Leadership in the House of Representatives has proposed substantial federal funding cuts to the Medicaid program over the next 10 years. This report focuses on the proposal to reduce the 90 percent federal matching rate that states receive for the Medicaid expansion population covered under the Affordable Care Act (ACA), known as enhanced Federal Medical Assistance Percentage, or FMAP. State responses to the loss of enhanced FMAP are hard to predict, so we estimated the impacts on health coverage and state and federal government spending under two scenarios that represent the largest and smallest impacts on coverage: First, all states preserve their Medicaid expansions and fund the reductions in federal funding by cutting costs or raising new revenue, and second, all states drop the ACA’s Medicaid expansion.

WHY THIS MATTERS

Research has shown that Medicaid expansion was responsible for most of the gains in health coverage under the ACA. We estimate that 15.1 million people would be enrolled under Medicaid expansion in 2026. While eliminating the enhanced FMAP for the Medicaid expansion population would reduce federal spending, it would shift those costs to the states. To offset such large reductions in federal spending, states would be forced to consider making cuts to their Medicaid programs, including limiting Medicaid eligibility, further reducing already low provider reimbursement rates, or eliminating optional benefits, raising new revenues, and/or cutting state spending in other areas.

WHAT WE FOUND

Our main findings are the following:

• If all states keep their Medicaid expansions in place:
  • If the enhanced FMAP were eliminated in 2026 and the 41 expansion states kept their Medicaid expansions in place, they would need $44.3 billion in state budget cuts or additional revenues that year to replace reductions in federal spending. This amounts to an average increase of about 25.6 percent in expansion state spending on Medicaid acute care for the nonelderly. Eight states would have to increase spending by more than 30 percent: North Dakota, Indiana, Montana, Nebraska, Oregon, Colorado, Washington, and New York.
• If all states drop Medicaid expansion in response to the loss of enhanced FMAP:
  • Medicaid/Children's Health Insurance Program enrollment would decline by 15.9 million people, or 21.8 percent, and the number of uninsured people would rise by 10.8 million, or 37.9 percent.
  • The following states would see the highest percent increases in nonelderly uninsurance (over 87 percent): New York, the District of Columbia, Kentucky, Michigan, Pennsylvania, West Virginia, Iowa, Louisiana, and New Mexico.
  • People who would see the largest increases in uninsurance without the ACA expansion include adults ages 19 to 34 and those older than 55, non-Hispanic white people, non-Hispanic Black people, and people in fair or poor health.
  • Federal spending would decline even more because of lower enrollment than if states retained expansion, reaching a decline of $109.0 billion.
  • State Medicaid spending on acute care for the nonelderly would decline, but that does not mean that dropping Medicaid expansion would necessarily improve state budgets because many expansion states noted other sources of savings and additional revenue because of expansion that would be lost without it.

HOW WE DID IT

For this analysis, we used the Urban Institute’s Health Insurance Policy Simulation Model to simulate health coverage and costs in 2026 under current law and under different scenarios of state responses to the loss of enhanced FMAP.