Republican Congressional leadership is working to coalesce around incoming President Trump’s policy agenda. Both ideologically and in order to offset the costs of priorities like extending tax policies that expire in 2025, adding new tax policies that were campaign promises from President-Elect Trump, and money for border security, targets for spending reductions are also ongoing.

Not all budget experts agree on the estimates below. Critics have cited double- and triple-counting of savings as different policies are layered and simultaneously implemented. While each individual estimate may be fairly accurate, adding all of the projected savings together is not a fair estimate of total savings; the actual savings would be moderately lower, not achieving the stated necessary savings in total.

In February, Congress is expected to pass a budget resolution with instructions to committees to reauthorize expiring tax cuts, create or change others, and to change mandatory programs in ways that impact federal mandatory spending. Generally anything but Social Security and funding for discretionary programs is on the table in budget reconciliation. Very basically, the budget resolution tells authorizing committees to impact federal spending by “X” amount, and then the authorizing committees have to recommend ways to change or cut or add to programs to achieve that amount of impact. Authorizing committees are instructed by the budget resolution to achieve certain savings or spending.

Since Congress does not have a final budget resolution yet for fiscal year 2025 (FY25), they’ll have two opportunities for budget reconciliation next year: one for FY25 and one for FY26. Whether there are one or two reconciliation packages—one for each fiscal year—is still being debated. Regardless, it is expected that the need to reduce federal spending to comply with budget reconciliation parameters and also to align philosophically with a desire to lower federal spending make Medicaid a major target for 2025.

This perspective has been confirmed; Republicans have been circulating a “menu” of savings by imposing stark reforms under a number of categories. House Budget Chair Jodey Arrington also published a similar list; his committee is charged with developing the budget resolution that guides the levels of spending or savings that committees must meet during the reconciliation process. Medicaid cuts are included in both documents and this article breaks down how the different proposals could impact LeadingAge members.

Most critically, any changes to the way in which the federal government finances its portion of the Medicaid program will have major impacts on state budgets and financing of their portion of Medicaid. States will either have to raise tax revenues to fill in the gaps, reduce covered populations, services, or rates within Medicaid, or cut spending in other state programs. All changes being considered are intended to limit the federal government’s financial obligation.

Medicaid programs are partnerships between states and the federal government. As states accrue Medicaid costs, the federal government matches state funds at a predetermined rate (called a federal medical assistance percentage or FMAP) and will cover all eligible costs, as populations, enrollment, or utilization fluctuate. Some proposals intend to shift this federal obligation and cap the amount the federal government would spend in each state.

Here are the options currently under consideration, as of January 9, 2025, and the cost estimates listed next to the various policies indicate how much the proposal would save the federal government over 10 years (2025–2034). The budget numbers associated with each proposal come from the December 12, 2024 Congressional Budget Office (CBO) report entitled “Options for Reducing the Deficit: 2025–2034.”

Overall Savings if All Proposals were Enacted: $2.3T

• Per Capita Caps: up to $918B
• Equalize Medicaid Payments for Able Bodied Adults, i.e., equalizing the expansion population FMAP with the general FMAP: up to $690B
• Limit Medicaid Provider Taxes: $175B
• Lower FMAP Floor: $387B
• Special FMAP Treatment for DC: $8B
• Repeal American Rescue Plan FMAP Incentive: $18B
• Medicaid Work Requirements: $120B

Per Capita Caps: Up to $918B

Per capita caps are designed to limit federal financial obligations in Medicaid by setting a limit at which the federal government will pay for Medicaid services. These, as they sound, will allow state budgets to adjust for changes in population or enrollment depending upon how Congress imposes them. Conceptually, per capita caps would be based on historical spending with a predetermined inflationary factor like the Consumer Price Index, the index accounting for urban inflation (the CPI-U), the index for medical inflation (the CPI-M), or a modification of these or others. Modifications that have been discussed include one of the previously mentioned indices plus a percentage point. The problem lies in how the inflation factor is set—Medicaid spending and medical inflation have outpaced all other inflationary measures in recent years. The Congressional Budget Office’s projected $907 billion in federal savings is due to the rate at which the caps would increase and are not keeping up with costs to cover beneficiaries and provide them with services. This is evidenced by proposals that have circulated, including the CPI-U plus, a percentage point inflator. States will be left to either fill the funding shortfall with state funds or impose cuts to services, programs, or provider payment rates to account for the federal funding shortfall.

