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Medicaid is jointly financed by states and the federal government but administered by states within broad federal rules. Medicaid accounts for a large share of state budgets and can be central to state fiscal decisions. Following years of robust revenue growth, states are now contending with weakening tax revenues, budget shortfalls, and uncertainty in their long-term fiscal outlook, leaving some states with difficult budget decisions. At the same time, there are several options under consideration in Congress to significantly reduce federal Medicaid spending to help pay for tax cuts, with the recently passed House budget resolution targeting cuts to Medicaid of up to $880 billion or more over a decade. There are not yet detailed proposals under consideration by Congress to achieve federal Medicaid spending reductions. However, any reduction in federal Medicaid spending would leave states with tough choices about how to offset reductions through tax increases or cuts to other programs, like education. If states are not able to offset the loss of federal funds with new taxes or reductions in other state spending, states would have to make cuts to their Medicaid programs. This brief explores the magnitude of federal funding cuts under the House budget resolution and puts the $880 billion in context by comparing the size of the cuts to states’ tax revenues, spending on education, and the number of Medicaid enrollees covered for that cost. The analysis assumes $880 billion in federal Medicaid cuts over a decade, though the amount could end up being more or less depending on what Congress passes.
Key Take-Aways
- Federal cuts of $880 billion over 10 years (or $88 billion per year) would represent 29% of state-financed Medicaid spending per resident.
- States could opt to raise tax revenues to offset federal Medicaid reductions. Proposed federal cuts represent 6% of state taxes per resident.
- States could instead make cuts to other states programs such as education, the largest source of expenditures from state funds, to offset federal Medicaid reductions. Proposed federal cuts represent 19% of state education spending per pupil.
- To further put the proposed federal cuts in perspective, they are equivalent to all Medicaid spending on 3 million seniors and people with disabilities (18% of enrollees in that group), 14 million other adults (38% in that group), or 22 million children enrolled in Medicaid (76% of that group). These figures are meant to put the magnitude of the cuts in perspective, not to suggest that states would achieve savings by eliminating coverage by these amounts. The effects of federal cuts on Medicaid spending and coverage would depend on the specific policies enacted.”