Proposed Medicaid Cuts Could Cost States Hundreds of Billions of Dollars

If Congress moves forward with plans to lower the minimum federal contribution to Medicaid, ten states and the District of Columbia could face a major loss in funding of close to $468 billion over the next decade, according to a new Urban Institute analysis supported by the Robert Wood Johnson Foundation.

The federal government has supported states in funding Medicaid for many years through the Federal Medical Assistance Percentage (FMAP), a formula that guarantees the federal government covers at least 50% of a state’s Medicaid costs—with lower-income states receiving a larger share, according to the Foundation.

Medicaid is a joint federal-state program that provides health coverage to about one in five Americans.

Alongside the Children’s Health Insurance Program (CHIP), it helps cover 41% of births, 39% of children and 16% of nonelderly adults.

The proposed changes would cut $189.5 billion in federal Medicaid funding for people with disabilities, $161.1 billion for older adults and $50.1 billion for children in the affected states and D.C.

Medicaid also plays a significant role in supporting those who may be disadvantaged, including 44% of non-elderly people with disabilities and 63% of those in nursing homes.

To qualify for federal funding, states are required to cover certain groups and services but may also choose to expand their programs.

These state choices, combined with differences in local healthcare costs, contribute to a wide variation in Medicaid spending. FMAP is based on state per capita income and ranges from 50% to 83%.

But if lawmakers eliminate that 50% floor—one of the many cuts under discussion in Congress—more financially secure states would receive significantly less support.

The ten states most affected would be California, Colorado, Connecticut, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Washington, Wyoming and the District of Columbia.

The Urban Institute report highlights the financial impact this shift would have.

The proposed changes would cut $189.5 billion in federal Medicaid funding for people with disabilities, $161.1 billion for older adults and $50.1 billion for children in the affected states and D.C.

“These changes we analyzed represent fundamental shifts in the federal-state partnership for the financing of the Medicaid program,” said Lisa Dubay, senior fellow and interim vice president for the Health Policy Division at the Urban Institute, in a press release. “This would place fiscal strains on states and likely result in losses of coverage, declines in access to care, poorer health outcomes, and greater financial burdens for the most vulnerable people in America.”

The report showed that to save their current Medicaid services without additional federal dollars, states would need to dramatically increase their own spending.

For example, Maryland would need to boost its Medicaid spending by 4.1%, while Massachusetts would face a 51.3% increase and D.C. a 63.2% spike.

In addition, these reductions could be paired with cuts to other federal support, such as enhanced FMAP rates for states that expanded Medicaid under the Affordable Care Act (ACA).

Combined, these moves would cut federal Medicaid contributions by $835 billion between 2026 and 2035, resulting in a 54% drop in support for some states, the report shared.

To make up the difference, affected states would need to increase general revenues by as much as 16%.

“It would be catastrophic if federal lawmakers abandoned their commitment to support states’ Medicaid programs,” said Kathy Hempstead, senior policy advisor at the Robert Wood Johnson Foundation, in the release. “States would face impossible budget choices and access to Medicaid would likely end for people with no other options.”

While some policymakers have claimed that the ACA’s Medicaid expansion favors “able-bodied adults” over vulnerable populations, the Urban Institute’s research debates that belief.

Their data shows that spending per enrollee is actually higher in states that expanded Medicaid, including for children, the disabled and older adults.

The expansion has also been linked to lower uninsured rates, better health outcomes and greater financial stability for both low-income residents and hospitals—especially in rural areas, the study found.

Researchers of the report stressed that shifting costs to states could force many to reduce eligibility, cut services or lower payments to providers, which could make health outcomes and existing disparities worse.

“Even if states reduce spending on the Medicaid program to balance their budgets,” the report mentioned, “they would receive the lower federal match on Medicaid spending going forward, producing even greater reductions in federal contributions than estimated here.”

Nine out of the ten states that would be affected by eliminating the FMAP floor already contribute more in federal taxes than they receive in federal funding, researchers shared.

These states also tend to offer more coverage and invest further per resident in poverty compared to the national average.

While some experts argue that higher-income states can afford these costs, the report warns that many of these states already face budget losses and would be forced to make deep cuts in other places, such as in K–12 education, which currently accounts for the largest share of state general fund spending.

Researchers suggest that eliminating the FMAP floor would represent a massive change in how the federal government shares responsibility for healthcare within states—at a time when demand for Medicaid services is growing due to aging populations and ongoing uncertainty in the economy.