Medicaid federal funding cap could impact millions

Medicaid remains in the crosshairs as House Republicans consider a proposal to impose per capita caps on funding for the program that provides health care for low-income Americans, including children and nursing home residents.

According to reports from a closed-door meeting this week, GOP lawmakers on the Energy and Commerce Committee are pushing to cap Medicaid spending for those who obtained coverage during the expansion of the program.

The Affordable Care Act’s Medicaid expansion expanded coverage to nearly all adults with incomes up to 138% of the Federal Poverty Level ($21,597 for an individual in 2025) and provided states with an enhanced federal matching rate for their expansion populations.

To date, 41 states (including the District of Columbia) adopted the expansion and 10 states did not adopt it.

Imposing a cap on Medicaid spending would slash federal support and shift the burden onto the states.

Republicans in Congress are trying to come up with ways to offset $880 billion in spending cuts over a decade to fund a domestic policy bill that would include extending the tax cuts in the 2017 Tax Cuts and Jobs Act. Reports estimate that as much as $600 billion of those spending cuts could come from federal health care programs.

Earlier this week, Rep. Don Bacon, R-Neb., told the White House he won’t accept more than $500 billion in reductions to Medicaid, POLITICO reported.

But what is a per capita cap and how would it impact Medicaid? KFF explained in a recent issue brief.

Medicaid spending on the expansion population is currently shared by states and the federal government without a cap.

States that have implemented the ACA Medicaid expansion currently receive a 90% federal match rate or “FMAP” for adults covered through the expansion. The FMAP for services used by people eligible through traditional Medicaid is determined by a formula set in law designed to provide a higher federal match rate for states with lower per capita incomes and ranges from 50% to 77%.

The ACA expanded Medicaid coverage to nearly all adults with incomes up to 138% of the Federal Poverty Level ($21,597 for an individual in 2025). However, a Supreme Court ruling effectively made the decision to implement the expansion an option for states. Expansion enrollees represent nearly a quarter of Medicaid enrollment and one-fifth of total Medicaid spending.

The impacts of a federal cap on Medicaid

KFF’s analysis said that imposing a federal cap would impact the program and its recipients in the following ways:

• If states maintain ACA expansion coverage and spending at current levels, a per capita cap on the expansion population would result in the federal share of Medicaid expansion spending decreasing while the state share of spending would increase to offset the loss of federal funds.
• If states maintain their expansion spending and coverage, a per capita cap on the expansion population could shift $246 billion in costs to states over the next 10 years.
• As the effective FMAP for expansion enrollees declines, the pressure on states to eliminate ACA coverage would increase.
• If all states ultimately drop their expansion coverage, up to 20 million expansion enrollees could lose coverage and the number of uninsured would increase.

Who might be impacted?

The Century Foundation’s analysis of proposed cuts to Medicaid found that cutting $500 billion from the program over 10 years would translate into the average annual Medicaid cost of covering 18.5 million children. Medicaid currently covers 39% of children in the U.S.

For people age 65 and older, Medicaid supplements Medicare coverage for its low-income enrollees, paying for Medicare premiums and out-of-pocket costs and, for some, uncovered services. The foundation’s analysis found that cutting $500 billion from Medicaid over 10 years would translate into the federal cost of covering 2.7 older Americans. Today, more than 10 million Americans’ Medicare premiums are financed by Medicaid.

In addition, Medicaid covers independent living services for Americans with disabilities. A $500 billion cut from Medicaid over 10 years would translate into the federal Medicaid cost of serving 2.1 million enrollees with disabilities.

A $500 billion Medicaid budget target is the equivalent of 45% of federal home- and community-based care spending, 17 states’ total Medicaid payments, or 2% or greater of state revenue in 45 states, the analysis found.

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Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].