The Potential Impacts of Cuts to Medicaid
Two health policy experts explain how Medicaid spending cuts could affect health care facilities, clinicians, and services, as well as millions of Americans who depend on the program.
As of November 2024, over 70 million Americans were enrolled in Medicaid, the government health insurance program that offers free or low-cost health care to adults and families with limited income, people with disabilities, pregnant people, and people in long-term care facilities.
The program, which represents $1 out of every $5 spent on health care in the U.S., is now the target of proposed federal budget cuts that would have major ramifications for states, health care and nursing facilities, clinicians, and the beneficiaries who rely on Medicaid.
In this Q&A adapted from the March 26 episode of Public Health on Call, Gerard Anderson, PhD, and Jennifer Wolff, PhD ’03, MHS ’95, professors in Health Policy and Management, explain what services Medicaid covers, who relies on it for care, and how proposed cuts could affect vulnerable populations across the U.S.
Who decides Medicaid policy?
Gerard Anderson: Medicaid is a state and federal partnership. Individual states set their coverage policies, including who’s eligible for services, what services are covered, and payment policies.
The federal government provides general guidance on what services need to be covered, how to cover those services, and the cost of those services. The federal government also pays a large share of Medicaid costs. Precisely how much it pays is determined by a variety of factors, including the state’s per capita income and who is covered.
Who is covered by Medicaid?
GA: Medicaid encompasses two different programs: One is for children and adults with low or limited income, and the other is for people who are eligible for both Medicare and Medicaid (dual eligibility) and people receiving long-term care.
On average, 1 in 5 people in the U.S. have Medicaid coverage, but this varies from state to state—in Utah, it’s 1 in 10, while in New Mexico, it’s 1 in 3. Medicaid covers 4 in 10 children—including more than 8 in 10 children in poverty—and 1 in 6 adults, including half of adults in poverty.
Jennifer Wolff: Since Medicaid has expanded under the Affordable Care Act, many individuals who otherwise were unable to access health insurance through the labor market are eligible for subsidies through Medicaid. That has also expanded the budgetary impacts of Medicaid on the federal government.
What changes is Congress proposing to Medicaid?
GA: Medicaid has been a historical target for Republicans. Congress is currently discussing how to change Medicaid policies related to eligibility and coverage in order to cut $600–$800 billion from the Medicaid program over the next 10 years—a huge percentage of the federal Medicaid budget.
What would the proposed Medicaid cuts mean for people who rely on the program?
GA: These cuts would cause serious problems not only for states, but also for the people covered by Medicaid and the hospitals and physicians that provide services to those people.
In order to continue offering the same levels of coverage they have now, states would have to put up a lot more money, which most states don’t have. Otherwise, they have to either cut out a lot of existing enrollees [through eligibility changes] or offer those people a lot fewer services.
How is Congress proposing these cuts be implemented?
GA: There are four plans under consideration:
- Work requirements for adults without disabilities and without young children. This might make sense in theory, but not in practice: If people are able to work, they should be able to get off Medicaid. But the fact is that many of these people work very low wage jobs, so they would still qualify for Medicaid. Many people on Medicaid live in rural areas where there aren’t any jobs. In order to get a job, they would need to move to another community, likely in a more affluent area where they can’t afford to rent.
- Continual monitoring of eligibility. Having enrollees confirm things like income and place of residence makes sense in theory, but it isn’t feasible for many people on Medicaid. People without phones may need to travel several hours to confirm their eligibility in-person, which isn’t easy if you live in a rural area or for the many enrollees who don’t have a car.
- Limiting states’ abilities to tax providers for their share of Medicaid revenues. Currently, health care facilities pay taxes to their state to help fund Medicaid. Because states’ Medicaid payments are matched by federal payments, provider taxes can increase how much federal money states receive without the state paying more. But limiting provider taxes ultimately takes away a lot of money from hospitals, which will fight this tooth and nail.
