For months, Republicans have been trying to figure out how to reduce Medicaid spending to help enact President Trump’s domestic agenda. But their list of possible cuts is shrinking.
House Speaker Mike Johnson said Tuesday that major cuts to the Affordable Care Act’s Medicaid expansion were off the table. Now, the largest cut left among their whittled-down options would disproportionately hurt states that supported Mr. Trump in the 2024 election.
Republicans have also been studying several other Medicaid changes for their budget bill, and a final package will probably include some of the smaller adjustments. But they have considered only two major policy pathways that can deliver the bulk of the $880 billion in spending cuts that the House committee overseeing Medicaid has been charged with finding.
One policy would significantly dial back funding for the Obamacare Medicaid expansion, which the Congressional Budget Office estimated Wednesday would save $710 billion over a decade. Some of the deepest cuts would be felt by rich, Democratic-led states. This was the option Mr. Johnson ruled out for now after meeting with moderate Republican members this week.
The remaining big cut on the table, limiting the way states use a tax loophole to increase federal spending on Medicaid, would save $668 billion, mostly by reducing Medicaid spending in poorer, Southern states.
Whichever states get hit hardest would face big budget shortfalls, and to compensate some could drop Medicaid’s health insurance coverage for some of their lower-income adults, cut hospital payments, or cut other government priorities.
“The headline number of the reduction in federal spending is similar, but everything else is extremely different,” said Morgan Henderson, a health economist with The Hilltop Institute at the University of Maryland-Baltimore County, which has been analyzing Republican Medicaid proposals.
The final package will most likely include some smaller Medicaid changes too, but probably needs one of the big cuts to achieve Republicans’ budget goals.
At the core of the difference is Medicaid’s financing system for patients’ bills. The federal government covers a larger share of medical costs for patients in poorer states. It gives less money to richer states that can better support Medicaid with their own tax dollars.
In New York, this matching rate is 50 percent, and the money is split evenly. In Mississippi, the rate is 77 percent, and the federal government pays about three dollars for every one dollar of state funding.
The federal government gives all states an exceptionally generous matching rate for anyone who signs up through the Obamacare Medicaid expansion. For those enrollees, Washington covers 90 percent of the costs.
The option Johnson dropped
The first Republican policy option, reducing funding for the Obamacare Medicaid expansion, would decrease the 90 percent match back to whatever share a state normally gets from the federal government. That would hit richer, Democratic states in two ways: They’re more likely to participate in Medicaid expansion, and they have lower matching rates.
An analysis from the Urban Institute, a liberal policy think tank, estimates that California, New York and Washington are among the places that would see the steepest cuts under this plan.
The 10 states that do not participate in Medicaid expansion, most with Republican governors, would feel no effect. But not all red states would be spared: North Dakota, for example, has a robust natural gas industry that makes it a wealthy state; it has a low matching rate and has expanded Medicaid.
Those and a few other factors mean that it could lose about 19 percent of its federal Medicaid funds if Congress goes this route.
The alternative version that’s still alive
Mr. Johnson moved on from changes to the Medicaid expansion matching rates Tuesday afternoon after meeting with moderate Republicans — many of whom represent districts in Democratic-led states.
He has, however, suggested he is open to a similar but less far-reaching policy that would eliminate the matching system for the expansion population altogether and replace it with a fixed payment to states for each enrollee.
The C.B.O. estimates that such a change would generate about $225 billion in savings over a decade. Over time, however, it could lead to larger funding reductions than would occur under the matching rate change, because the payment is designed to increase more slowly than the cost of health care.
The big cut on the table
The second large option, closing the medical provider tax loophole, would end a system in which states can use hospital and nursing home tax revenue to artificially inflate their Medicaid spending, allowing them to collect more matching funds from the federal government.
These policies tend to account for a large chunk of the Medicaid budget in poorer states, where each dollar they spend on the program gets matched twofold or threefold by the federal government.
“The incentives to use provider taxes in those states are really significant,” said John Holahan, a fellow at the Urban Institute who has studied Medicaid provider taxes for decades.
There are four Southern states — South Carolina, Mississippi, Alabama and Tennessee — that arguably have the most at stake in which way Congress cuts Medicaid.
If legislators ended the provider tax loophole, those states could lose 30 percent of their federal Medicaid funding, according to an analysis from Mr. Henderson and his colleagues. They would have a gaping hole in their state budgets, and might need to consider raising taxes or cutting benefits.
(North Carolina, a swing state that voted for President Trump and that has a Democratic governor, may also experience large effects, which the analysis doesn’t capture; the state expanded Medicaid, and phased in a large provider tax, shortly after the measurement period used to crunch the numbers.)
At least some states would face major budget holes
How states would react to either type of cut would probably vary. Some might cut back on payments to medical providers, raise taxes or cut other state services to make up the shortfall. Some might reduce enrollment in Medicaid by dropping optional populations: Twelve states that expanded Medicaid have laws that require them to either automatically drop the expansion if the match rate declines or to formally study the question.
The reason the C.B.O. expects these policies to save so much money is that the analysts there assume states will choose a mix of these reactions, some of which, like reversing Medicaid expansion, will reduce federal spending by even more than the direct cut.
“You’re not just going to say, ‘Provider taxes are gone, we’re going to cut it from the hospitals,’” said Alice Middleton, Hilltop’s interim executive director, who previously worked at the federal agency that oversees Medicaid. “You’re going to have to try to fill those holes in different ways, and start getting creative. You’re looking at every single thing.”
Sarah Kliff is an investigative health care reporter for The Times.
Margot Sanger-Katz is a reporter covering health care policy and public health for the Upshot section of The Times.
Alicia Parlapiano is a Times reporter covering government policy and politics, primarily using data and charts.
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