What are the implications of Medicaid per capita caps?

Imposing Medicaid per capita caps could result in anywhere from around $500 billion to nearly $1 trillion in decreased federal spending, spending that could shift to states or result in coverage losses, according to separate analyses from KFF and the Urban Institute.

These findings come as Congress considers strategies for cutting Medicaid spending, although current reporting indicates that House of Representatives Speaker Mike Johnson has ruled out per capita caps.

A per capita cap on Medicaid means there would be a cap on federal spending per Medicaid enrollee. Both the KFF analysis and the one completed by the Urban Institute in partnership with the Robert Wood Johnson Foundation examined how a Medicaid per capita cap would affect states based on how the caps are rolled out and how states respond.

Both reports outlined a few different scenarios, including the impact of instituting per capita caps and eliminating the enhanced Federal Medical Assistance Percentage (FMAP), an ACA provision that enabled Medicaid expansion.

According to the Urban Institute, introducing per capita caps and allowing enhanced FMAP would reduce federal spending by between $700 billion and $1.1 trillion in the next 10 years. Eliminating the enhanced FMAP would reduce federal spending by $563 billion in the next 10 years.

KFF's analysis showed similar trends, with the researchers adding that the combined effect of introducing per capita caps and eliminating enhanced FMAP would decrease federal spending by between $1 trillion and $2.1 trillion in the next 10 years.

Reducing federal spending on Medicaid raises questions about how state Medicaid programs would be funded, if they are funded at all, according to John Holahan, an institute fellow at the Urban Institute who worked on their report.

"The combination of reducing the 90 percent federal match for expansion populations and a per capita cap policy would reduce federal spending by between $1.2 and $1.7 trillion, depending on the policy details," Holahan said in a press release emailed to journalists. "The responsibility for the healthcare of the most vulnerable populations would shift to states and individuals."

Of course, the implications of these spending cuts would vary from state to state. If federal spending on Medicaid is decreased, states are left to determine whether they themselves will compensate for those spending reductions. Similarly, states will be left to determine the status of their Medicaid expansion policies.

"This proposed policy amounts to a wholesale transfer of financial responsibility to states because the need for healthcare will not change, just the means to pay for it," Kathy Hempstead, senior policy adviser at the Robert Wood Johnson Foundation, said in a press release. "The consequences will be most drastic in our poorest states, which will be very hard-pressed to close this massive funding gap."

According to the Urban Institute, the states with the lowest incomes would be hardest hit. For example, should Congress act on the steepest Medicaid spending cuts, states like Arkansas, Kentucky, Louisiana, Mississippi, New Mexico and West Virginia would need to increase current state Medicaid spending by about 40%.

There is always the possibility that states might choose to adjust Medicaid benefit levels, KFF said, a call that could be very difficult considering the financial implications. Should states maintain their current Medicaid benefit levels and enrollment, they could face costs of between $1,500 and $2,300 per enrollee.

But should states decide to cut Medicaid eligibility in proportion to cuts in federal spending due to per capita caps, some 15 million enrollees could lose their Medicaid coverage. That figure would increase to 30 million enrollees should Congress both enact per capita cuts and eliminate enhanced FMAP.

As noted above, House Speaker Mike Johnson reportedly eliminated per capita caps and enhanced FMAP from a potential budget resolution. Still, experts noted that the impacts of reduced federal Medicaid spending warrant discussion.

"The current proposals being discussed by Congress would lead to the largest Medicaid spending cuts and enrollment declines in the program's history with an unprecedented cut in federal Medicaid funding to states," KFF President and CEO, Drew Altman, said in a statement. "As our polling and focus groups with voters show, Americans, including many Trump voters, are not expecting, nor would they want, cuts to Medicaid, which would be felt across the country."

Indeed, separate KFF focus groups of Trump voters on Medicaid indicated that they did not expect big cuts to Medicaid. Some were slightly open to work requirements, although they indicated they were already working. Notably, most opposed Medicaid cuts to pay for tax cuts, largely because they believed tax cuts would not benefit them.

Sara Heath has covered news related to patient engagement and health equity since 2015.