Cut to Medicaid Match Risks Coverage Loss, Higher State Costs

A Republican-backed proposal that would eliminate enhanced federal funding to states that expanded Medicaid eligibility under the Affordable Care Act could produce aftershocks that would affect states and beneficiaries alike, according to a report released Thursday by the health policy nonprofit KFF.

KFF’s analysis explored what would happen if lawmakers proceeded with a plan to shelve the federal government’s 90% match rate for states that expanded Medicaid eligibility to adults earning up to 138% of the federal poverty level, or $21,597.

Under the enhanced funding, states receive a 90% federal match for adults covered through the expansion, meaning the federal government pays 90% of the costs for those enrollees, according to KFF. Forty states and the District of Columbia have expanded Medicaid eligibility.

Federal matching rates for traditional Medicaid are tied to a state’s per capita income, with richer states receiving a lower rate than poorer states on average. The lower limit for federal matching funds is 50%.

The report comes as House Republicans introduced a budget resolution this week proposing a suite of spending cuts that could total $2 trillion. The budget plan targets health programs such as Medicaid and Obamacare for deep cuts.

The KFF analysis looked at two possible scenarios.

States choosing to maintain access to care for their expansion population would see a decrease in federal Medicaid spending of 10%, or $626 billion across all states over 10 years. Collective state Medicaid spending over the same period would need to increase by 17% to make up for this shortfall.

If states choose not to offset this funding loss, their Medicaid programs could see a shortfall of $1.7 trillion over 10 years. Under this scenario, about 20 million beneficiaries nationwide could lose coverage.

The report notes that states looking to maintain continuity of care for their Medicaid population will likely need to increase tax revenues or decrease spending on non-Medicaid services such as education to compensate for this sharp decline in federal income.

Alternatively, states unable to maintain Medicaid expansion coverage could see a corresponding uptick in patients falling into “the coverage gap,” which occurs when a person’s income is too high for Medicaid but too low to qualify for the Affordable Care Act’s marketplace subsidies, KFF said.

In that case, uninsured people would be “more likely to forgo needed care and could experience increases in medical debt,” said Elizabeth Williams, senior policy manager at KFF’s program on Medicaid and the uninsured.

An increase in the number of uninsured would also “have a substantial impact on providers, likely leading to lost revenues and increased uncompensated care costs,” she said.