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House GOP Medicaid Provisions Would Cut Federal Medicaid Spending by $560 Billion Over Next Decade

Note: For more recent analysis reflecting the Congressional Budget Office’s cost estimates, please see CBO: 24 Million People Would Lose Coverage Under House Republican Health Plan.

The House Republican health plan would shift an estimated $560 billion in Medicaid costs to states over the next ten years, effectively ending the Affordable Care Act’s (ACA) Medicaid expansion for 11 million people while also harming tens of millions of additional seniors, people with disabilities, and children and parents who rely on Medicaid today — based on new details that the Wall Street Journal reported today as well as the leaked bill draft from last week. (See chart.)

The legislation, which the House Energy and Commerce Committee is expected to consider next week, would:

End the Medicaid expansion.  Starting in 2020, states would receive only the regular federal Medicaid matching rate — on average, 57 percent of Medicaid costs, with state covering the other 43 percent — for any new enrollees under the expansion instead of the ACA’s matching rate of 90 percent.  This means that expansion states would have to pay 2.8 to 5 times more in terms of their own costs.

While states could continue to get the expansion matching rate for beneficiaries who were enrolled before the end of 2019 and stayed enrolled without a break in coverage, the large majority of beneficiaries now on Medicaid under the expansion would likely fall off the program after two years, with further continued declines after that.  That’s because the income of low-income people tends to fluctuate, so they’re no longer eligible because their income is too high.

Thus, the overwhelming share of Medicaid expansion spending would eventually be subject to the regular matching rate.  To maintain the expansion as it’s now operating in the expansion states, we estimate that these states would have to increase their share of costs by about $280 billion over ten years. (This figure includes the added effect of applying a per capita cap — as described below — to the Medicaid expansion.)

In seven states, expansion coverage would automatically end because those states have passed laws that require their expansion to end if the federal Medicaid matching rate falls or require the state to take steps to prevent their state’s Medicaid costs from rising.  As a practical matter, most or all of the other 25 expansion states (including the District of Columbia) also would have to end their expansions, or close them to new enrollees (if the House Republican legislation allows it).  As a result, the 11 million adults in 32 states who gained coverage through the expansion would lose it and become uninsured.

Convert the Medicaid program to a per capita cap.  The proposal would cap federal funding on a per-beneficiary basis for virtually the entire Medicaid program (including the Medicaid expansion) starting in 2019.  The caps would be based on states’ historical per-beneficiary spending in fiscal year 2016, increased annually by the chained Consumer Price Index plus 1 percentage point.  (The chained CPI is about 0.25 percentage points lower than general inflation, even though Medicaid costs rise faster than general inflation.)

Because Medicaid costs per beneficiary are now expected to rise by about 0.9 percentage points faster than states’ capped amounts each year, this means that states will get less federal funding than under current law, with the cuts growing larger each year.  Based on our preliminary estimate, that would cut federal spending for the Medicaid program by an additional $280 billion over the next decade (on top of the $280 billion in cuts to the Medicaid expansion as described above). 

Moreover, because states would be responsible for 100 percent of all costs in excess of the per capita cap, state costs could be even higher due to unanticipated health care cost growth or to demographic changes like population aging that a per capita cap wouldn’t account for.  For example, states would be responsible for all costs due to an epidemic or a new treatment as well as higher costs as seniors on Medicaid move from young-old age to old-old age and have much greater medical and long-term care needs and costs.

In response, states would have to contribute much more of their own funding or, far likelier, make deep cuts to eligibility, benefits, and provider payments, with those cuts growing more severe each year.  Along with those who’ve gained coverage under the Medicaid expansion who would lose it, the remaining 63 million children and families, seniors, and people with disabilities who rely on Medicaid today would face the significant risk of ending up uninsured or losing access to needed care in coming years.