Analysts speculate about how Medicaid cuts might be made

Yahoo

21-03-2025

BOSTON (SHNS) – Absent an actual proposal from the White House or congressional Republicans, a policy expert mapped out specific vulnerabilities Thursday as Massachusetts and other states brace for possible changes to federal support for Medicaid.
Manatt Health Senior Managing Director Patricia Boozang was one of the featured speakers during a Blue Cross Blue Shield of Massachusetts Foundation webinar. She laid out how the budget framework the U.S. House adopted last month could put Medicaid in the crosshairs of a pursuit for trillions of dollars in tax cuts and federal spending reductions over the next decade.
The House Energy and Commerce Committee must find at least $880 billion in cuts, a task many observers think is possible only with changes to Medicaid and Medicare. Meanwhile, President Donald Trump's White House has pledged not to cut Medicare, Medicaid or Social Security benefits, and says it is instead focused on reining in improper payments, waste and fraud.
'We've not seen a cut of that level in this program before. If that number stands — we're going to have to wait for legislative language to know the details of the proposals that are going to advance — and if that target stands, I also want you to remember that $880 billion isn't just $880 billion,' Boozang said. 'Because then it will go back to states, which match with state funds what the government gives them for the Medicaid program, and they won't be able to make up that gap. In fact, they'll have to pull back some of their own funding.'
Boozang said Manatt's estimate is that states would have to increase their own spending by 20% to maintain the current program level spending if deep federal cuts are enacted.
Cuts in Medicaid would ripple through MassHealth, which combines Medicaid and the Children's Health Insurance Program and affords health care coverage to about 2 million Bay Staters.
MassHealth is the largest single chunk of spending in the state budget, representing about $22.6 billion or 36% of line-item spending in Gov. Maura Healey's fiscal 2026 budget, according to the Massachusetts Taxpayers Foundation. Healey's budget, filed before the threat of deep Medicaid cuts became clear, expects federal reimbursement for Medicaid spending to increase by $1.8 billion to $14.2 billion, per MTF.
The uncertainty about federal support for Medicaid comes as Beacon Hill Democrats are trying to redraft Healey's budget for fiscal year 2026, at a time when the state's spending demands are elevated and general purpose tax revenue growth is modest. A reduction in federal funding could nudge state budget managers closer to taking unpopular steps, potentially including allowing federally-funded services to end, cutting back on state support for programs, dipping into preciously-guarded state reserve accounts, or raising taxes to bring in more revenue.
Boozang detailed some of the ways Republicans in Congress could get to their target of $880 billion in cuts during Thursday's webinar.
The Congressional Budget Office said last year there is the potential to generate $600 billion in savings over 10 years by changing the amount of federal funding available to all states through the federal match rate, usually known as FMAP. Right now, nearly every dollar in MassHealth spending is reimbursed by at least 50% in federal revenue, Boozang said, with CHIP expenditures reimbursed at 65% and expenditures for the state's Medicaid expansion reimbursed at 90%.
Congress could use a budget bill later this summer or fall to eliminate the 90% federal match rate for states like Massachusetts that expanded their Medicaid programs under the Affordable Care Act, to eliminate the current 50% FMAP floor, to set a standard 50% rate for administrative costs, or any combination of those ideas, Boozang said.
'These are really — would be, if advanced — draconian cuts. In Massachusetts, one analysis predicts that Medicaid enrollment would decline by nearly 19%, almost 20%, over 10 years if that match rate were reduced and Massachusetts had to end its expansion,' she said. 'Alternatively, Massachusetts could pick up the federal share, but that would cause the state to have to increase its spending by $15 billion over 10 years.'
Massachusetts would be one of 10 states impacted by the removal of the 50% floor, Boozang said, adding that the CBO estimated federal spending would drop by a cumulative $530 billion for those 10 states if the floor is eliminated.
Another possibility being discussed is switching from the current FMAP reimbursement structure to one in which Medicaid is funded through per capita spending caps or block grants, both of which Boozang said would represent 'a cost shift to states.' Those changes would likely need to happen through Congress, through Boozang said the executive branch may be able to require states to accept capped funding as part of a waiver approval process.
While Boozang flagged the tight margin by which Republicans control Congress as a possible impediment to some of their major plans, she highlighted one area that she sees as ripe for action either by Congress or the White House: limiting the use of Medicaid provider taxes and state directed payments.
'In Massachusetts, the state uses, like all states use, revenues from provider taxes to fund the state share of Medicaid expenditures. So that would mean the state would have to come up with more state general funds if they're forced to reduce their reliance on taxes,' she said. 'As I said, we do think Congress could well use the budget reconciliation to enact these policies. If it doesn't, we think the administration is very likely to step in and use its administrative authority to advance these changes.'
Boozang also flagged a risk associated with the $67 billion Medicaid waiver that Massachusetts under Gov. Charlie Baker entered into in October 2022. That waiver is set to run for five years, expiring in 2027. Many other states have Medicaid waivers, sometimes referred to as Section 1115 demonstration waivers, that allow them to tailor the public health insurance programs to more closely align with their specific preferences and needs.
'We do understand and expect the Trump administration to actively focus on Section 1115 waivers. We think states should be prepared for the administration to act on waiver policy that doesn't align with the administration's priorities,' Boozang said. 'One signal we already have is on health related social needs that the administration has rescinded prior groundbreaking Biden administration guidance. There are myriad ways that CMS could act on the MassHealth waiver. We think there are things that clearly won't be at risk, things like the re-entry waiver. I think [health related social needs], some of the flexible services, may be at risk, but I'd also point out that some of those services are very much aligned with the Make America Healthy Again agenda.'
Secretary of Health and Human Services Kate Walsh mentioned the state's waiver this week when responding to the notion that waste, fraud and abuse are at the root of the Trump administration's review of spending. She said that using the term 'wasteful' to define the Medicaid contract between the feds and Massachusetts is 'false.'
'What they're calling waste, fraud and abuse are actually the terms of the contract they negotiate with us. And they're pointing to it because our waiver prominently mentions the word 'equity,' because we want to ensure outcomes for people across our entire state,' Walsh said Monday.
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