Running the Numbers: The 50-State Impacts of Potential Medicaid Cuts

Editor: Patti Boozang and Amanda Eisenberg
Author: Jocelyn Guyer and Avi Herring

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tl;dr

• Manatt Health’s 50-State Medicaid Financing Model estimates the potential national and state-by-state impacts of leading proposals to cut Medicaid through the Congressional budget reconciliation process.

• The model currently digs in on four major proposals: cutting federal funding for expansion adults, establishing a per capita cap on expansion adults, adding work reporting requirements, and eliminating the 50% FMAP (federal Medicaid matching funds to states) floor.

• If Congress enacts any combination of these proposals, the impacts to Medicaid funding and coverage will be unprecedented. There will be no “winners” among expansion states: only losers and bigger losers. Even non-expansion states left unscathed by federal cuts to expansion aren’t in the clear; while not currently included in the model results discussed below, Congress is also considering proposals that would limit states’ use of provider taxes and state directed payments, which would impact nearly all states.

The 80 Million Impact

Over the last few months, we have dedicated several 80 Million articles to the $880 billion in Medicaid cuts under consideration in Congress, explaining the threat they pose to the program and the latest twists and turns in the budget reconciliation process. Today, we are all about the numbers. Drawing on Manatt Health’s 50-State Medicaid Financing Model and a new toolkit that we recently prepared for states in partnership with the Robert Wood Johnson Foundation funded State Health Value Strategies program, we explore what several key proposals to cut Medicaid would mean nationally and for each of the 50 states and D.C.

Manatt’s Medicaid Financing Model

Before we dive into the results, here is what you should know about Manatt’s 50-State Medicaid Financing Model. The model uses publicly available data sources supplemented by Manatt research and Congressional Budget Office (CBO) projections to establish a “baseline” of how we expect Medicaid expenditures and enrollment to change over time under current law (that is, if Congress made no changes to Medicaid). We develop this baseline for each of the 50 states and D.C., and for each of five key Medicaid eligibility groups: seniors, people with disabilities, children, expansion adults and other adults.  (For a detailed explanation of methodology, see Section 3, page 2 of the toolkit). We then assess what happens to expenditures and enrollment if any one of several proposals under consideration in Congress is adopted. Since we do not know how states will respond to any given proposal, we model a number of different scenarios for state responses, allowing states and stakeholders to determine what they think is most likely.

For the purposes of running the numbers, we look at four of the major proposals that seem most likely to advance through budget reconciliation, at least based on the latest news articles plus a touch of tea leaf reading. Specifically:

• Cutting funding for expansion adults by lowering the 90% FMAP

• Establishing a per capita cap on expansion adults

• Adding work reporting requirements as a condition of Medicaid eligibility

• Eliminating the 50% floor on the FMAP that 10 blue states (including D.C.) plus Wyoming currently rely on to protect their FMAP.

Since we do not yet know the exact parameters that would be established for any of these proposals if adopted, we rely on policy options evaluated by CBO or, with respect to work reporting requirements, bills that have been introduced in Congress.  Unless otherwise stated, we show expected impact over the ten-year period of FFY2025 – FFY2034. 

Manatt intends to update these results as the budget reconciliation process continues, and as more details become available on the Medicaid cuts under consideration.

Key Takeaways

If you are interested only in how your state might fare under various scenarios, take a look at the state-by-state tables available here. But, if you are interested in the national implications of these proposed cuts, here are our takeaways after spending the last few months wrestling with the numbers.

• Deep Cuts are on the Table. While you already knew this one, the modeling exercise highlights the scope and scale of the cuts that Congress is considering. Eliminating $880 billion in federal Medicaid funding represents unprecedented reductions.  In Table 1 of the toolkit, we show how each of the major proposals on the table would – on its own – results in deep cuts to federal Medicaid funding, and termination of coverage for millions unless states fill the federal funding chasm. In some respects, the bigger question may be how the cuts will interact with one another as they are stacked up to reach spending cut targets, but that is an issue we will address after a budget reconciliation bill is introduced.

• Tag You Are It, States: At their core, the proposals under discussion in Congress represent a cost shift to state governments and budgets.  As noted above and in Table 2 of the toolkit, the size of the cost shift will depend in part on how states respond. For example, if expansion states respond to elimination of the 90% FMAP by attempting to replace the lost federal dollars, it will create an $836 billion hole in their budgets—equivalent to a 26% increase in state Medicaid spending across the 40 expansion states plus D.C. This hole will need to be filled by tax increases or other spending cuts. With a program like Medicaid that is jointly funded by the federal government and states, it is simply impossible for the federal government to reduce its own funding without it affecting states, providers, and ultimately Medicaid enrollees.

• We Can’t Expect States to Save the Day. When faced with major reductions in federal Medicaid expenditures, it is possible that some states will raise taxes or cut other spending to fill the gap created by federal cuts. But, with state budgets already starting to show strain and a potential recession on the horizon, it is unlikely that states will be able to fill the funding hole. Indeed, some states may view it as an opportunity to reduce their own spending on Medicaid (consider the analogy of your employer ending matching 401(k) contributions – you might put less into your account). The Manatt 50-State Medicaid Financing Model does not attempt to predict exactly what any individual state will do but instead shows a range of potential state response scenarios.  If, for example, states cannot fill in the gap created by eliminating the 90% FMAP for expansion, they will need to end their expansions, resulting in close to a third of Medicaid beneficiaries across the country (22 million people) losing coverage and a $2.2 trillion (37% ) reduction in total Medicaid expenditures. If you are optimistic and think your expansion state will replace lost federal dollars, see Option B in Tables 2 and 3 in the toolkit Excel Workbook; if you are skeptical, see Option A in Tables 2 and 3.

