The Situation with Medicaid

Initial proposals for the Reconciliation Bill to continue corporate tax cuts enacted in the first Trump administration call for $880 billion in cuts to Medicaid spending over 10 years. In 2024 Federal spending on Medicaid and CHIP was $584 billion. The reduction in spending would entail a 15% cut to Medicaid over the 10 years.

More than 72 million people have health insurance through Medicaid – more than one in five Americans. In addition, more than 7.2 million children are enrolled in the Children’s Health Insurance Program, because their families’ incomes are too high to qualify for Medicaid.

Medicaid provides health insurance for about two in five children and also covers about 40% of all births, according to KFF, a nonpartisan health policy research group. It also covers more than 60% of nursing home residents and nearly 30% of non-elderly adults with mental illness, as well as about one in three people with disabilities. Plus, it pays for substance abuse treatment.

Medicaid is jointly funded by the federal government and states. In fiscal year 2023 the federal government picked up about 69% of the costs and states about 31%. It accounts for nearly one in five dollars spent on health care in the US.

Since the passage of the ACA, the federal government provides a 90% match for enrollees in states that took up the Medicaid expansion, while the match pre ACA varied based on a state’s per capita income, with a minimum match of 50%, and provides a higher match rate for states with lower average per capita income. For FY 2026, the traditional FMAP will range from 50% to 77%.

Forty states, plus the District of Columbia, have expanded Medicaid under the Affordable Care Act – allowing adults with incomes up to 138% of the federal poverty level to qualify. That’s about $21,600 for an individual or about $44,400 for a family of four in 2025. Medicaid expansion enrollees represent nearly a quarter of Medicaid enrollment (as of March 2024) and one-fifth of total Medicaid spending (as of FY 2023).

In non-expansion states, the income caps can also vary. For instance, the limit for parents in a family of three ranges from 15% of the federal poverty level in Texas to 105% in Tennessee, according to KFF.

Twelve states currently have “trigger” laws in place that would automatically end expansion or require changes if the federal match rate were to drop, but coverage would be at risk in other states given the substantial loss of federal funding.

KFF estimates that assuming all state and federal financial support for the ACA Medicaid expansion is withdrawn, resulting in a $1.7 trillion dollar or 25% cut to federal Medicaid spending and a $186 billion dollar or 5% cut to state Medicaid spending across all states, including non-expansion. Combined, Medicaid spending would decrease by 18% or $1.9 trillion over the 10-year period. 

This is double the savings the House is currently considering.