Medicaid Threats in the Upcoming Congress

Deeply damaging health coverage proposals recently advanced by Republican congressional leaders and conservative think tanks could gain traction in Congress next year.^[1] Cutting Medicaid would harm enrollees — including the millions of children, people with disabilities, and elderly people with low incomes who are covered by Medicaid — and increase health inequities.

About 72 million people receive health coverage through Medicaid.^[2] It pays for 2 in 5 births in the U.S.^[3] and is the nation’s largest payer both of behavioral health services, which include mental health and substance use disorder treatment,^[4] and long-term care services, either at home or in nursing facilities.^[5] (See Figure 1, and more details in the Appendix.) Medicaid helps children develop into healthy adults and helps adults stay healthy. And it’s an overwhelmingly popular program.^[6]

Despite this, various Republican legislative proposals seek to cut Medicaid by eliminating or severely underfunding the Affordable Care Act (ACA) Medicaid expansion, by restructuring and cutting federal funding for the program as a whole, or by weakening long-standing program protections for enrollees.^[7] Republicans often use improving program efficiency and program integrity as a rationale for their proposed cuts, but the real common thread in the proposals is that they would lead to widespread cuts in eligibility, benefits, and provider payment rates, potentially leaving millions without health care coverage and access to care they need.

For example, the proposed Medicaid cuts would jeopardize people’s ability to access and afford life-saving medications, treatment to manage chronic conditions, and care for acute illnesses. People with cancer would be diagnosed at later stages and face higher risks of mortality. People with chronic conditions such as cardiovascular disease, obesity, and liver disease would go untreated and have worse health outcomes. People under serious psychological distress would delay or forgo the care they need. And families would have more medical debt and less financial security. A large body of evidence bears this out: Medicaid improves health, prevents premature deaths, and reduces medical debt and the likelihood of catastrophic out-of-pocket medical costs.^[8]

To be sure, there also is plenty of damage the incoming Trump Administration could inflict on Medicaid through administrative actions, as we saw during the first Trump Administration.^[9] This paper, however, focuses on harmful legislative Medicaid proposals that Republicans have floated in the past^[10] and that Congress should continue to resist.

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Reducing Funding for Expansion Coverage for Low-Income Adults

The ACA expanded Medicaid to adults with household incomes up to 138 percent of the poverty level ($20,783 a year for an individual), with the federal government picking up most of the cost. The Supreme Court later made the expansion optional for states, but 40 states plus the District of Columbia have adopted it and now cover more than 20 million adults aged 19 to 64.^[11]

Recent GOP budget plans have proposed reducing the 90 percent federal matching rate for Medicaid expansion to each state’s regular Medicaid matching rate.^[12] Cutting the federal government’s commitment to funding 90 percent of the Medicaid expansion would reduce federal spending by $561 billion over nine years, beginning in fiscal year 2026, the Congressional Budget Office (CBO) estimates. ^[13] CBO’s estimate assumes that in response to the cutting the Medicaid matching rate, no states would newly opt to expand and some states would drop the expansion. Other proposals, in addition to reducing the expansion group matching rate, would explicitly limit the Medicaid expansion group to those with incomes up to 100 percent of the poverty level, leaving individuals over that income level to either find other coverage with higher out-of-pocket costs or become uninsured.^[14]

States would face huge added costs if they wanted to maintain the Medicaid expansion at the lower matching rate. (See Table 1.) In a number of states, the cost of expansion would rise by more than $1 billion a year. Taking this much money away from states would make it likely that many states would drop the entire Medicaid expansion, which would result in millions of people losing coverage.

Indeed, 12 states have enacted “poison pill laws” that would end their expansion, automatically or nearly automatically, if the federal government’s contribution drops.^[15] While some states might find a way to pay for providing coverage for some or all expansion enrollees, others likely would simply drop the expansion (as CBO expects), leading to an unprecedented increase in the uninsured rate.

