with a $2.3 trillion target for Medicaid, Congress will need to come up with detailed legislative policy proposals to hit that target through the reconciliation process. The Congressional Budget Office (CBO) would prepare estimates of specific proposals. Here are a few ways to put the House Republicans’ numbers in perspective:

• Medicaid cuts of $2.3 trillion account nearly half (46%) of all proposed federal cuts, making it the largest source of spending reductions.
• $2.3 trillion over 10 years represents nearly one-third (31%) reduction from CBO projected federal Medicaid spending of $7.5 trillion.
• While cuts would likely compound and be more severe over time, if the cuts were evenly distributed over the 10-year period a reduction of federal funding for states of $230 billion would represent 22% of all federal revenues to states and 39% of all Medicaid revenues to states. Given that policy changes would likely have different implications across states, this could be a much higher share of federal Medicaid revenue in some states compared to others.