Medicaid Cuts: How Deep Will They Go?

For many years, the national healthcare debates and bandwidth have been taken up by the Affordable Care Act (ACA) and Medicare. The ACA, the largest healthcare reform effort in U.S. history since the creation of Medicare and Medicaid in 1965, was the subject of three legal challenges that went to the Supreme Court and serves as political ammunition for both parties, with the Democrats defending “Obamacare” and working to bolster it and Republicans attacking it with “repeal and replace” efforts — or taking steps that they say fix a flawed program. Medicare payment and coverage policies have a powerful effect on the contours of U.S. healthcare, partly because the program is centralized in the federal government and partly because of its gigantic size. In 2023, the most recent year for which complete figures are available, Medicare expenditures were just over $1 trillion, accounting for approximately 20% of the $4.9 trillion spent on U.S. healthcare that year, according to CMS actuaries. And for the better part of two decades, Medicare spending has fueled revenue and profits for private insurers because of the growth in the enrollment of the Medicare Advantage plans they sell. Now more than half (54%) of Medicare beneficiaries are enrolled in Medicare Advantage plans.

But in the early months of the new administration and a new Congress, Medicaid has stepped out from the shadow of the ACA and Medicare to occupy center stage in U.S. healthcare policy, politics and debate. The reason is obvious — and not desirable for the state governments, Medicaid managed care plans, the hospitals and clinics that depend on Medicaid nor the 79 million people enrolled in Medicaid and the Children’s Health Insurance Program that runs alongside the main Medicaid programs. To offset proposed major federal tax cuts, including the continuation of tax cuts enacted during the first Trump administration and the elimination of income taxes on tips and Social Security, Republicans are eyeing $880 billion in Medicaid cuts over the next 10 years.

Martha Santana-Chin, MBA

“Proposed Medicaid funding cuts would have devastating consequences” on enrollees, including children, pregnant women, seniors, those with a disability and working families with low incomes, who could all “lose access to essential healthcare services,” Martha Santana-Chin, MBA, CEO of L.A. Care Health Plan, said in an email to Managed Healthcare Executive. Hospitals and clinics, particularly those in rural and underserved areas, would face financial strain, leading to closures and a loss of critical services, predicted Santana-
Chin, and without “preventive care coverage, more individuals would be forced to seek emergency treatment for preventable conditions, driving up healthcare costs for everyone.”

Although long tagged as a program for people with low income, the reality is different, says Michael Lutz, MBA, a managing director at Avalere Health, a healthcare consulting and intelligence firm. “I don’t think people necessarily understand how big and how broad the swath of the population that is somehow benefiting, either directly or [via] programs that fall under Medicaid, really is. So when they’re going to cut Medicaid benefits, I don’t think they really [thought] through the people that it’s serving and the health needs they have.”

Michael Lutz, MBA

Lutz and others are quick to mention births as an example of Medicaid’s reach. In 2023, Medicaid programs paid the medical bills for close to 1.5 million, or approximately 40%, of the almost 3.6 million births that occurred in the U.S. that year, according to KFF. The proportion varies greatly by state, but in Louisiana, 64% of births were paid by Medicaid, and in Mississippi, 57%.

Lutz also points out the broader public and many public officials may not know that Medicaid funds a wide array of services and populations, including people with substance use disorders and brain injuries. “There’s just a myriad of Medicaid programs out there,” he says.

Major Medicaid cuts would also hit state budgets. Since its inception, Medicaid has been financed jointly by the federal government and state governments (Washington, D.C., and the U.S. territories also have Medicaid programs). Prior to 2014, federal funds covered approximately 57% of Medicaid spending, according to the Congressional Budget Office. But with Medicaid expansion under the ACA and the extra federal funds to cover people who were newly eligible for the programs in some states, the federal share has grown to 65%, on average, and spiked higher during the COVID-19 public health emergency, reaching 69.5% in 2022, according to the National Association of State Budget Officers. Even with the federal dollars, Medicaid is the largest category of state spending, according to the budget officers’ group.

Leanne Berge, J.D.

“States are absolutely dependent on this money from the federal government,” says Leanne Berge, J.D., CEO of the Community Health Plan of Washington, a not-for-profit health plan headquartered in Seattle. If federal Medicaid funding is greatly reduced, states couldn’t possibly afford to make up the difference, Berge says,so the percentage of people in the U.S. without health insurance would increase. Partly because of Medicaid expansion and enhanced ACA premium subsidies, the proportion of people with health insurance has been increasing for almost a decade, reaching 92.5% in 2023, according to CMS actuaries.

Some states rely more heavily on federal funds than others, and it is not a red state/blue state pattern. Many Republican-leaning states in the Southeast heavily rely on federal funding. For example, almost 80% ($13 billion of $16.3 billion) of Louisiana’s 2023 Medicaid program was supported by federal funds, according to the state budget officers’ group. The proportion was similar for Alabama (78%), West Virginia (81%) and South Carolina (75%). In contrast, less than half ($9.8 billion of $22 billion, or 44%) of New Jersey’s Medicaid budget in 2023 was supported by federal funds. The Medicaid programs in Massachusetts (53%) and Connecticut (50%) are also less reliant on federal funds.

The politics

The federal funding patterns are one of the many reasons that the politics of Medicaid and major federal cuts are not straightforwardly congressional Republicans and President Donald Trump on one side and Democrats on the other. Trump and House Speaker Mike Johnson, a Louisiana Republican, have both said Medicaid wouldn’t face cuts, although Trump’s statements have tended to put more emphasis on protecting Medicare and Social Security.

