Impact of Proposed Federal Medicaid Spending Caps on ACA Expansion

The recent concurrent budget resolution in the U.S. Congress aims to significantly reduce federal Medicaid spending by $880 billion to over $1.5 trillion over the next decade, with substantial implications for the Medicaid program. Medicaid, which serves one in five Americans and accounts for nearly 20% of healthcare spending, is jointly funded by the federal government and states, making federal spending cuts a complex policy issue that could shift costs to states.

Among the key proposals considered to achieve these spending reductions is the implementation of a per capita cap on the federal share of Medicaid spending specifically for the Affordable Care Act (ACA) Medicaid expansion population. This group currently receives a 90% federal match rate, higher than the 50% to 77% rates for traditional Medicaid populations. The per capita cap would limit federal growth in spending to the consumer price index plus a small margin, slowing federal funding growth relative to historical trends of medical inflation. 

Analysis shows that if all states maintain their current ACA expansion coverage and spending levels, federal Medicaid spending on the expansion population could decrease by 4%, or $246 billion, over ten years, effectively reducing the enhanced federal match rate from 90% to 69% by 2034. This shift would impose increased financial burdens on states, requiring them to either cut other programs, raise taxes, or reduce Medicaid spending. Notably, in some states, the effective federal match rate under the cap would fall below the traditional Medicaid rates.

The reduction in federal funding would increase the likelihood that states would reconsider their participation in the ACA Medicaid expansion, especially in states with existing "trigger" laws that automatically end or modify expansion if federal funding decreases. Currently, 41 states and the District of Columbia have adopted Medicaid expansion, covering nearly a quarter of Medicaid enrollees and one-fifth of spending. If states choose to exit or cut back on the expansion program, up to 20 million enrollees could lose coverage, increasing the uninsured population significantly.

The analysis assumes no immediate state behavioral responses, but in reality, states might react differently, including possibilities of reducing provider payments, tightening eligibility, or ending expansion coverage altogether to manage new financial responsibilities. These potential state actions, compounded over time, could erode coverage gains achieved under Medicaid expansion.

Further, the per capita cap could interact with other proposed Medicaid policies like work requirements, which some House Republicans support and which would likely impact the same population, amplifying coverage reductions and federal spending cuts. The potential expiration of enhanced ACA premium tax credits would also reduce alternative coverage affordability for those losing Medicaid due to cutbacks.

Overall, the analysis highlights the complex interplay of federal spending caps, state policy decisions, and coverage outcomes in Medicaid expansion. State budget pressures from reduced federal funds could reshape Medicaid's role in providing comprehensive health coverage to low-income populations. The report underscores the importance of considering federal-state fiscal dynamics, enrollment impacts, and legislative design when evaluating Medicaid spending reforms. Future analyses are planned to examine other proposals such as work requirements and provider tax limits, as well as how combinations of policy changes might compound effects.