Reduced Federal Share May Force State Medicaid Programs to Cut Services, HCBS Expert Says

McKnight’s Home Care | By Adam Healy

Though a recent period of Medicaid “unwinding” has slashed the number of enrollees, federal actions have continued to put pressure on states and could result in program cuts in the coming years, one home- and community-based services expert said. 

The Congressional Budget Office this month released its “Budget and Economic Outlook” report for the coming decade. In its report, CBO predicted a roughly $58 billion drop in federal Medicaid outlays for 2024 compared to 2023 — a 9% decrease in federal Medicaid spending, due in part to fewer beneficiaries on states’ Medicaid rolls. 

Reduced Medicaid outlays, in addition to the phasing out of the Federal Medical Assistance Percentage (FMAP), which provided enhanced federal Medicaid funding for states during the pandemic, has placed an even greater strain on states to pay for these Medicaid programs, according to Damon Terzaghi, director of Medicaid HCBS for the National Association for Home Care & Hospice.

“The reduction in the federal outlays is essentially going to result in one of two things — increased state spending to offset the reduced federal share, or a cut to Medicaid [services or staff] to make up the difference,” he told McKnight’s Home Care Daily Pulse. “I think it will likely end up being a combination of the two.”

State budgets this year will likely focus more on maintaining current spending levels, rather than increasing them, Terzaghi said. And the states that are unable to manage the increased burden may have to cut Medicaid staff or services. Perhaps as one example, New York, Gov. Kathy Hochul (D) floated $1.2 billion worth of Medicaid cuts in a recent budget proposal, including a $400 million reduction for long-term care services and a $200 million cut to the state’s consumer-directed personal assistance program.

“There are obviously a lot of dynamics at play so we can’t solely blame the expiration of the … FMAP bump for any of these proposals,” Terzaghi said. “I certainly don’t think it will give states more money to play with though.”

In recent months, the so-called Medicaid unwinding, a result of states redetermining beneficiaries’ eligibility following a period of continuous enrollment during the COVID-19 pandemic, has resulted in more than 16 million Medicaid terminations — or about 17% of overall enrollment, according to KFF. States still have more than 45 million enrollees to reassess, and the number of terminations is expected to continue growing.