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February 20, 2025 – It’s been a busy week in the health policy world, and there are many topics that Regs & Eggs can (and probably will eventually) focus on, including the impact of the reductions in staff at the US Department of Health and Human Services (HHS) and the first executive order related to HHS Secretary Robert F. Kennedy Jr.’s “Make American Healthy Again” priority. However, this week, we’re discussing major changes to the Medicaid program that either the 119th Congress or the Trump administration could possibly adopt. My colleague Kayla Holgash just wrote a +Insight on this issue (releasing on our website later this week), and she joins Regs & Eggs to provide us with an overview of what modifications, including funding cuts, are possible – and perhaps probable.
The possible changes to the Medicaid program fall into three buckets:
As discussed in a previous Regs & Eggs blog post, there are several Medicaid regulations that could be revoked, repealed partially, or just not implemented by the Trump administration or Congress. They include:
States can apply to formally waive some federal Medicaid requirements. For example, states may “offer an alternative benefit plan to a subset of Medicaid beneficiaries, to restrict enrollees to a specific network of providers, or to extend coverage to groups beyond those defined in Medicaid law.” The first Trump administration generally used waivers to implement work requirements and apply other restrictions to eligibility and federal financing. In contrast, the Biden administration encouraged states to propose waivers that expanded coverage, reduced health disparities, and advanced whole-person care. Both administrations prioritized improving access to behavioral health services.
Upon taking office in January, President Trump immediately revoked several Biden-era executive orders directed at expanding Medicaid access. He also released a notice that the administration plans to review all Biden-era 1115 waivers to ensure compliance with regulatory and statutory requirements. This action likely indicates that the current administration will disapprove waivers covering non-healthcare-related costs, and that many Biden administration waivers are likely to be discontinued, particularly those addressing health-related social needs.
Medicaid work requirement waivers would require certain Medicaid enrollees to work, look for work, or conduct another qualifying activity (e.g., education, caretaking) as a condition of receiving health insurance. In January 2018 (during the first Trump administration), CMS issued guidance inviting states to request Section 1115 waivers that impose work and reporting requirements (referred to as “community engagement”) as a condition of Medicaid eligibility for non-elderly, non-pregnant adult beneficiaries who are eligible on a basis other than disability. Later, the Fiscal Year 2021 President’s Budget (the last budget request under the first Trump administration) formally asked Congress to modify the Medicaid program to require able-bodied, working-age individuals to find employment, train for work, or volunteer (community service) to receive Medicaid coverage. Congress did not act on that proposal.
Out of about 20 state applications, CMS approved waivers with work requirements in 13 states under the first Trump administration. The US District Court for the District of Columbia vacated and remanded waiver approvals in several states to HHS for further review, bringing into question whether approval of any similarly restrictive state waivers could survive in court. The Biden administration later withdrew authority to implement work and community engagement requirements in all states that received such an approval. A CBO analysis estimates that the Medicaid work requirements of H.R. 2811, the Limit, Save, Grow Act of 2023 (introduced in the 118th Congress), would lead to:
Georgia is currently the only state with a waiver that enforces work requirements as a condition for certain Medicaid enrollees. The state spent more than $40 million to implement the program, nearly 80% of which was spent on administrative and consulting costs. Georgia estimated that about 25,000 people would have enrolled in the first year. Halfway through the year, however, only about 4,500 people had enrolled. As of May 2024, almost 14,000 applications were waiting to be processed, with many blaming significant administrative burden and confusing requirements.
Medicaid is financed by federal and state funds, and Congress could decide to alter the way federal funds are provided and the amounts spent. These options would require states to increase their share of funding for the program over time, or to reduce program costs through eligibility, benefit, or provider payment cuts.
Federal Medical Assistance Percentage
The federal share of most Medicaid service costs is determined by each state’s federal medical assistance percentage (FMAP), a formula that uses the state’s most recent three-year average per capita income data to provide higher matching rates to states with lower per capita incomes relative to the national average. State-level information on FMAPs is available here. FMAPs have a statutory minimum of 50% and a maximum of 83%.
Several options for reducing FMAPs are:
In addition to adjusting the percentage of federal funding spent on Medicaid, funds could be capped according to the number of people enrolled in the program or up to a certain amount of money. These options are generally developed as either a per capita cap or aggregated cap, or as a block grant.
Per Capita Cap or Aggregated Cap
A per capita cap funding arrangement sets an upper limit on federal payments per Medicaid enrollee in each eligibility group. In an aggregated cap (also called a capped allotment) approach, states receive federal matching funds up to a determined maximum.
In January 2020, the first Trump administration announced an opportunity to cap federal Medicaid spending called the Healthy Adult Opportunity (HAO). Under the HAO, states could choose an aggregate spending cap or a per capita spending cap. These caps would be determined based on a state’s historical spending on the eligible population, updated by inflation. If states exceeded the cap, they could not receive any additional federal funding. A state could be eligible to share in some of the savings it achieved if it came in below the spending target. In order to receive shared savings, a state would need to meet certain quality metrics. States would also have to report quarterly on a set of continuous performance indicators intended to reflect whether access to care was impacted. While no state took up this option, in January 2021, the Centers for Medicare & Medicaid Services (CMS) approved TennCare III, Tennessee’s 1115 waiver demonstration, which took advantage flexibilities similar to those that CMS provided in the HAO initiative (although it was technically not a HAO demonstration).
Going forward, the 119th Congress could look to implement a Medicaid restructuring option similar to HAO. It could also enact a broader per capita cap proposal like one included in the American Health Care Act, the Republican-backed 2017 bill to repeal and replace the ACA. Setting per capita caps to a broader Medicaid population could save $588 to $893 billion, depending on the growth factor applied.
Block Grant
A “block grant” provides lump-sum payments to states based on a predetermined formula. The specifics of Medicaid block grant proposals have varied, but past proposals have generally sought to limit federal liability for Medicaid spending by reducing federal funding relative to current law. A block grant approach would change the nature of the program by eliminating automatic increases in federal funding in response to enrollment growth and the increases in per enrollee spending that can be triggered by a change in disease pattern or the introduction of a new blockbuster drug.
The growth factor would be tied to population changes in the covered population groups in each state, allowing federal support to change with the size of the covered population and states to plan more efficiently.
A March 2024 budget proposal from the Republican Study Committee, for example, proposed creating five block grants:
If Congress decided to pursue this approach, it would likely look to the Temporary Assistance for Needy Families (TANF) as an example. TANF also includes a work requirement, which the administration and Congress could also examine when considering Medicaid eligibility reforms. TANF (which was formally called welfare) is a federal block grant program that helps “families with children experiencing low-income achieve economic security and stability.” The amount of federal block grant funding has not changed since it was established in 1996. As a result, the real (inflation-adjusted) value of the TANF block grant has declined 32.5% since 1997, an average of 2.2% each year. While it is possible that a Medicaid block grant could be adjusted for inflation, such a financing structure would likely result in funding decreases for states.
More nuances and details of each of these options, as well as other options under consideration, can be found in Kayla’s forthcoming +Insight. Although it is unclear which of these options, or combination thereof, either the administration or the 119th Congress might choose, it is clear that Medicaid is on the menu for reductions. States, Medicaid enrollees, advocates, and other stakeholders are carefully reviewing each of these options and assessing their overall impact on federal and state spending, Medicaid eligibility, access to care, and provider reimbursement.
Until next week, this is Jeffrey (and Kayla) saying, enjoy reading regs with your eggs.
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