As congressional Republicans seek about $4.5 trillion to extend expiring tax cuts, the federal government will need to find savings elsewhere. Experts say budget cuts could affect Medicaid coverage for as many as millions of Americans, at a time when the program may need more funding, not less.
The proposed House bill requires the Committee on Energy and Commerce to find $880 billion in spending cuts, which means some aspects of Medicaid, which the committee oversees, may be on the chopping block.
Medicaid is a massive government program that provides free and reduced-cost health care for eligible enrollees. It offers critical coverage to a wide variety of Americans, including children, adults with disabilities and older people in nursing homes.
Even for Americans who have private insurance, Medicaid can play a part in their health care. That’s because Medicaid is such a large engine of funding for so many aspects of the country’s health coverage.
The public health insurance option is funded in part by the federal government and in part by states, covering around 72 million people as of October. A total of 84 million people across the U.S. and its territories were covered either partially or in full as of June, the most recent month for which the government has data.
The federal government spent about $880 billion on Medicaid in fiscal year 2023, the most recent year for which there’s data, according to an analysis by the nonprofit health policy research organization KFF.
Medicaid is an extremely popular entitlement program, said Robin Rudowitz, director of the program on Medicaid and the uninsured at KFF.
More than 9 in 10 adults say Medicaid is “very” or “somewhat” important to their local community, according to recent KFF polling. Forty percent of respondents said they wanted Medicaid funding to remain the same, while 42 percent wanted to increase funding for the program. Just 17 percent wanted to decrease funding “a little” or “a lot.”
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Some studies have found that expanding Medicaid can save money for states, including in spending reductions in corrections health care as well as mental health and substance abuse care.
President Donald Trump has said his administration will not cut Medicaid benefits, and will instead reduce spending by eliminating waste and fraud.
According to health policy experts, there may not be a way to fund the tax cuts without cutting Medicaid. Doing that will have real implications, said Allison Orris, senior fellow and director of Medicaid policy at the Center on Budget and Policy Priorities.
“It’s fair to say [that] if Medicaid is cut by hundreds of billions of dollars, people will lose coverage. But some of the ways in which they will lose coverage and health care and access are a little bit tricky,” she said.
Who and what relies on Medicaid?
Medicaid covers low-income Americans in all 50 states, as well as D.C. and the American territories, but the program’s benefits are farther reaching.
Medicaid pays for around 2 in every 5 births in the country. The program accounts for about 20 percent of both hospital funding and total health care spending nationwide, according to KFF. That organization’s analyses of hundreds of studies conducted since 2014 largely found that Medicaid expansion helped cut hospital costs associated with uninsured patients. Many studies also found that Medicaid expansion helped with overall hospital funding and resulted in fewer hospital closures, though KFF notes that may vary.
And Medicaid – not Medicare – is the single largest payer of long-term care coverage, including nursing home care.
Here are some of the ways Medicaid is crucial for so many Americans’ health care.
Long-term care for people with disabilities
According to KFF analyses, 35 percent of people with disabilities have Medicaid, around 15 million people. That compares with 19 percent of people without disabilities, the majority of whom have employer-provided health insurance.
Currently, Medicaid covers about 60 percent of long-term care coverage, much of which provides care for younger adults with disabilities.
Nursing homes
Medicaid is the primary payer of nursing care in the U.S.; it covers 63 percent of nursing home residents, according to KFF.
For many older adults, “Medicaid is the safety net,” says David Grabowski, professor of health care policy at Harvard Medical School. “An individual can be middle-income their entire life and then reach their older, long-term care years and have to enter a nursing home.”
Because nursing homes can be so expensive, families can quickly deplete their assets, then rely on Medicaid to cover long-term care.
Children
Thirty-seven percent of people enrolled in Medicaid are children, but they account for only about 15 percent of the program’s spending.
In 2023, KFF found that of the 72 million people enrolled in Medicaid, about 30 million were children. Millions more children are enrolled in the Children’s Health Insurance Program, which some states run with Medicaid expansion funds. So far, political conversation has not focused on cutting CHIP funding.
Rural maternal health
Medicaid covered around 40 percent of births nationwide in 2023, KFF found, and nearly half of all rural births.
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Studies also show that being enrolled in Medicaid leads to improved health outcomes for children, including declines in infant and child mortality, preventive care visits on par with privately insured children and even potentially positive outcomes into adulthood, such as improvements in education.