“Look, the White House has made a commitment. The president said, over and over and over, we’re not going to touch Social Security, Medicare or Medicaid. We’ve made the same commitment,” Johnson said in an interview with CNN in late February after the House passed a bill with broad outlines of a budget, the details of which will have to be filled in with cooperation from Senate Republicans. In the same interview, Johnson mentioned realizing savings by eliminating fraud, waste and abuse and finding efficiencies. He also mentioned identification requirements that he said could be used to prevent people who are not legal immigrants from getting Medicaid coverage. Independent experts say the cost of Medicaid fraud, waste and abuse, as it has been traditionally defined, is far less than the size of cuts needed if the Republicans are to achieve their goals for cutting taxes and federal spending.

“I have trouble seeing how they can find enough fraud, waste and abuse” to cover the $880 billion in cuts, says Brad Ellis, MBA, senior director and head of the North American health insurance sector for Fitch Ratings.

A small group of Republicans in both the House and Senate have voiced concerns about major Medicaid cuts, and Berge says it is unclear if the full House would support them. “There is a lot of concern about their constituents who are on Medicaid, who are very much in the target of being directly impacted and harmed. This would have a direct impact on those people who voted for the Republican administration, both in Congress and the White House, so there could be some significant political implications.”

“Medicaid cuts will have devastating consequences for red and blue states alike since many Republican-led states rely heavily on federal Medicaid funding. These cuts will force them to either slash essential health services or scramble to fill massive budget gaps,” says Santana-Chin.

Work requirements

Whether they are large, small or something in between, Medicaid spending cuts could take several forms. States could pull back on the expanded eligibility for Medicaid that the ACA incentivized. The Urban Institute has estimated that up to 10.8 million people would become uninsured if states dropped Medicaid expansion in response to federal cuts. Per-enrollee caps have been discussed. According to CMS actuaries, annual Medicaid per-enrollee expenditure in 2023 was $9,502, which was considerably less than the Medicare per-enrollee expenditure of $15,808.

Lutz sees problems with any scheme that would markedly cut payment to providers. “The provider rates for Medicaid are so low right now that you’re going to end up with no providers willing to see Medicaid members,” he says.

With so many political and budgetary cards yet to be played, it is impossible to say what shape federal Medicaid cuts will eventually take. Most observers say, though, that work requirements of some kind are among the strongest possibilities. “At this point, it’s highly probable there will be some kind of work requirement” for people to obtain Medicaid coverage, says Ellis at Fitch Ratings.

The Urban Institute issued a report in March 2025 that estimated that 4.6 million to 5.2 million adults, ages 19 to 55, would lose Medicaid eligibility if work requirements were implemented nationally. That estimate is predicated on the work requirements being limited to the so-called expansion population — people covered by Medicaid under the ACA expansion rules and financial structure, and a certain number of automatic exemptions — for those, for example, with dependent children. According to Urban Institute, 81% of the people who would be subject to a work requirement are working at least part time, looking for a job, caring for a disabled household member, are in fair or poor health or have a functional limitation. The experience with work requirements in Arkansas and New Hampshire shows that reporting requirements and other bureaucratic problems often stand in people’s way when work requirements are implemented rather than simply not working, says Michael Karpman, M.A., M.P.P., a principal research associate at the Urban Institute and one of the report’s authors.

Michael Karpman, M.A., M.P.P.

If the work requirement was broadened outside the expansion population to include adults enrolled in Medicaid in other ways, 5 million people losing eligibility would be a “major underestimate,” Karpman says.

Republicans have long favored work requirements, and during the first Trump administration, 13 states received waivers to implement them, which the Biden administration largely reversed. Georgia implemented Medicaid work requirements in 2023, ostensibly to provide coverage for more people. According to the Center on Budget and Policy Priorities, a left-leaning think tank, only about 6,500 individuals are in the program, compared with the
240,000 uninsured that the state said would be potentially eligible for coverage.

Ohio’s Department of Medicaid recently requested that CMS allow it to impose a work requirement on some people who receive coverage under Medicaid expansion. To be eligible for coverage, people who became eligible for Medicaid coverage under ACA expansion rules would need to be at least 55 years old, or be employed, enrolled in school or job training, be in a recovery program, or have a serious physical or mental illness to receive coverage. “As part of our work to empower people [to] reach their full potential, we have a responsibility to make sure as many Ohioans as possible are on a pathway toward financial independence,” Gov. Mike DeWine, a Republican, said in a news release.

Medicaid managed care plans

About 75% of Medicaid beneficiaries get coverage through managed care organizations that contract with the state, according to Elizabeth Hinton, M.S.P.H., associate director of the program on Medicaid and uninsured at KFF. Furthermore, half of those covered by Medicaid are enrolled Medicaid managed care plans operated by five large, publicly traded insurers — Centene, CVS Health’s Aetna, Elevance Health, Molina and UnitedHealth Group. Centene accounts for the largest share, at 20%, followed by Elevance, with 11%, according to KFF. Financially, Medicaid accounts for 88% of Molina’s business and 60% of Centene’s. With funding cuts, rates might change or fewer services might be offered, says Hinton: “All of this will trickle down to plans.”

Data are as of July 2022

Source: KFF

If Medicaid funding is cut, Ellis says he doesn’t expect a large impact on insurers this year because changes would take time to implement, but changes could be felt in 2026. Assertions that savings can be realized by eliminating fraud, waste and abuse got some support in the late March when The Wall Street Journal published an investigative news story that found that private insurers collected $4.3 billion over three years in payments for Medicaid enrollees in enrolled in
two states.

Lutz says the larger plans won’t go out of business. They can hedge across multiple lines of business (Medicare Advantage, employer-based commercial insurance), but they might leave Medicaid in certain markets. Smaller Medicaid plans are “potentially at risk” he notes, although Medicaid plans, in general, may have multiyear contracts with states that may help some plans “weather the storm,” Lutz says.