Medicaid is the single-largest health insurance program in the United States, covering nearly 1 in 5 Americans and providing access to essential services for low-income individuals, pregnant women, seniors, and people with disabilities. The public program also pays for more than 4 in 10 births nationwide and is the largest funder of long-term care for disabled and older Americans. Additionally, Medicaid supports public health by financing preventative programs and state emergency response capabilities.
Despite the program’s many benefits, recent proposals from Republican leadership on the House Budget Committee would convert federal Medicaid funding to block grants or impose per capita caps. Restructuring the program in this way would strain state budgets, reduce health coverage for millions, and limit states’ abilities to protect public health.
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Block grants and per capita caps would strain state budgets, forcing tough fiscal decisions that could ripple across other critical public services
- Medicaid operates as a federal-state partnership, with the federal government covering at least 50 percent of program costs and states financing the rest.
- Medicaid is the largest source of federal funding for state budgets, accounting for 56 percent of total federal funding allocated to states in 2024.
- Even without considering federal contributions, Medicaid comprised, on average, 18 percent of total state budget expenditures in 2023—roughly the same amount that states spent on K-12 education that year.
- Medicaid’s current financing structure is dynamic and allows federal funding to grow or shrink based on need. If Medicaid enrollment increases or health care costs rise, federal contributions scale accordingly. This is especially helpful when health needs grow during emergencies such as the COVID-19 pandemic or after natural disasters.
- Block grants would impose a strict overall cap on federal funds to state Medicaid programs, while per capita caps would set fixed federal contributions per enrollee, both of which would limit states’ ability to adjust for rising costs. If federal contributions were capped, states would face increased financial pressure to make up the difference in order to meet the existing health care needs of their populations. In turn, states would be forced to respond by making cuts to their Medicaid programs, raising taxes, or cutting funding for schools, roads, public safety, or other vital services.
Fixed funding models would make it harder for states to provide comprehensive health care coverage for their residents
- Unlike the federal government, which can operate with a budget deficit, states generally have balanced budget requirements. To stay within the constraints of fixed funding under a block grant or per capita cap scenario, states would have few options but to implement measures such as even stricter eligibility criteria, eliminating optional benefits, such as eyeglasses and dental care, or limiting people’s access to high-cost services such as home- and community-based services.
- Puerto Rico’s Medicaid program operates under a block grant-like funding structure, which limits the federal funds available to the territory. As a result, the program has faced chronic underfunding, which has led to the exclusion of services covered in most state Medicaid programs, including long-term care and nonemergency medical transportation.
- Capped funding would save federal dollars at the expense of state budgets, where costs often rise faster than federal contributions. To cope, states would be forced to shrink their Medicaid programs.
Funding caps would drive more people into medical debt, especially in Southern states
- Funding caps would likely lead to reduced eligibility and benefits, resulting in more uninsured individuals facing unaffordable medical bills.
- When individuals lose Medicaid coverage and become uninsured, they often delay care, only to face higher costs later on. This cycle contributes to medical debt and financial instability for families.
- States under financial pressure from federal Medicaid funding cuts might impose or increase premiums, copays, and other cost-sharing requirements for Medicaid enrollees. States such as Indiana and Iowa, which implemented premium and cost-sharing requirements via Medicaid waiver beginning in 2014, found that doing so led to disenrollment and debt collection due to premium nonpayment.
- Nonexpansion states would likely see uninsured rates rise, further limiting access to care and increasing financial hardship. Notably, these are disproportionately Southern states that already have extremely restrictive Medicaid programs. For instance, to be eligible for Medicaid in 2023, an adult caregiver who was under 65 and not pregnant, blind, or disabled could not have an annual household income above 12 percent of the federal poverty level (FPL) in Texas or 19 percent of the FPL in Mississippi. In other words, if a household of two earned more than $2,500 in Texas or $3,900 in Mississippi per year, they made too much to qualify for Medicaid.
Medicaid block grants and per capita caps would jeopardize provider sustainability, particularly in rural areas
- Medicaid is a critical source of funding for hospitals and clinics, especially in rural areas, where Medicaid covers a greater share of residents compared with urban areas.
