Proposals to Reduce Federal Medicaid Expenditures

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Alison Mitchell
Analyst in Health Care Financing

Medicaidis a means-tested entitlement program that finances the delivery of primary andacute medical services as well as long-term services and supports (LTSS).Medicaid is jointly financed by both the federal government and thestates. The federal government’s share for most Medicaid expenditures iscalled the federal medical assistance percentage (FMAP), and under the FMAP, thefederal government pays a larger portion of Medicaid costs in states with lowerper capita incomes relative to the national average (and vice versa forstates with higher per capita incomes).

Federal Medicaid funding to states is open-ended, and in a typical year, thefederal government funds 57% of the total cost for Medicaid. In FY2012,federal Medicaid expenditures accounted for almost 8% of all federalspending. As a result, controlling federal Medicaid spending has been afocus of deficit reduction and budget proposals.

The National Commission on Fiscal Responsibility and Reform’s final reportincluded savings from Medicaid totaling $58 billion over 10 years. Theprovisions with Medicaid savings included eliminating states’ ability tofund Medicaid through provider taxes and covering dual-eligibles undermanaged care arrangements.

The Bipartisan Policy Center’s Debt Reduction Task Force estimated itsproposals would reduce federal Medicaid expenditures by about $25 billionover 10 years. The task force proposed removing barriers for states to usemanaged care to cover dual eligibles and limiting the growth in Medicaidexpenditures by changing the structure of Medicaid financing.

The President’s FY2013 budget included a number of Medicaid provisionsestimated by the Administration to reduce federal Medicaid expenditures by$56 billion over the next 10 years. The Medicaid provisions in thePresident’s budget included limiting states’ ability to utilize providertaxes, implementing a blended FMAP rate, limiting Medicaid reimbursement ofdurable medical equipment, and “rebasing” Medicaid disproportionate sharehospital (DSH) payments.

The House FY2013 Budget Resolution (H.Con.Res. 112), based on RepresentativeRyan’s Path to Prosperity: A Blueprint for American Renewal document,proposed restructuring the Medicaid program from an individual entitlementto a block grant and repealing the Patient Protection and Affordable CareAct (ACA). Together these provisions are estimated to reduce federal Medicaid expendituresby $1.4 trillion from FY2013 to FY2022.

In November 2012, the Congressional Budget Office (CBO) published the document Choicesfor Deficit Reform, which provides the following options to reducefederal Medicaid expenditures: repealing the ACA Medicaid expansion,converting the federal share of LTSS into a block grant, and reducing theFMAP floor. Together, CBO estimated these options would reduce federal Medicaidexpenditures by $156 billion in FY2020.

This report provides some background about Medicaid, including informationabout Medicaid expenditures. Then, the report explains the major proposalsto reduce federal Medicaid expenditures. These proposals include repealingthe ACA’s Medicaid expansion, restructuring Medicaid financing, reducingor eliminating states’ use of provider taxes, reforming the FMAP, changingcoverage options for dual eligibles, reducing federal Medicaid DSH allotments,and limiting Medicaid reimbursement for durable medical equipment.


Date of Report: January 10, 2013
Number of Pages: 28
Order Number: R42893
Price: $29.95

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