If their states drop expansion, some Medicaid expansion enrollees with incomes modestly over the poverty level might be able to obtain marketplace coverage, but it has higher cost sharing than Medicaid — making care harder to afford — and the coverage itself would be unaffordable for many if enhanced premium tax credits are not extended.^[16] And enrollees with incomes under the poverty level would have no alternative source of affordable coverage. CBO previously concluded that if Congress reduces the expansion matching rate, individuals could increase their own medical spending, which would prompt a “significant increase in medical debt and bankruptcies.”^[17]

Ending the Medicaid expansion would also harm children, older adults, and people with disabilities who are covered by Medicaid but not through the expansion.^[18] For example, studies have found that extending Medicaid coverage to parents has a “welcome mat” effect on children’s coverage because parents are likelier to sign up their eligible children when the whole family can get coverage.^[19] And the rise in the number of uninsured people would lead to more uncompensated care, hurting health care providers^[20] as well as state and local budgets.^[21]

Reducing the Federal Matching Rate

Reducing the regular Medicaid matching rate for some or all states would significantly cut federal funding to states, leaving a large hole in state budgets that they would have to fill either by increasing state funding, cutting back on who is eligible for Medicaid and the health care services provided, or both. The federal reduction would be hard for states to absorb because Medicaid is the largest federal source of funds in state budgets.^[22] Today, the federal government pays between 50 percent and 77 percent of the cost of providing most health services to most Medicaid enrollees.^[23] The federal share is generally set higher in states with lower per capita income because higher-income states can afford to pay a larger share of Medicaid costs.

Various Republican proposals have included^[24] reductions in the matching rate for some^[25] or all^[26] states. One proposal that CBO modeled — to remove the current “floor” on matching rates, which ensures that no state is below 50 percent — would significantly cut the federal government’s share of Medicaid spending and would cut overall federal spending by $530 billion in the impacted states over nine years.^[27]

Table 2 shows that ten states and the District of Columbia would face significant losses from such a proposal in fiscal year 2025. To replace the loss of federal funding that year, these states combined would need to pay an additional $43 billion. If the floor were lowered to 40 percent rather than removed completely, these states would need to pay an additional $30 billion in fiscal year 2025.

Faced with cuts in federal funding of this size, states would likely reduce “optional” benefits — those that federal law does not require them to cover, such as home- and community-based services for seniors and people with disabilities or prescription drugs — or provider payment rates, according to CBO.^[28] States could also scale back eligibility to reduce enrollment.

Capping Federal Spending

Since Medicaid’s inception, its funding model has been one where states put up a share of the cost of covered health care services and the federal government matches that state spending. This framework enables states to cover all individuals who meet program requirements. Various Republican proposals^[29] would turn Medicaid into a block grant, meaning states would receive a fixed dollar amount from the federal government each year regardless of their costs,^[30] or impose a per capita cap on federal funding.^[31] Both proposals would dramatically change Medicaid’s funding structure, shifting costs to states and resulting in people losing coverage.

As recent calls to block-grant^[32] or cap^[33] Medicaid spending make clear, both approaches would be designed to cut federal funding to states by setting the block grant funding level or per capita cap to grow more slowly than would be needed to keep pace with rising enrollment or health care costs. As Figure 2 shows, even small initial cuts would grow over time, resulting in massive cumulative cuts. States could be forced to make even deeper cuts if enrollment or health costs are higher than expected due to a recession, pandemic, new drugs and other high-cost technologies, or cost growth across the public and private health care system.

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To stay within capped funding, states would likely be empowered to take steps such as capping overall enrollment, cutting coverage for people in certain eligibility groups (such as “optional” groups, which include some children, some people with disabilities, and many adults), increasing cost sharing, reducing health benefits (either broad reductions or those more narrowly tailored to “optional” services), lowering payments to health care providers, or some combination of these. All of these changes would hurt enrollees.

CBO estimated various scenarios by which Congress could cap Medicaid spending, overall or by enrollee. For the scenarios CBO analyzed, capping overall spending would cut Medicaid dramatically and result in federal savings of between $459 billion and $742 billion over nine years, depending on the annual rate at which federal funding would be permitted to grow under the caps.^[34] CBO also found that various options for capping per-enrollee spending would cut net federal spending by between $588 billion and $893 billion over nine years, again depending on how the policy is structured.^[35] CBO also estimates that about half of the people losing Medicaid coverage would become uninsured. In a previous analysis, CBO noted that medical debt and bankruptcies would increase.^[36]  The cuts to Medicaid spending would only grow in the future.

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Making It Harder for States to Draw Down Federal Support

States have flexibility in how they finance the non-federal share of Medicaid matching funds as long as they follow Medicaid law and regulations designed to ensure that they contribute a minimum amount of support to the program, do not use federal Medicaid dollars as the source of the non-federal share, and use federal funds to serve Medicaid enrollees. Republican proposals would destabilize Medicaid financing by eliminating some of this financing flexibility.

