What Would House Republicans’ Plan to Cut Funding for Medicaid Mean for California?

Republican proposals to dismantle the Affordable Care Act (ACA) and reduce federal funding for Medicaid are swirling around our nation’s capital like tumbleweeds across the wind-swept plains of Nebraska. One plan that was recently released by House Republicans targets a key component of federal health care reform: the Medicaid expansion.

As allowed by the ACA, California and most other states chose to expand their Medicaid health coverage programs to millions of adults with low incomes who previously were ineligible. In California, roughly 4 million people are now enrolled in Medi-Cal (our state’s Medicaid program) due to this expansion, which took effect in January 2014. The federal government pays the vast majority of the cost of covering these adults, using what’s known as an “enhanced” federal matching rate. For example, the feds are paying 95 percent of the cost of the expansion in 2017, with California paying the remaining 5 percent. Under current law, this enhanced rate is scheduled to gradually decline to 90 percent by 2020, where it would remain indefinitely. This means that California would pay no more than 10 percent of the cost of the Medi-Cal expansion in any year — so long as the current rules remain in place.

House Republicans’ plan would renege on the federal commitment to pay at least 90 percent of the cost of the Medicaid expansion. Instead, states that chose to continue with the expansion would receive only the standard federal matching rate that applies to most other Medicaid costs. This rate is 50 percent for California, which means that the state and the feds equally share the cost of applicable Medi-Cal services.

Were the feds to significantly reduce their share of costs for the Medi-Cal expansion, it would blow a huge hole in the state budget. In 2019, California’s cost for the expansion would jump to a projected $10.9 billion, a more than 600 percent increase compared to what the state would pay under the current financing rules ($1.5 billion).

Would state policymakers be able to scrape together the revenues needed to maintain the Medi-Cal expansion if the House Republicans’ proposal becomes law? Even the most optimistic Californian would struggle to find a happy ending to this story, given the size of the hole the state would have to fill. Facing the steep cost of maintaining this coverage, California would likely need to drop or scale back the Medi-Cal expansion. Other expansion states would face the same dilemma. This is why the House Republicans’ plan “would effectively end the Medicaid expansion,” according to our colleagues at the Center on Budget and Policy Priorities.

Unfortunately, pulling the financial rug out from under California and other states that opted to expand coverage is only one element of House Republicans’ attack on Medicaid. They’re also aiming to radically restructure the program’s financing by shifting federal Medicaid funding into state-based block grants or per capita allotments. Either of these approaches would result in deep and growing federal funding cuts to Medicaid, putting all states on the short end of a massive cost-shift. In California, a block grant or per person cap would raise the prospect of cuts to coverage or benefits for millions of children, older adults, people with disabilities, and other residents, for whom Medi-Cal is truly a health care lifeline.

— Scott Graves