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UPDATE: Medicaid Madness: What States and Providers Need to Know About Budget Reconciliation
While no one knows exactly how budget debates will unfold in Congress in 2025, one thing is clear — Medicaid is positioned as a key source of budget cuts.
Editors: Amanda Eisenberg and Patti Boozang
Authors: Jocelyn Guyer, Avi Herring and Katie Rubinger
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Update 3/6/2025: The Congressional Budget Office released new analysis on March 5, 2025, confirming that the House Committee on Energy and Commerce (E&C) cannot carve out $880 billion in savings without cutting Medicaid, Medicare or the Children’s Health Insurance Plan (CHIP). The nonpartisan budget assessor found that without cuts to these programs, the E&C committee could eliminate entirely every other expenditure program under its jurisdiction and only generate $135 billion in savings or 15% of what is needed to hit the $880 billion savings target. The analysis comes at the request of two ranking members, Reps. Frank Pallone (D-NJ) and Brendan Boyle (D-Pa.).
tl;dr
President Trump and the Republican-majority House want to cut $2 trillion to $2.5 trillion from the federal budget.
Of this amount, $880 billion and counting is expected to come from Medicaid — a 10 percent reduction in federal funding over the next decade.
To hit these targets, Congress likely will need to pursue a per-capita cap or elimination of enhanced funding for the 19 million adults covered via the Affordable Care Act’s expansion of Medicaid.
These and other cuts, contemplated by Congress as the reconciliation process grinds away, are expected to result in a significant cost shift to states and loss of health coverage throughout the country.
The 80 Million Impact
Why Pay Attention to Budget Reconciliation?
Since Republicans won slim majorities in both the House and Senate in November 2024, it has been widely anticipated that the new majority would leverage the budget reconciliation process to enact President Trump’s top legislative priorities. The major advantage of the budget reconciliation process is that it allows legislation to be passed in the Senate with only 50 votes instead of the 60 votes normally required.
It is tempting to ignore the ins and outs of the reconciliation process, especially because nothing is fully settled in Congress. But this process will dictate the future of Medicaid. Key decisions about the program and the 80 million people it serves are being determined right now during “inside baseball” debates over whether there will be one reconciliation bill (Team House Speaker Johnson) or two reconciliation bills (Team Maj. Senate Leader Thune); the size of tax cuts; and how much deficit reduction will be required to win the votes of Freedom Caucus members.
What is Happening to Medicaid in Budget Reconciliation?
Medicaid cuts are being positioned as a key source of funding for the President’s priorities, including continuation of his 2017 tax cuts and several new tax proposals.
For now, much of the action is in the House, which is pursuing a budget reconciliation bill that calls for $2 trillion in spending cuts over the next 10 years. These cuts are needed to offset, at least partially, the $4.5 trillion in tax cuts that the House seeks to adopt.
Passed out of the House budget committee on Feb. 13, the House reconciliation bill calls for at least $880 billion in cuts to be adopted by the Energy and Commerce committee, which has primary jurisdiction over Medicaid in the House. Technically, the Energy and Commerce committee could look to other programs under its jurisdiction to try to fund some of these $880 billion in cuts, but its other programs are (very) small potatoes compared to Medicaid.
Now, the House will consider and vote on its budget resolution. If the House passes its resolution, both chambers will need to negotiate a common budget resolution to move forward with the reconciliation process.
The expected hit on Medicaid is producing significant controversy in the House. Moderate Republicans, in particular, are concerned that if they vote for the budget reconciliation package, they may face backlash from constituents who rely on Medicaid for their health coverage. On Feb. 19, eight Republican members of the Congressional Hispanic Conference sent a letter to Speaker Johnson (R-La.) expressing concerns about House budget resolution. The letter highlights that “[n]early 30% of Medicaid enrollees are Hispanic Americans, and for many families across the country, Medicaid is their only access to healthcare.”
For now, the Senate is playing the role of understudy when it comes to budget reconciliation, standing in the wings in case the House’s one-bill approach falls apart. After a full night of voting on Feb. 21, it passed S. Con. Res. 7 — the Senate’s budget resolution — along a mostly party line vote (52-48). This budget resolution includes reconciliation instructions for Congressional committees aimed at increasing spending on homeland security and defense without assuming major cuts in Medicaid. This would represent Round 1 of a two-bill strategy to adopt the President’s priorities, raising the prospect of significant Medicaid cuts in Round 2.
Where Would the Cuts in Medicaid Come From?
Publicly, many Congressional Republicans have settled into saying that the cuts will come from addressing “fraud, waste and abuse” and imposing work requirements on people enrolled in Medicaid. Beyond the rhetoric, however, is the reality that there is no way to reach $880 billion in savings — a 10 percent cut in federal Medicaid expenditures — without cutting health care coverage and shifting costs from the federal government to states.
For example, the Congressional Budget Office estimates that imposing work requirements would cause some 1.5 million people to lose Medicaid-funded coverage and still only generate some $100 billion in cuts over a 10-year period. This leaves Congress to look elsewhere for nearly 90 percent of its $880 billion in required cuts.
As illustrated in the table below, the only way to reach $880 billion is to combine multiple detrimental cuts or to jump into major restructuring of Medicaid program funding. Even eliminating the 90 percent matching rate (or FMAP) for expansion adults established by the Affordable Care Act would not be sufficient. That cut would threaten coverage for 19 million adults and impose a major cost shift from the federal government to states.
Menu Item | Brief Description of the Policy | Republican Estimate of 10-Year Savings | CBO Estimate of 10-Year Savings |
|---|---|---|---|
Medicaid Per Capita Caps | Limit federal spending for all medical services for all eligibility groups by capping the federal contribution | $900 billion | |
Equalize FMAP for ACA Expansion Population | Eliminate the enhanced FMAP for expansion enrollees | $561 billion | |
Lower Medicaid Matching Rate Floor | Removing the 50% FMAP floor | $387 billion | |
Limit Medicaid Provider Taxes | Reduce the “safe harbor” exception that permits states to impose taxes on up to 6% of a provider’s net revenues | $175 billion | |
Establish Medicaid Work Requirements | Implement work requirements for “able-bodied adults without dependents” to maintain Medicaid eligibility | $100 billion | |
Repeal Biden Administration Finalized Medicaid Eligibility Rule | Repeal the September 2023 and April 2024 final rules guiding state protocols for verifying Medicaid and CHIP eligibility | $164 billion | Not available |
Reverse Executive Expansion of State-Directed Payments in Medicaid | Repeal of the Medicaid managed care final rule, which codifies the average commercial rate (ACR) as the payment ceiling | $25 billion | Not available |
Standardize Medicaid Matching Rate for Administrative Services | Limit FMAP to 50% for all administrative services across the program | $69 billion | $69 billion |
The Bottom Line
Through the budget reconciliation process, Congress is poised to make unprecedented changes Medicaid to provide savings for the Trump administration’s priorities. Cuts to Medicaid funding, if the process unfolds as the House envisions, would drastically impact the 80 million people Medicaid serves, generating a major cost shift to all states and
triggering Medicaid coverage losses nationwide. As the House debates its budget resolution and the reconciliation process unfolds, it is imperative for states, providers, and other stakeholders to stay informed and engaged. The decisions made in the coming months could shape Medicaid coverage and funding — perhaps for decades to come.
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