• This is About Losers and Bigger Losers. The Manatt 50-State Medicaid Financing Model highlights that there are no “winners” in the proposals being discussed, but some states fare far worse than others depending on the proposal.  Most obviously, the proposal to eliminate the 50% floor on FMAP concentrates steep federal Medicaid funding cuts on the 11 states (including DC) currently protected by the provision. Maryland would lose 5% of its federal Medicaid funds and Massachusetts would lose 50 percent.  At the same time, elimination of the 90% matching rate for expansion adults results in cuts that range from difficult-to-absorb to cataclysmic. For example, to maintain their expansions at the lower FMAP, Arizona would need to increase its state Medicaid spending by 37%, and Montana would need to increase its state spending by 49%.

• Even States in the “It Could Be Even Worse” Category Would be in Serious Trouble. New York, for example, is a state that loses a relatively “small” share of its federal Medicaid expenditures compared to other states (27%) if it must eliminate expansion due to loss of the 90% matching rate. But this represents a loss of $190 billion in federal Medicaid expenditures over the next 10 years and 2.2 million people terminated from coverage. Vermont – the expansion state that ranks lowest when it comes to lost federal funds if the 90% matching rate is eliminated – would lose 20 % of its federal Medicaid funding.

• Per Capita Caps – It Gets Worse Over Time.  Unlike the other proposals assessed in the model, a per capita cap on the expansion group gets markedly harder for states to absorb over time. In the first year of implementing a per capita cap on expansion adults, states would lose $38.7 billion in federal funds or 17% of federal Medicaid expenditures on the expansion group. By the end of the 10-year budget window, however, states would lose an estimated $408 billion or 22% of their federal expenditures on this population. This reflects that the “wedge” between the growth in per capita medical costs and federal funding available to states diverges more and more over time by design.

• No Magic Bullet Will Prevent Massive Coverage Losses Under Work Reporting Requirements. To assess the implications of work reporting requirements via its 50-State Medicaid Financing Model, Manatt reviewed the research on previous work reporting requirement policies in Arkansas, New Hampshire, and Georgia, the three states with directly relevant experience.¹ Their experiences highlight that the number of individuals losing coverage will be directly correlated with a state’s ability to use its eligibility system and automatic data matching to identify those who should not be terminated. When people must report to the government repeatedly about their work effort to maintain coverage, the reality is that the vast majority will not be able to navigate the gauntlet of red tape. In Arkansas, 72% of people not automatically deemed to meet the state’s work reporting requirements lost coverage. In New Hampshire, 82% of such people would have lost coverage if the state had not halted implementation. In Georgia, some 97% of those potentially eligible for the state’s Medicaid expansion, subject to meeting a work reporting requirement, have not enrolled.  In Manatt’s 50-State Medicaid Financing Model, we estimate that at least 10.1 million (12% of Medicaid enrollees) will lose coverage if states are mandated to impose a work reporting requirement on individuals ages 18 to 65 who do not meet exemption criteria.  This is a low-range estimate assuming that all states uniformly succeed in implementing highly automated systems.  A more likely scenario is that states struggle with automation, resulting in 14.4 million (moderate automation) to 30.8 million (low automation) individuals losing coverage (i.e., 17 to 35% of Medicaid enrollees).

•  Non-Expansion States Are Not Insulated from Proposed Funding Cuts.  While our modeling to date has focused on proposals likely to primarily affect the 41 states that have expanded Medicaid (except for work reporting requirements) or those protected by the FMAP floor, it is expected that Congress will also be considering additional proposals that will affect all states. These might include creating new limits on provider taxes, reducing state flexibility over directed payments, increasing state requirements to conduct redeterminations and more.

*Work reporting requirements estimates reflect a “moderate automation” scenario, assuming states automatically exempt or determine compliant 50% of adults from work reporting requirements. Of individuals not automatically exempted/determined compliant, we assume that 82% would lose coverage. These figures reflect New Hampshire's experience preparing to implement work requirements.

The Bottom Line

The proposed $880 billion Medicaid cuts that are under active discussion in Congress as part of budget reconciliation negotiations represent an unprecedented threat to the program, potentially triggering significant cost shifts to state governments and coverage losses for millions of Medicaid enrollees. Manatt Health’s 50-State Medicaid Financing Model highlights that there are no winners in these proposals, only varying degrees of significant loss. As the budget reconciliation process continues, we will be updating the model for specific legislative proposals and releasing new estimates. Thanks to our 80 Million subscribers for staying tuned, informed and engaged.

[1] These include Arkansas, which operated a work requirement for seven months ending in February 2020; New Hampshire, which was on the brink of terminating people from coverage for failure to report their work or community engagement activities, but pulled back in July 2019 when it became clear that 41% of the state’s Medicaid expansion adults would need to be terminated from coverage; and, Georgia, which operates a work requirement program as a prerequisite for certain individuals to obtain coverage.

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