Members of Congress, along with President Obama and Vice President Biden are continuing to craft a deficit reduction plan that may include cuts to Medicaid. The most recent negotiations have focused on President Obama’s proposal which would cut federal Medicaid spending $100 billion over the first 10 years. Under the House-passed budget plan, Medicaid would be cut by $1.4 trillion by 2021, including repeal of the new health care law. That is about a one-third reduction in federal support.
Cuts to Federal Medicaid spending as proposed by the Administration would likely take shape in one of two ways, blending Federal matching formulas (FMAP) or phasing out “provider taxes”. Unfortunately both proposals shift costs to states and beneficiaries and do not actually make the program more efficient or provide better care. Under the proposal to blend FMAP, the Federal government would replace the current formulas with one single match rate. Under current law, federal funding for Medicaid matches state contributions, and varies both depending on the rate set for specific programs (like the Children’s Health Insurance Program) and on the states’ per capita income. Blending matching formulas would essentially provide one match rate for each state.

But this is not only about streamlining formulas; funding would be subtracted from the new rate, so states would receive less money than under the old system.  The Center on Budget and Policy Priorities details how this proposal would translate here. The second source of Medicaid cuts could be done through phasing out the “provider-tax” – which would limit how states raise funds to help pay their Medicaid costs.  If states can no longer tax hospitals or other health care providers, they will have more difficulty meeting federal match requirements, and therefore will lose federal dollars.

Shifting health care costs to states and/or beneficiaries would be detrimental to millions of low- and –moderate income families during a particularly difficult economic period. Although the amount and means of making Medicaid cuts remains unclear, it is important to recognize that Medicaid per-patient costs are low compared with private insurance; there is not much room to cut without depriving people of services or asking them to pay more.

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