Medicaid caps could cost states $1.1 trillion

Cutting federal Medicaid costs by capping how much money the federal government provides states would shift the burden of paying for hundreds of billions of dollars in health care costs to states, a new analysis shows. Prepared by the Urban Institute with the support of the Robert Wood Johnson Foundation, the analysis shows states would need to make up for between $700 billion and $1.1 trillion in cuts from the federal government over the next decade, if the amount of spending per person enrolled in Medicaid is capped.

Researchers examined the effect of putting a limit on how much federal funding states can receive per Medicaid enrollee, also known as a per capita cap. The analysis also looks at the cost shifting of eliminating financial support provided to states that expanded eligibility for their Medicaid program, also known as the enhanced Federal Medical Assistance Percentage.

Per capita caps would have the largest effect on federal spending, according to the analysis. If per capita caps are put in place but the enhanced FMAP continues, federal spending would decrease by $700 billion to $1.1 trillion over the next 10 years. If there are no per capita caps but the FMAP ends, federal spending would decrease by $563 billion over the next 10 years.

Researchers say states with lower average incomes would be most affected by these decreases in federal Medicaid funding. For example, Arkansas, Kentucky, Louisiana, Mississippi, New Mexico, and West Virginia would need to increase current state Medicaid spending by more than 40% if the steepest cuts to federal funding that researchers analyzed were enacted.

“The combination of reducing the 90% federal match for expansion populations and a per capita cap policy would reduce federal spending by between $1.2 and $1.7 trillion, depending on the policy details,” said John Holahan, institute fellow at the Urban Institute. “The responsibility for the healthcare of the most vulnerable populations would shift to states and individuals.”

“This proposed policy amounts to a wholesale transfer of financial responsibility to states, because the need for healthcare will not change, just the means to pay for it,” said Kathy Hempstead, senior policy adviser at the Robert Wood Johnson Foundation. “The consequences will be most drastic in our poorest states, which will be very hard-pressed to close this massive funding gap.”

Read the full analysis “Imposing Per Capita Medicaid Caps and Reducing the Affordable Care Act’s Enhanced Match.”