The Congress is currently debating the American Health Care Act (AHCA), which would not only repeal and replace the Affordable Care Act (ACA) but also make far-reaching changes to the structure and financing of Medicaid. The AHCA would use a per capita cap policy or block grants to cap federal funds to states for Medicaid. Facing reductions in federal Medicaid funding, states could offset lost federal dollars by raising taxes or reducing other state spending (like K-12 education), or states could reduce spending in Medicaid by finding savings or (more likely) by restricting eligibility, benefits, or payments to providers. However, many efficiencies were adopted by state Medicaid programs during the last two major recessions when revenues dropped and budgets were constrained leaving states with few options for easy ways to trim additional spending in the future. On March 13, 2017 the Congressional Budget Office (CBO) estimated that the AHCA would reduce federal Medicaid spending by $880 billion over the 2017-2026 period. By 2026, Medicaid spending would be about 25% less than what CBO projects under current law. In this analysis, we examine the fiscal implications of state actions to offset the loss of federal Medicaid funding to maintain rather than cut Medicaid programs. This analysis is intended to be illustrative and not predictive of actual state outcomes. In contrast, the CBO estimate of a 25% reduction in federal Medicaid funding by 2026 reflects projections and accounts for federal changes in policy, state responses to the policy change, and reductions in coverage.
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