- Reducing the federal match for state Medicaid expansion. This would reduce the amount the federal government pays for working adults who became eligible for Medicaid through the Affordable Care Act. The federal government promised states additional money as an incentive to expand Medicaid, so taking that away would effectively be reneging on that agreement.
How does Medicaid support people with disabilities?
JW: Medicaid was developed as a means-tested, open-ended entitlement program for people who were not expected to be in the labor market. When Medicaid was passed in 1965, this included people who were older and people who were living with disabilities. Medicaid plays an incredibly important role in providing care and support for these populations.
Medicaid accounts for 60% of all paid care related to support for people with disabilities. It is the largest funder of mental health and substance use disorder care and the largest single payer of long-term services and supports. Medicaid’s role in long-term services and supports far exceeds its role in health care—as an example, it funds $3 of every $4 in nursing facility spending, compared with about 20% of hospital care and about 10% of clinician care.
People with disabilities who are enrolled in Medicaid have incredibly complex needs, bridging functional impairments and medical complexities of co-occurring conditions like diabetes, obesity, mental illness, and age-related impairments like Alzheimer's disease and related dementias.
What should people know about individuals with eligibility for both Medicaid and Medicare?
JW: People who are enrolled in both Medicare and Medicaid due to age and disability represent about 1 in 4 Medicaid enrollees, but they account for more than half of all Medicaid spending. They are an incredibly vulnerable population, in terms of both health and financial resources—they have annual incomes below $20,000, and about 4 in 10 have an annual income of less than $10,000.
Compared to people who are enrolled only in Medicare, individuals who are dually enrolled in Medicaid and Medicare programs are twice as likely to have five or more chronic conditions, mental health disorders, and disabilities in daily activities. They’re about 10 times as likely to have Alzheimer’s disease and related dementias.
Given the low income and extensive care needs of this population, they are not good candidates for being able to absorb funding cuts or greater out-of-pocket spending.
How could Medicaid cuts impact long-term care for older individuals and people with disabilities?
JW: These cuts would have huge ramifications for long-term services and supports. They would decimate the nursing home industry and reduce accessibility of home- and community-based supports, particularly for people with low income and complex health needs.
There are two types of benefits: statutory benefits, which are mandated by federal guidelines, and optional benefits, which are offered at the state’s discretion.
Medicaid has statutory benefits in long-term services and supports, including nursing home care or institutional care. This has led to a structural bias toward institutional care that most people don’t desire and is more expensive—the average annual cost for nursing home care in a semiprivate room exceeds $100,000.
[These cuts] would decimate the nursing home industry and reduce accessibility of home- and community-based supports, particularly for people with low income and complex health needs.
States have therefore pursued optional benefits for home- and community-based supports—things like assistive devices for personal care, environmental modifications, and adult daycare. This innovation in Medicaid has been really important for people living with disabilities.
More than half of Medicaid spending on long-term services and supports is now spent on these home- and community-based supports, but there’s tremendous variability across states. But because these benefits if the proposed cuts to Medicaid roll out to these populations, it will disproportionately inhibit home- and community based supports.
GA: It’s also important for older individuals to know that Medicare does not cover long-term care needs—Medicaid does. People thinking about their futures, including retirement and long-term care needs, need to recognize that Medicaid will be very important to them. Medicare will cover skilled nursing facilities for a very short period of time, but not for extended stays. That’s where Medicaid comes in.
What outcomes are anticipated? What signals should Americans look for over the weeks and months ahead?
GA: There are a number of Republican representatives in districts that depend heavily on Medicaid. For example:
- In eastern Louisiana, where the Speaker of the House is from, one-third of the population is enrolled in Medicaid.
- In rural Kentucky, 40% of the population is enrolled in Medicaid.
- In rural California, almost 70% of the population is enrolled in Medicaid.
The question is, how will these representatives vote? Will they vote to cut Medicaid and take money away from their district?
This article was edited for length and clarity by Aliza Rosen.
