Republicans have proposed budget cuts totaling at least $880 billion that would require massive structural changes to Medicaid. This major threat to health care access is not an easy to sell to the public. Medicaid is actually really popular, and it covers lots of voters at a very low cost. It helps older adults get the services they need to stay in their homes. It helps people with disabilities live, work, and stay engaged in their communities. It helps bring babies safely into this world and helps them grow up healthy.
So instead of talking about what $880 billion in Medicaid cuts would actually do – shift billions in costs to states and force them to cut services and eligibility for millions of low-income families, older adults, and people with disabilities – we see vague allusions to trimming waste and abuse. But you cannot “trim” your way to at least $880 billion in cuts. As Representative Gonzales (R-TX) astutely asked: “at what point do you stop cutting into the fat and start cutting into the bone?”
Cutting $880 billion from Medicaid would be doing just that—cutting into the bone. Medicaid is already by far the most inexpensive comprehensive health care program in the nation, and it provides major positive and long-lasting health and economic benefits to enrollees. The proposed Medicaid cuts to this already lean program would cause a massive cost shift to state governments and to taxpayers. Here’s why:
- Medicaid is the most cost efficient health insurance program in the country. Medicaid has a lower cost per service provided than any other health insurance program, public or private. In one comparison, the costs to cover low-income adults through Medicaid was 45% less than covering a similar group through private Marketplace insurance. In that same study, average annual out-of-pocket expenses for enrollees were over 10 times lower in Medicaid ($45 vs. $569). Covering people through Medicaid is far more efficient than other health programs and cost-effective for enrollees.
- Administrative costs are low, at just 3.9% of total Medicaid spending in 2023. Medicaid managed care plans have additional administrative expenses, but nearly all states require their Medicaid plans spend at least 85% of plan expenditures on covered services. Several states set that requirement over 90%. Private individual and small group plans have a lower threshold, at 80%, which allows for higher administrative costs and profits. Large group insurers must meet 85% thresholds, but their overall service costs are typically higher than Medicaid, which translates to higher administrative expenses and profits.
- Medicaid has improved accountability through better book-keeping and transparency. Rates of incomplete documentation or other errors in Medicaid payment and eligibility data declined by over 75% from 2019 to 2024. Such errors now amount to no more 3 to 6% of Medicaid payment and eligibility records. And most of those errors (~80%) reflect insufficient documentation or technical errors, not necessarily an improper payment. Historically, Medicaid critics have misconstrued these payment audits to exaggerate their claims of waste, but now they show big improvements in record-keeping and reductions in improper payments.
- New Medicaid protections will increase accountability and payment transparency for managed care organizations and hospital providers. Three quarters of all Medicaid enrollees are in managed care. Managed care plans say they lower overall spending by reducing overutilization and coordinating care. In practice, plans too often reduce utilization by making it hard to find an available provider or get a needed service authorized. This approach does not increase efficiency, it just worsens care outcomes. New accountability tools, finalized in the 2024 Medicaid Managed Care and Medicaid Access rules, include publicly-reported independent secret shopper surveys to make health plans correct error-ridden provider directories and plug holes in their narrow provider networks. Health plans will have to publicly report more quality outcomes, increase price transparency, and better track how much of their revenue is spent on actual health services. These tools aim to ensure that plans manage costs the right way. However, the proposed massive Medicaid cuts would pressure states and plans and likely encourage them to make it even harder to find a provider. That would be cutting Medicaid bone.
- Federal regulations that streamline prior authorization in Medicaid, Medicare, and Marketplace plans will reduce processing times, increase access to services, and improve efficiency. No one likes going through prior authorization, which has too often been abused as a tool that increases red tape to reduce access to necessary care. The 2024 prior authorization rule requires the development of an electronic system for processing prior authorization requests to speed up decisions and requires clear clinical criteria for authorizations. It is projected to save providers and patients $16.5 billion and 221 million hours in administrative red tape over 10 years, while costing government under $800 million over that time. Cutting federal Medicaid would likely lead to new abuses of prior authorization as states and plans desperately seek to lower costs. Again, this is not efficiency, it is cutting bone.
- States are already being squeezed in the Medicaid program. From FY2023 to 2024, federal spending on Medicaid barely budged, increasing by only 0.2%. The federal government phased out extra supports for the COVID-19 public health emergency, meaning states’ average share of Medicaid spending increased from 30% of all Medicaid dollars in FY 2022 to 35.7% in FY 2024. Major federal cuts to Medicaid will only squeeze states more, leading to service cuts and coverage losses. The most expensive services and enrollees are likely targets. That means longer wait lists for people with disabilities to get the supports they need to stay in their homes. It means more restrictions on access to critical medications for low-income children. It means lower rates for specialists, which translate to longer waits to access care.
Medicaid is not perfect, but there is more accountability for payments and care quality than there has ever been in the program, which helps reduce waste and abuse. If faithfully implemented, these kind of accountability and transparency measures help explain why the growth in Medicaid spending is projected to be lower over the next 10 years than either Medicare or private health insurance without any changes to the current program.
In short, don’t buy any fairy tales of hundreds of billions in wasted Medicaid dollars. That’s gaslighting and distraction. Medicaid is already lean. There is not much to cut before you hit bone: reduced services, fewer providers, and coverage losses across the board. Instead, remember that Medicaid is popular because it provides low-cost health care for millions of low-income children, families, older adults and people with disabilities. People in your community. These proposed cuts would take that care away.