- As Medicaid eligibility and benefits constrict due to block grants or per capita caps, more people would likely become uninsured, and health care providers, especially in rural areas, would see a rise in uncompensated care costs. For example, an Urban Institute analysis of the Medicaid block grant proposal from Sens. Lindsey Graham (R-SC) and Bill Cassidy (R-LA) in 2017 projected that plan would result in a Medicaid coverage reduction of nearly 15 million people by 2026 and “put tremendous financial pressure on state governments, health care providers, and low-income households.”
- In the past two decades, more than 100 rural hospitals have closed or eliminated their obstetric units nationwide. Block grants or per capita caps could exacerbate this trend by increasing the number of uninsured and/or reducing Medicaid reimbursement rates, limiting providers’ ability to deliver critical services and increasing the financial burden on remaining facilities.
- Medicaid reimbursement rates—which are already low and could drop even further under funding constraints—could worsen existing provider shortages, making it even more difficult for rural residents to access timely and quality care.
Medicaid funding caps would weaken state public health infrastructure and emergency response capabilities
- Medicaid improves people’s access to preventive health care services, including immunizations, health screenings, and disease self-management supports. Capping funding would cause states to have fewer resources to maintain preventive health initiatives, leaving communities vulnerable to preventable and chronic illnesses.
- Medicaid supports state responses to public health crises and disasters, including in the aftermath of emergencies such as the 9/11 attacks, hurricanes, and the Flint water crisis. During the COVID-19 pandemic, increased federal funding and regulatory flexibility allowed state Medicaid programs to adapt rapidly to meet increased demands by expanding coverage, increasing provider availability, enhancing telehealth services, and waiving certain requirements to facilitate access to care.
- Block grants or per capita caps would significantly limit states’ ability to respond effectively to future public health emergencies. The lack of flexibility and reduced funding would hinder efforts to scale up services, deploy resources, and protect vulnerable populations during crises, pandemics, and natural disasters.
Medicaid block grants and per capita caps could leave states ill-prepared to respond to a bird flu outbreak
The rigid funding structure of Medicaid block grants and per capita caps would limit states’ ability to respond if the H5N1 bird flu—which has recently caused outbreaks in several states—became a public health emergency.
Currently, Medicaid’s funding structure enables states to expand services during emergencies. Capping federal contributions would constrain states from investing in workforce expansions, outreach and education, and essential services for outbreak containment. Hospitals, especially in rural areas already facing closures, would struggle to manage patient surges and rising costs without additional Medicaid support. Furthermore, states need flexible funding to cover the cost of new treatment therapies and preventive interventions, such as vaccines, as they become available to the public. This is especially critical during an infectious disease outbreak where pathogens are constantly evolving, necessitating updates to treatment and prevention efforts.
Under a Medicaid block grant or per capita cap structure, efforts critical to controlling spread and minimizing harm would likely face cuts and suffer from inadequate funding. Outbreaks tend to disproportionately affect marginalized groups, similar to the inequities seen throughout the COVID-19 pandemic. This would likely hold true for a bird flu epidemic, in that those most affected and at risk would likely be low-income people who rely on Medicaid for their health needs.
Medicaid block grants and per capita caps would deepen existing coverage inequities
- Communities of color rely heavily on Medicaid, with 61 percent of nonelderly Medicaid enrollees identifying as Black, Hispanic, Asian, or Native Hawaiian and Pacific Islander in 2022, reflecting the program’s critical role in addressing racial coverage inequities.
- The disabled community relies on Medicaid, with one-third of Medicaid enrollees identifying as having a disability.
- Cutting Medicaid funding would disproportionately harm these communities. Reduced eligibility and benefits would lead to higher uninsured rates and diminished access to necessary care.
Conclusion
Medicaid’s current funding structure has proven indispensable in providing coverage and supporting public health. Proposals to implement block grants or per capita caps would erode these capabilities, jeopardizing access to care for millions, destabilizing health care providers, and undermining public health efforts. Preserving Medicaid’s dynamic funding structure is critical to ensuring a healthier, more equitable future for all Americans.