Short-Sighted Cuts, Long Term Costs: The Risk of Proposed Medicaid Cuts to State Reentry Initiatives

Authors: Kinda Serafi and Patti Boozang

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tl;dr

• Authorized by CMS through Section 1115 Waivers, Reentry Initiatives allow interested states to provide a targeted set of Medicaid health services to qualified incarcerated individuals immediately prior to their release into the community. States and the federal government share the cost.

• These initiatives are designed to reduce mortality rates, recidivism and health care costs while improving health and enabling successful community re-entry for justice involved people.

• Reentry Initiatives have bipartisan support with 25 states and DC pursuing them; 19 demonstrations have already been approved by CMS and are being implemented.

• These test programs have the support of a broad group of stakeholders including departments of corrections, sheriffs, other law enforcement, hospitals, and consumer advocates.

• Congressional proposals that would significantly cut Medicaid financing would also jeopardize if not end state reentry initiatives.

The 80 Million Impact 

Medicaid Reentry Initiatives are being tested in red, blue, and purple states throughout the nation. These Initiatives are designed to provide a limited set of health care services to Medicaid-eligible incarcerated individuals with complex care needs as they get ready to reenter their communities. Individuals reentering community from incarceration have disproportionately higher rates of physical and behavioral health conditions and are at high risk for acute illness and death following release. They are also at high risk of becoming re-incarcerated following release. State Medicaid programs, departments of corrections, county sheriffs and other stakeholders are coming together to provide Medicaid funded health services pre-release to help justice-involved people post-release:

• Better manage their mental health and substance use needs

• Improve their health, reduce deadly drug overdoses, reduce recidivism

• Connect with health care and community services so that they can be successful as they re-enter the community.

There is no indication that the new Trump Administration will stop supporting states in their efforts to implement or pursue Reentry Initiatives. There is a real risk, however, that Congressional budget reconciliation proposals intended to reduce federal Medicaid funding to states will have the effect of undermining or even ending state reentry efforts. Here’s why:

1. One of the proposed cuts is to end or reduce the federal government’s share of the cost of covering adults eligible through the ACA Medicaid expansion; if enacted Medicaid expansion would end expansion in many states, and reentry along with it. Populations eligible under Reentry Initiatives must be eligible for Medicaid and most inmates who can be served by the Reentry Initiatives are eligible under the ACA adult expansion. If Congress cuts the federal funding that states receive to cover people in the expansion group, states that do not pick up these large new costs would end the expansion. In fact, nine states already have state law provisions that would end expansion in the event the federal government reduces its financial commitment. Seven of these states are also pursuing Reentry Initiatives: Arizona, Arkansas, Illinois, Montana, New Hampshire, North Carolina, and Utah. A cut to expansion funding would put extraordinary fiscal pressure on all expansion states, making it difficult if not impossible for them to continue their Medicaid expansions (and their Reentry Initiatives).

Potential Impact of Cuts to Medicaid Expansion Funding

_{Source: CBPP, Medicaid Threats in the Upcoming Congress. Estimates using data from the Medicaid Budget Expenditure System (MBES), Department of Health and Human Services federal match rates for 2025, and June 2024 Congressional Budget Office baseline projections.}

2. Block grant and per capita cap proposals would cut federal Medicaid funding, also shifting large new costs onto states that would possibly limit or end Medicaid Reentry Initiatives. Congress is considering block grants and per capita cap funding mechanisms in Medicaid that would end the program’s entitlement funding structure and shift financial risk to states for Medicaid program expenditures above a set amount. Per capita caps, where states would receive a set amount of federal funding per enrollee would cut between $588 billion and $893 billion from the program over ten years according to CBO.

3. Other proposals to cut FMAP and state flexibility in how they fund the state share of Medicaid costs would also jeopardize Medicaid Reentry Initiatives. Reducing or dropping the federal medical assistance percentage (FMAP) - the percentage of state Medicaid costs the federal government is responsible for – would result in cuts to Medicaid funding ranging from $69 billion to $530 billion over ten years according to CBO. Limiting or eliminating provider taxes would cut federal Medicaid funding between $48 billion to $612 billion over ten years according to CBO.

If faced with these levels of Medicaid funding cuts, state Medicaid agencies will be forced to make challenging decisions about scaling back Medicaid program coverage and benefits, and Reentry Initiatives would likely be on the chopping block.

Finally, Congress is considering proposals to impose work reporting requirements as a condition of Medicaid eligibility, which would also reduce federal funding to states if enacted. Work reporting requirements would also be incompatible with providing reentry services to inmates, who because of their incarceration would not be able to meet these requirements. Even if exempt from work requirements when incarcerated, people would lose their coverage upon release into the community unless they immediately obtain employment and meet reporting requirements.

The Bottom Line

All the Medicaid cuts considered by Congress shift costs to states and local governments, and if implemented, states will face significant challenges in keeping their current Medicaid programs afloat. Fledging and promising Reentry Initiatives nationwide will be at risk as a result.

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