American Indian/Alaskan Natives
Four in 10 American Indian/Alaskan Native people are enrolled in Medicaid – the highest enrollment rate among any race and ethnicity category. This includes about 23 percent of nonelderly AIAN adults and 44 percent of AIAN children.
How the federal government funds states’ Medicaid plans
Medicaid began as an optional program in 1966 alongside Medicare, with around 8 million people eligible for enrollment. By the 1980s, all states had opted into providing health insurance through Medicaid.
Though eligibility requirements have changed over the last 60 years and vary by state, the most significant change to Medicaid was the enactment of the Patient Protection and Affordable Care Act in 2010. It required states to cover adults with incomes up to 138 percent of the federal poverty line. After the Supreme Court ruled in 2012 that expansion for states should be optional, 40 states and Washington, D.C. have expanded Medicaid, accepting federal funds at a much higher rate than the match rate for non-expansion coverage.
Currently, the federal government funds between 50 and 77 percent of state Medicaid plans for most non-expansion enrollees. For states that have expanded their plans to include more adults without children, the federal government pays 90 percent of the Medicaid funding, leaving only 10 percent to the states.
States also have minimum services they must provide, including hospital and doctor’s office visits. They also can use additional federal money to provide services such as prescription drug coverage, dental and vision care.
How cuts might be made
In a February interview, Trump told Fox News’ Sean Hannity that “Medicare, Medicaid, none of that stuff is going to be touched,” saying that reductions would instead come from rooting out fraud.
It’s not clear at this point how the federal government might change Medicaid to cover the budget gap opened by proposed tax cuts, though experts see a handful of possibilities. They also say that cleaning up what small amount of fraud from Medicaid rolls exists won’t be nearly enough to shrink spending down to the numbers being proposed.
Congress will have to ask the questions: “How do you get the math to work and what is most politically salient?” Orris said.
Two similar methods to reduce spending are per capita caps and block grants. Currently, the federal government matches state funding on Medicaid with no limit. A per capita cap would place a limit on spending per person, while a block grant would allocate a specific amount of money for each state to spend on its Medicaid program.
Congress could also change the formula for how the federal government contributes Medicaid expansion funds, which would put states on the hook for the lost dollars.
“It would be extremely challenging, if not impossible, for states to make up the magnitude of $880 billion,” Rudowitz said.
One reform popular among Republicans is the implementation of work requirements, which tie Medicaid benefits to hours worked (or hours searching for work) and which are intended to purge Medicaid rolls of some enrollees. Some states have tried such a plan; Arkansas implemented a waiver to implement work requirements that was blocked by courts. The state has now requested another work requirement waiver.
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But that might not save the government much money or increase employment among Medicaid enrollees, Orris said.
“Taking coverage away from people who don’t meet work requirements – that just translates to a coverage loss. It doesn’t lead to increases in employment,” she said.
Another option Orris suggested Congress might consider is to reduce provider taxes, which is money states generate from taxing health care providers that’s then spent on Medicaid. If those taxes are restricted or reduced, state funding will go down, bringing matching federal funds down with it.
What cuts would mean for patients
However the federal government and states might decide to reduce Medicaid spending, people will lose some or all of their coverage. That could look like a reduction in optional benefits, such as dental, vision or mental health coverage. It also could result in people at the margins losing benefits, such as those who got coverage under expansion plans.
“Over half of the dollars go for people who are qualified on the basis of age or disability, because those people have high needs and use a lot of long-term care services,” Rudowitz said. “There [are] a lot of kids on the program, but they’re not that expensive. So again, if you’re thinking about how to make changes to the Medicaid program, that math is hard to deal with.”
Then there are the secondary implications. Lower reimbursement rates might make health care providers less likely to accept Medicaid patients, when they could make more money serving those with private insurance. Less Medicaid coverage also means fewer people paying for care at hospitals, which could put struggling facilities at even greater risk. And though logistical hurdles to enrolling might not directly apply to children, if adults find it too difficult to get care, they may not apply for coverage for their children, Orris said.
Lawmakers are not saying “We’re going to cut kids,” Orris added. “They’re not saying, ‘We’re going to cut people with disabilities.’ The end result is people with disabilities and kids would lose coverage, but not because the bill text says so.”
This story was updated to include the number of people who receive partial Medicaid benefits.
