Context:

House Republicans are considering significant Medicaid cuts to align with President Trump's domestic agenda, which are expected to heavily impact Southern states that supported Trump in the 2024 election. The primary options on the table involve reducing funding for the Obamacare Medicaid expansion or eliminating a tax loophole that allows states to inflate Medicaid spending using provider taxes. The former option would disproportionately affect wealthier Democratic states, while the latter would place a heavier burden on poorer Southern states. Some states may need to cut Medicaid coverage, hospital payments, or other government services to cope with budget shortfalls. The Congressional Budget Office anticipates that various state responses, including potentially reversing Medicaid expansion, could lead to even greater federal savings than the cuts alone would achieve.

Dive Deeper:

• Republicans have been tasked with finding $880 billion in Medicaid spending cuts, and the main options involve cutting Obamacare Medicaid expansion funding or closing a provider tax loophole. The latter option would significantly impact poorer Southern states.

• House Speaker Mike Johnson has ruled out major cuts to the Medicaid expansion, as they would hit wealthier Democratic states hardest, but is open to a similar policy with fixed payments per enrollee, potentially saving $225 billion over a decade.

• The provider tax loophole allows states to increase federal Medicaid funding by inflating spending through hospital and nursing home taxes, a significant part of Medicaid budgets in poorer states.

• States facing cuts might reduce Medicaid enrollment, cut payments to medical providers, raise taxes, or cut other state services. Some states have laws to reconsider Medicaid expansion if federal support decreases.

• The C.B.O. expects substantial federal savings from these policies as states may choose a mix of responses, including reversing Medicaid expansion, which would further reduce federal spending.

• The cuts would create significant budget shortfalls for affected states, particularly in the South, where the reliance on federal matching funds is high due to lower state incomes.

• The potential impact varies by state, with some like North Dakota, which has expanded Medicaid despite being a wealthier state, facing significant federal funding loss if cuts proceed.