Last week the White House released a federal budget that, among other changes, would reduce projected Medicaid spending by $610 billion across 10 years.
The proposed reduction has received a lot of negative press. Chairman of the Democratic National Committee Tom Perez, claims the budget “absolutely dismantles Medicaid.” The New York Times reports that the budget “cuts deeply into Medicaid.” Other articles suggest the budget would “gut” the federal program.
Medicaid is a healthcare entitlement that supports about 69 million low-income Americans, including adults, children, the disabled and the elderly. State governments administer the program, which federal dollars heavily subsidize.
In 2016, the federal government spent $368 billion on Medicaid. Federal expenditures are expected to balloon in the coming years, reaching $688 billion in 2027 – an increase of about 87 percent – under baseline projections from the Office of Management and Budget (OMB).
The White House’s proposed budget also grows Medicaid substantially over time, but the increases are less steep year over year. From 2016 to 2027, federal expenditures would increase about 42 percent. The lower growth rate would save the government $610 billion when compared to the baseline estimate.
What many refer to as “cuts to Medicaid” are actually cuts to the growth of Medicaid, not the current size of the program. The Trump administration allocates more for Medicaid every year of the budget. Director of the Office of Management and Budget Mick Mulvaney calls the misconception “a classic example of how Washington speaks differently than the world back home.”
Critics counter that despite increased spending in the budget, the size of Medicaid shrinks over time as a percentage of GDP, a measure of the size of the economy, dropping from two percent today to 1.7 percent in 2027.
While this is true, when looking at the size of Medicaid as a percentage of the total budget, it remains, on average, about the same size – 9.6 percent of the total budget – compared to 2016 funding levels. For this reason, it’s misleading to characterize the savings as cuts to Medicaid.
The administration would achieve a slower growth rate by restructuring Medicaid in 2020, allowing states to choose between a block grant or a per capita spending cap. Right now, there is no cap on the matching funds the federal government provides to states.
The administration argues this change would lead to innovation and more efficient budgets at the state level, but it would also likely strain state government’s ability to maintain current levels of service.
The White House proposed Medicaid reforms are similar to those proposed under the American Health Care Act (AHCA), which the Congressional Budget Office (CBO) projects would reduce Medicaid spending by $834 billion over a 10-year window.
The $834 billion reduction in the AHCA is separate from the $610 billion of savings in the White House budget. Mulvaney believes these savings will overlap with one another and that combined cuts to the growth of Medicaid will be more than $834 billion but less than $1.4 trillion.
Although the White House budget continues to grow Medicaid over time, certain segments of the population may still be negatively impacted down the road. For instance, the CBO projects that lower spending due to the AHCA would result in 14 million fewer individuals on Medicaid by 2026.
The enormous growth projected for Medicaid is driven by the rising cost of healthcare and the aging population of the country. For example, average federal spending per disabled enrollee will increase about 50 percent by 2027 according to CBO estimates. Based on the latest actuarial report from Medicaid, 81.6 million Americans will be enrolled in the program by 2025 under current law – 12.6 million more individuals than there are today.
The White House proposed Medicaid budget may not be able to fully accommodate these demographic trends, but it reflects an attempt to balance the budget within 10 years while not touching programs like Medicare or Social Security.
Congress will ultimately craft and pass a budget. Trump’s proposal is merely a blueprint of the administration’s priorities. But the reaction to the proposal is evidence of how politically sensitive addressing entitlement spending can be.
Politicians and news outlets alike have given the false impression that the White House budget would downsize Medicaid. Although the budget allocates less than baseline estimates, it does not cut funding below current levels. On the contrary, it grows the size of Medicaid and keeps funding levels over time proportional in terms of the total budget. We rate this claim as false.
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