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The 119th Congress is considering reforms aimed at reducing federal Medicaid spending as part of broader budget deliberations. In 2023, the federal government spent $637 billion on Medicaid, and the program accounted for around one in five healthcare dollars spent in the US.

Given this discussion, Avalere Health modeled the impact of three policy options that would reduce federal Medicaid spending by changing the program’s funding structure. Avalere Health defined the parameters of each modeled policy; they are not based on budgetary language.

For each of the policies, we assess the overall impact on federal program funding and anticipated changes to federal funding for services provided to children (i.e., through the impact of a per capita cap on beneficiaries who are children or through reduced federal matching funds for children’s services), both nationally and at the state level.

Avalere Health modeled the following three scenarios:

1. Implementation of a per capita cap on Medicaid spending
2. Federal Medical Assistance Percentage (FMAP) reduction for the Affordable Care Act Medicaid expansion population
3. Removal of the 50% FMAP floor

Findings

The modeled policies would result in total federal funding cuts of $436–779 billion over ten years and include reductions in federal Medicaid funding for children between $57 and $114 billion.

Table 1. Projected change in total federal Medicaid funding and federal Medicaid funding to children under each scenario (2025–2034)

CPI-U: Consumer Price Index for All Urban Consumers; CPI-M: Consumer Price Index for Medical Care ^† Results do not include a breakout on funding for children because children are not part of the expansion population. *Percent change reflects the change in federal funding for the Medicaid expansion population only. **Percent change reflects the change in federal funding for the non-expansion population nationwide.

As modeled, per capita caps would impact all states (with total federal funding reductions of 5–7% per state), whereas the FMAP floor removal would impact 10 states and DC (4–52% federal funding reduction per state for non-expansion enrollees; 100% for DC). A change to expansion FMAP would impact 40 states and DC with Medicaid expansions (18–44% federal funding reduction per state for expansion enrollees).

As Congress considers various policy options, it is important to consider the effect on Medicaid funding by state and on specific populations, including children. Any change that reduces federal funding would require states to contribute more state funds to Medicaid or reduce Medicaid spending.

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Funding for this research was provided by the Children’s Hospital Association. Avalere Health retained full editorial control.