Leadership in the US House of Representatives is considering substantial federal funding cuts to Medicaid over the next 10 years. This paper is one in a series that assesses the implications of different proposals. This paper focuses on a policy proposal that would impose per capita caps on Medicaid spending and reduce the 90 percent federal matching rate that now applies to adults covered under the optional Medicaid expansion.

Current policy proposals lack the specificity needed to analyze their effects with precision. For example, in the case of per capita Medicaid spending caps, policymakers need to set a baseline period for the cap and a mechanism for how the cap might be updated. Rather than make arbitrary assumptions about what choices policymakers might make, we update 2017 analyses of two earlier proposals, the Better Way and the American Health Care Act, that included both per capita Medicaid spending caps and reductions in the 90 percent federal matching rate for the Affordable Care Act (ACA) Medicaid expansion that showed they would result in significant cuts in federal Medicaid spending.

An updated version of the Better Way proposal would begin in 2026, reduce the 90 percent ACA expansion match rate to a state’s standard matching rate, and cap the increase in federal spending by the increase in the consumer price index. The American Health Care Act proposal, updated to the current period, would use 2023 data as the base year and allow federal spending to grow by the consumer price index plus 1 percent, beginning in 2026. By using 2023 as the base, there is a bigger cut in 2026; this is offset to some degree because of the faster growth in the cap over time.

Our analysis uses state-specific data from MACPAC on spending and enrollment for each of the five eligibility groups trended forward for each eligibility group and state from 2026 to 2035 using Congressional Budget Office growth rates. We estimate the impact of imposing per capita caps and a reduction in the 90 percent federal medical assistance percentage for the ACA Medicaid expansion population separately and in combination. We find that from 2026 to 2035:

• The per capita component would reduce federal spending over 10 years by $676 billion under the Better Way proposal and $1,104 billion under the American Health Care Act.
• The reduction in the 90 percent federal matching rate for the ACA expansion to standard matching rates would result in a $563 billion reduction in federal spending over 10 years.
• The combined effect of these policies would mean federal spending would fall by $1.2 trillion under the Better Way proposal and $1.7 trillion under the American Health Care Act between 2026 and 2035. These changes amount to federal spending reductions of 15.6 and 22.4 percent, respectively.
• States trying to offset these federal spending reductions would need to increase their state Medicaid spending by 25.9 percent under the Better Way proposal and 37.1 percent under the American Health Care Act.
• Many low per capita income states would face both large percentage reductions in federal contributions and require large percentage increases in state Medicaid spending to maintain their programs as currently in place.

The reductions in federal spending for Medicaid programs under policies that include per capita cuts alone or in combination with a reduction in the 90 percent federal match for the ACA expansion would make it challenging for states to maintain their Medicaid programs as currently structured. To offset the lost federal Medicaid revenue, states would have to consider a range of policy options, including increasing taxes, shifting state spending away from education and other priorities, cutting Medicaid provider payment rates, and reducing benefits for Medicaid beneficiaries, including disabled and aged populations. To the extent that states offset the federal funding losses by making significant cuts within Medicaid that reduce benefits, services, or provider payment, that would increase unmet health needs and financial burdens for the affected groups. If states cannot find additional revenues or sufficient savings from reductions in other state spending or provider payment, benefits, or services within Medicaid to offset the reduction in federal funding, inevitably, there would be enrollment cuts, leading to higher uninsurance levels, as well as additional unmet health needs and financial burdens.