Equalize Medicaid Payments for Able Bodied Adults: Up to $690B

The Affordable Care Act (ACA) both increased access to health insurance by offering states the option to cover individuals through the Medicaid programs that have incomes up to 138% of the Federal Poverty Level (FPL) or $15,060 annually for an individual in 2024 and who were previously not categorically eligible for Medicaid. Members of this population are eligible simply by virtue of their income. This population is referred to as the “expansion population,” or in the case of this document, “able bodied adults.” For other populations, Medicaid only covers up to 100% of FPL and there are eligibility criteria related to age or health status. The expansion population has an increased FMAP; it started at 100% and has decreased to 90%. The general FMAP for other populations is between 50–80%.

This proposal is to drop this 90% federal participation presumably to the states’ standard FMAP.

Expansion has occurred in 41 states; 12 states have poison pill laws that would trigger state-level action for the expansion population if federal matching percentages fall below 90%, as is assumed in this proposal. The most obvious policy result is the termination of coverage for the expansion population because of decreased availability of federal funding. Loss of health care in the expansion population will undoubtedly include some employees in aging services providers. Decreased federal funding, without programmatic changes, creates a huge hole in state budgets, a burden too large to overcome for most states.

Limit Medicaid Provider Taxes: $175B

Medicaid is a partnership between states and the federal government, and provider and managed care taxes offer ways for states to augment their share of funding available to claim federal match, effectively offsetting the obligation from states’ general funds. These intricate arrangements are used by all states but Alaska and must conform to existing frameworks outlined in federal law and regulation. States will impose a “tax” on a specific provider class or managed care product in which all entities meeting that definition will pay a fee to the state based on a designated formula or rate. Once the state has collected these funds, they are now available as the non-federal share of Medicaid dollars, upon which time the federal match will be applied via the FMAP, effectively doubling or tripling the funds, depending upon the matching percentage for that state.

As recently as December 2024 the Congressional Budget Office (CBO) reviewed  the effects of changing federal limits on health care taxes. Under existing rules, states cannot administer these taxes in a way that ensures providers receive the same amount in supplemental payments or rates that they paid into the tax—a hold harmless. If states tax providers at less than six percent of the provider’s existing revenues, they can get around this hold harmless provision.

This federal savings would, similar to all of the other proposals, be borne by states and providers who will be left to find those dollars in the coming years if provider taxes are drastically reformed or eliminated.

In the first Trump administration, drastic changes to the federal rules governing provider taxes under the Medicaid Fiscal Accountability Rule (MFAR) were proposed. The rule was later withdrawn because of massive opposition, including instrumental advocacy efforts of LeadingAge members.

Lower FMAP Floor: $387B

Current law imposes a floor of 50% on the federal government’s financial obligation in Medicaid spending. That percentage should be thought of as the percent of total Medicaid program costs paid by the federal government. Because Medicaid is a partnership between states and the federal government, and imposed on states by the federal government, the floor was set at 50%. This proposal would restructure the FMAP to reduce that federal floor. This will have disproportionate effects on states as the existing calculation, based on comparative average incomes within and across states, may or may not remain. According to an analysis by the Paragon Institute, a conservative think tank that will be influential in conversations around these proposals, the states that would see large impacts if the floor were removed (and no new floor created) are: DC (more on that below), Massachusetts, Connecticut, California, New Jersey, New York, Washington, Colorado, New Hampshire, Wyoming, and Maryland. Many of these states have more generous Medicaid programs and would face huge state budget holes. However, reductions in FMAP in any state will result in a state budget hole without commensurate policy action to raise revenues or slash programs.

