	Medicaid Background

Medicaid is a means-tested entitlement program that finances the delivery of primary and acute medical services as well as long-term services and supports (LTSS). Medicaid is jointly financed by the federal government and the states. Medicaid Expenditures

In FY2012, federal Medicaid payments to states totaled $271 billion (see Figure 1 ), which was almost 8% of all federal spending. Proposals to Reduce Federal Medicaid Expenditures

Since Medicaid accounts for a relatively large and growing portion of the federal budget, controlling federal Medicaid spending has been a focus of deficit reduction and budget proposals, such as the National Commission on Fiscal Responsibility and Reform, the Debt Reduction Task Force, the President's FY2013 budget proposal, the FY2013 House Budget Resolution, and the Congressional Budget Office's (CBO) choices for deficit reduction (see the Appendix for a description of these proposals). The major recommendations and options to reduce federal Medicaid expenditures include repealing or delaying the ACA's Medicaid expansion, restructuring Medicaid financing, reducing or eliminating states' use of provider taxes, reforming the federal medical assistance percentage (FMAP), changing coverage options for dual eligibles, reducing federal Medicaid disproportionate share hospital (DSH) allotments, and limiting Medicaid reimbursement for durable medical equipment (DME). Federal Medical Assistance Percentage48

The federal government's share for most Medicaid expenditures is determined by the FMAP rate. The FMAP formula compares each state's per capita income to U.S. per capita income. Some of the proposals discussed in this report would reduce overall Medicaid expenditures (e.g., repealing the Patient Protection and Affordable Care Act's Medicaid expansion, changing coverage options for dual eligibles, and limiting Medicaid reimbursement for durable medical equipment), while other options would reduce federal Medicaid expenditures (e.g., block granting Medicaid, reducing or eliminating states' use of provider taxes, and reforming the FMAP). The National Commission on Fiscal Responsibility and Reform final report included federal savings from Medicaid totaling $58 billion from FY2012 to FY2020. The savings came from eliminating states' ability to fund Medicaid through provider taxes and covering dual eligibles under managed care arrangements. The President's FY2013 budget included a number of Medicaid provisions estimated by the Administration to reduce federal Medicaid expenditures by $55.7 billion from FY2013 to FY2022. The Medicaid provisions included limiting states' ability to use provider taxes in financing the state share of Medicaid expenditures, replacing the current federal Medicaid financing structure with a blended FMAP rate, limiting Medicaid reimbursement of durable medical equipment, and extending Medicaid DSH reductions. Additional detail on budgetary objectives and justifications was provided in Chairman Ryan's report entitled The Path to Prosperity: A Blueprint for American Renewal , issued the same day. H.Con.Res. The major Medicaid proposal would restructure the Medicaid program from an individual entitlement to a block grant. The options affecting the Medicaid program include repealing the ACA Medicaid expansion, converting the federal share of LTSS into a block grant, and reducing the FMAP floor. Together, CBO estimated these options would reduce federal Medicaid expenditures by $156 billion in FY2020.
Medicaid is a means-tested entitlement program that finances the delivery of primary and acute medical services as well as long-term services and supports (LTSS). Medicaid is jointly financed by both the federal government and the states. The federal government's share for most Medicaid expenditures is called the federal medical assistance percentage (FMAP), and under the FMAP, the federal government pays a larger portion of Medicaid costs in states with lower per capita incomes relative to the national average (and vice versa for states with higher per capita incomes).
Federal Medicaid funding to states is open-ended, and in a typical year, the federal government funds 57% of the total cost for Medicaid. In FY2012, federal Medicaid expenditures accounted for almost 8% of all federal spending. As a result, controlling federal Medicaid spending has been a focus of deficit reduction and budget proposals.
The National Commission on Fiscal Responsibility and Reform's final report included savings from Medicaid totaling $58 billion over 10 years. The provisions with Medicaid savings included eliminating states' ability to fund Medicaid through provider taxes and covering dual-eligibles under managed care arrangements.
The Bipartisan Policy Center's Debt Reduction Task Force estimated its proposals would reduce federal Medicaid expenditures by about $25 billion over 10 years. The task force proposed removing barriers for states to use managed care to cover dual eligibles and limiting the growth in Medicaid expenditures by changing the structure of Medicaid financing.
The President's FY2013 budget included a number of Medicaid provisions estimated by the Administration to reduce federal Medicaid expenditures by $56 billion over the next 10 years. The Medicaid provisions in the President's budget included limiting states' ability to utilize provider taxes, implementing a blended FMAP rate, limiting Medicaid reimbursement of durable medical equipment, and "rebasing" Medicaid disproportionate share hospital (DSH) payments.
The House FY2013 Budget Resolution (H.Con.Res. 112), based on Representative Ryan's Path to Prosperity: A Blueprint for American Renewal document, proposed restructuring the Medicaid program from an individual entitlement to a block grant and repealing the Patient Protection and Affordable Care Act (ACA). Together these provisions are estimated to reduce federal Medicaid expenditures by $1.4 trillion from FY2013 to FY2022.
In November 2012, the Congressional Budget Office (CBO) published the document Choices for Deficit Reform, which provides the following options to reduce federal Medicaid expenditures: repealing the ACA Medicaid expansion, converting the federal share of LTSS into a block grant, and reducing the FMAP floor. Together, CBO estimated these options would reduce federal Medicaid expenditures by $156 billion in FY2020.
This report provides some background about Medicaid, including information about Medicaid expenditures. Then, the report explains the major proposals to reduce federal Medicaid expenditures. These proposals include repealing the ACA's Medicaid expansion, restructuring Medicaid financing, reducing or eliminating states' use of provider taxes, reforming the FMAP, changing coverage options for dual eligibles, reducing federal Medicaid DSH allotments, and limiting Medicaid reimbursement for durable medical equipment.