“We are very aware that the federal budget situation could lead to a shift of Medicaid expansion costs from the federal government to the states,” says GOP state Rep. Tony Venhuizen, a sponsor of both ballot measures. “If that happens, South Dakota should have the flexibility to consider the budget implications of continued participation.”
Lawmakers in all states are wondering what sort of cuts may be coming for Medicaid. It’s the single-largest spending program in state budgets, counting federal revenues, and it’s being targeted for cuts this year in Congress. President-elect Donald Trump and the GOP majority are looking for ways to offset the cost of extending and expanding the tax cuts enacted in 2017, during Trump’s first term, which otherwise could expire.
With Trump taking Medicare, Social Security and defense off the table, Medicaid is the biggest remaining source for potential savings. “It’s clear there’s a target on the Medicaid program, and I’m very worried about that,” says Andrea Ducas, vice president of health policy at the Center for American Progress, a progressive think tank. “I worry about existential threats to the program.”
Money may be driving the discussion, but there’s clearly an appetite on the GOP side to re-examine the program. Medicaid has been in expansion mode for years, covering more people and increasing payments to providers. “Medicaid has kind of been on autopilot,” says Nina Owcharenko Schaefer, director of the Center for Health and Welfare Policy at the Heritage Foundation, a conservative think tank. “There’s kind of a reset moment for Medicaid now.”
Schaefer says Washington lawmakers should be bringing state officials into the discussion early, since significant changes would have a massive impact on state budgets.
But for now, state policymakers are mostly flying blind. As they kick off their budget seasons, most states are already grappling with Medicaid costs, due to rising enrollments or increased use of the program from remaining recipients.
“To assume that states will be able to maintain coverage using a greater share of their own dollars is just not the right assumption,” says Allison Orris, director of Medicaid policy at the Center on Budget and Policy Priorities, a left-leaning think tank.
The Importance of Medicaid
It would be difficult to overstate the scope or importance of Medicaid, which was created as a joint federal-state health coverage program in 1965 for people with limited incomes. With more than 75 million participants, it’s the single-largest insurer in the country.
Medicaid pays for more than 40 percent of all births in the U.S. It provides coverage for nearly 40 percent of all children. Nearly two out of three people in nursing homes — 63 percent — have those bills primarily covered by Medicaid.
Serious cuts to Medicaid would put a strain not only on state budgets but health providers, particularly those that already struggle financially because they serve underprivileged populations, such as rural hospitals and community health centers. “Any changes in Medicaid funding for those providers means they might not be able to keep their doors open,” warns Akeiisa Coleman, a senior program officer with the Commonwealth Fund, which promotes equitable access to health care.
But despite the fact that Medicaid is so enormous, it does not receive adequate oversight, says Schaefer, of the Heritage Foundation. More than mission creep, it's experienced a vast expansion of its portfolio. Most notably, the 2010 Affordable Care Act (ACA) called on states to offer coverage to adults with incomes under 133 percent of the federal poverty level.
“If you go back 20 years, people thought of Medicaid as a program for low-income moms and children,” Schaefer says. “We have able-bodied adults almost equal to the number of children in the program.”
What Cuts May Come
Washington paid for 100 percent of the ACA expansion for the first three years and 90 percent ever since. Although many red states resisted, that much money flowing into their state health economies has proven too much for most to resist. All but 10 states have approved expansions, whether through legislative action or ballot initiatives, as in South Dakota in 2022.
But nine states have laws on the books that would automatically end their expansions if the feds cut the matching rate below 90 percent. Three other states have laws that would allow lawmakers to take such action. Some conservatives argue it makes no sense for the federal government to subsidize care for able-bodied adults at a much higher rate than children or the disabled. (The federal share of traditional Medicaid programs varies by state but averages about 57 percent, obviously less than the 90 percent rate under the Affordable Care Act.) “This amendment would give legislators the option — it is not an automatic out like some other states have,” says Rep. Venhuizen.
Other proposals in Washington include limiting immigrants’ access to the program, imposing lifetime limits on recipients or creating a federal work requirement. About a dozen states applied for waivers to allow work requirements during the first Trump administration. Most were blocked in court, but there is clearly support for the idea among many Republicans in Congress.
Critics of work requirements, such as Coleman of the Commonwealth Fund, note that a majority of adult recipients of Medicaid are already working. She says that just having reporting requirements would mean eligible people would get dropped from the program.
Medicaid is an entitlement, meaning anyone who qualifies gets coverage. But there’s talk in Capitol Hill about changing that, either by putting per capita caps on support for states or converting parts of Medicaid into block grants. Under such schemes, states could receive a certain set amount to pay for their programs, which would limit their ability to cover additional recipients.
Revamping Medicaid’s financing could give states the flexibility they need to accomplish their goals through the program, Schaefer says. They might only receive a limited amount of funding, but then be free to do with it as they see fit, rather than meeting a set of federal requirements. Coleman counters that putting those types of limits on federal funding would create dire harm due to the countercyclical nature of the need for Medicaid, which is greatest during recessions when state budgets are under the most pressure.
When these arguments play out in Congress, there will undoubtedly be pushback from governors, both red and blue, whose budgets are so largely dependent on federal Medicaid funding. Right now, it’s not clear how much Congress will want to cut. Republicans in Washington haven’t even decided whether they will attempt two separate budget reconciliation bills — one centered on border security, the other on tax cuts — or just one massive package.
It's not certain that major changes to such a keystone program can be accomplished in a single congressional year, but some form of cuts appears to be a pretty safe bet at this point. “Right now, we have a governing trifecta of a party that believes we should shrink this program,” Ducas says.