Modeling from late 2024 by CBO (p. 11) estimates that elimination of the FMAP floor could save $530 billion from 2025 through 2034. The estimated savings on the proposed menu circulating the capitol of $387 billion seems to indicate a reduced federal floor, not complete elimination as the savings estimate is less than 75% of estimates to fully eliminate an FMAP floor.

Special FMAP Treatment for DC: $8B

Washington, DC, does not have its FMAP set as a function of the normal calculation; instead, its FMAP has been statutorily set at 70% since 1998. This proposal would eliminate the codification of DC’s FMAP and likely reduce it in connection with proposed changes to reduce the FMAP floor. The District of Columbia has high income disparities—with a high average income from top earners coupled with significant poverty. The high average would drive down its FMAP, likely below the existing 50% floor, causing massive funding shortfalls for the District.

Repeal American Rescue Plan FMAP Incentive: $18B

We believe this is in reference to enhanced FMAP incentives for states that have not yet expanded Medicaid that were included in the American Rescue Plan (ARP). States that pursue expansion after the enactment of the ARP are eligible for an additional 5% FMAP enhancement for the state’s other Medicaid populations as an incentive. For example, Florida’s general FMAP is 57.22%, so if it were to take up the expansion under current law, it would receive the 90% match for the expansion population in perpetuity and 62.22% for their other populations for two years. The elimination of this opportunity for the remaining 10 states offers avoided future federal costs at no current cost to providers or states.

Medicaid Work Requirements: $120B

Work requirements in any program are policies which require people meeting the low income and asset thresholds for federal assistance—in this case Medicaid—to also prove they are working, job seeking, or volunteering for a certain number of hours in a fixed period of time. In Medicaid, these programs were introduced as optional demonstrations that states could pursue under the first Trump administration. They require significant documentation by both the working Medicaid enrollee and their employer. They also cost states large amounts of money both in ongoing administration and IT startup and have been shown not to increase labor participation. For example, the recently deployed and very limited Medicaid expansion in Georgia includes work requirements and had an estimated 100,000 anticipated to sign up. This program has been online for 18 months with only  about 5,000 people enrolled at a cost to the state of more than $13,000 per enrollee. Arkansas had a similar program that has since expired and similarly had high administrative cost and burden and no impact on employment. Other states have applied to initiate work requirements that have since been blocked by the courts.

Poorer health has been linked to an increased likelihood of losing a job, providing support for a health care-first policy approach. Work, on the other hand, has not been shown to increase health as there are multiple factors about the kinds of work, stability of employment, and exposure to toxins that contribute to an individual’s health.

While work requirements may seem fruitful in helping solve limitations in our workforce availability, data from 18 months of Arkansas work requirements did not result in increased employment and half of the individuals who lost coverage because of failure to complete reporting requirements experienced an adverse event. These consequences, as outlined by an article in the National Library of Medicine, range from delaying or skipping health-preserving medications or treatments to challenges paying off significant medical debts accrued while not having insurance coverage. LeadingAge opposes work requirements in all federal assistance programs including Medicaid.

Conclusion

All of these changes should be viewed as cuts to the Medicaid program. With the exception of the elimination of ARP incentives, all the other proposed changes are cuts to Medicaid that will detrimentally impact beneficiaries, state budgets, and providers, including LeadingAge members. Medicaid has long been a program that provides health care at costs far below both private insurance and Medicare. Reductions in funding cannot be absorbed by the system and cuts will be necessary in either services, populations, or provider rates. States would experience tremendous cost shifting from any of these proposed federal policies and substantial cuts or reductions in rates or services would be inevitable at the state level. While we don’t know which if any of these will make it through a final reconciliation process, we will be fighting for LeadingAge members and the individuals they serve through advocacy to preserve existing Medicaid structures.