For example, Republican proposals would restrict — or, in the words of the Republican Study Committee budget, “effectively eliminate”^[37] — health care taxes on providers, which all states except Alaska use to finance part of the state Medicaid share.^[38] In recent years, states have used new or increased provider taxes to help raise additional state funds; they have used the money to help pay for adjusting provider reimbursements to keep pace with increased health costs, for averting Medicaid benefit cuts, and for expanding Medicaid benefits, including supporting the ACA Medicaid expansion.^[39]

Restricting or ending states’ ability to use these revenues would open a hole in state budgets and have serious consequences for Medicaid enrollees, as states would likely respond by cutting benefits or eligibility, cutting provider rates, or otherwise limiting health care access for Medicaid beneficiaries.^[40] Any of these responses mean that people will lose coverage, face higher out-of-pocket costs, or have reduced access to providers, including in rural communities where it can already be difficult for people to access care. CBO recently estimated the impact of various kinds of limits on provider taxes and found that the most significant would cut Medicaid deeply, with a net reduction in federal spending of $612 billion over nine years (fiscal years 2026-2034).^[41] The total cut in Medicaid services to patients would be significantly larger because of the loss in state funding that the provider tax generates.

That’s not all: some Republican proposals would eliminate other approaches that states use to help pay for Medicaid, including the use of public funds transferred from or certified by entities such as local governments and public hospitals.

Taking Coverage Away From People Who Do Not Meet Work Requirements

Several recent Republican proposals would take Medicaid away from people who don’t meet burdensome work requirements.^[42] Such proposals are based on the false assumption that adult Medicaid enrollees do not work.^[43] In reality, nearly 2 in 3 non-elderly adult Medicaid enrollees work, according to 2023 data, and most of the rest have a disability, are caring for family members, or are attending school.^[44] (See Figure 3.)

While work requirement proposals typically include exemptions for some enrollees, past experience in Arkansas^[45] shows that large numbers of enrollees who work or should qualify for an exemption nevertheless lose coverage because they are caught up by administrative burdens and red tape.^[46] We are seeing the same thing today in Georgia, which requires adults with low incomes to report at least 80 hours of work or volunteer activities each month as a condition of getting and keeping their coverage. As of October 2024, active enrollment stands at about 5,000 people, far less than the 110,000 people who expressed initial interest in applying for the program, and well under the estimated 240,000 uninsured people estimated to be eligible for the program.^[47]

Moreover, research shows that Medicaid work requirements do not increase employment.^[48] CBO recently concluded that a proposed federal work requirement would lead to coverage loss with “no change in employment or hours worked.”^[49]

Making It Harder for People to Enroll or Renew Coverage

Republican proponents of large Medicaid cuts often cite concerns about Medicaid’s spending levels or error rates to justify imposing more arduous eligibility verification and determination procedures that would make it harder for eligible people to enroll or to stay enrolled.^[50] For example, House Budget Committee Chairman Jodey Arrington recently claimed that checking enrollees’ Medicaid eligibility more often than once per year, the current standard for most enrollees, would cut $160 billion from Medicaid.^[51] Adding more paperwork and administrative steps would jeopardize coverage among eligible people, so any savings would come largely from keeping eligible people out of the program.

Some have even proposed measures that would increase errors and make enrolling more difficult for people clearly eligible, making clear that their goals are to reduce the number of people getting coverage, not cost savings. For example, Republican proposals to add more paperwork requirements, limit the use of ex parte renewals (in which the state renews coverage using data it already has instead of asking enrollees for redundant information), and banning the use of pre-populated forms would increase errors, as well as burdens and expenses for states and enrollees.

Research shows that improper payments in Medicaid typically result not from fraud or abuse but instead from paperwork problems such as the state’s failure to document the data sources it used to verify information on a Medicaid application; many times they don’t involve enrollment of ineligible people.^[52] Program integrity efforts should therefore focus on improving how state systems function so that eligible people can get and stay enrolled — not on keeping eligible people out of Medicaid.^[53]

Conclusion

Recent Republican legislative proposals would cause people to lose health coverage, increase enrollees’ costs, and destabilize health care providers. States, already struggling in a difficult budgetary environment, would be forced to make deep cuts to Medicaid. Members of Congress shouldn’t ignore the impact of these proposals on Medicaid enrollees, providers, or states as they prepare to debate Medicaid next year.

Appendix