Mandatory Spending

Function 550 - Health

Establish Caps on Federal Spending for Medicaid

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2021–
2025
2021–
2030
  Caps on Overall Spendinga
Apply Caps to All Eligibility Categories, With Growth of Caps Based on the CPI-U  
  Change in Outlays 0 0 -44 -61 -76 -93 -110 -126 -145 -163 -182 -818
  Change in Revenuesb 0 0 -2 -3 -3 -4 -4 -5 -5 -5 -8 -31
  Decrease (-) in the Deficit 0 0 -42 -58 -73 -89 -105 -122 -140 -157 -174 -787
Apply Caps to All Eligibility Categories, With Growth of Caps Based on the CPI-U Plus 1 Percentage Point  
  Change in Outlays 0 0 -23 -45 -56 -68 -80 -91 -104 -117 -124 -584
  Change in Revenuesb 0 0 -1 -2 -2 -3 -3 -3 -4 -4 -6 -23
  Decrease (-) in the Deficit 0 0 -22 -43 -53 -65 -76 -88 -100 -113 -118 -561
Apply Caps to Adult and Children Eligibility Categories Only, With Growth of Caps Based on the CPI-Uc  
  Change in Outlays 0 0 -26 -37 -46 -56 -67 -77 -89 -101 -108 -499
  Change in Revenuesb 0 0 -2 -2 -3 -3 -4 -4 -4 -5 -7 -28
  Decrease (-) in the Deficit 0 0 -24 -34 -43 -53 -63 -73 -85 -96 -101 -472
Apply Caps to Adult and Children Eligibility Categories Only, With Growth of Caps Based on the CPI-U Plus 1 Percentage Pointc  
  Change in Outlays 0 0 -17 -28 -35 -43 -51 -58 -67 -76 -80 -375
  Change in Revenuesb 0 0 -1 -2 -2 -3 -3 -3 -3 -4 -5 -21
  Decrease (-) in the Deficit 0 0 -16 -26 -32 -40 -48 -55 -64 -72 -75 -353
  Caps on Spending per Enrolleed
Apply Caps to All Eligibility Categories, With Growth of Caps Based on the CPI-U  
  Change in Outlays 0 0 -2 -63 -90 -111 -135 -161 -192 -217 -155 -972
  Change in Revenuesb 0 0 * * -1 -1 -2 -2 -3 -4 -1 -13
  Decrease (-) in the Deficit 0 0 -2 -63 -90 -110 -133 -159 -189 -213 -154 -959
Apply Caps to All Eligibility Categories, With Growth of Caps Based on the CPI-U Plus 1 Percentage Point  
  Change in Outlays 0 0 -2 -42 -64 -79 -96 -115 -139 -157 -108 -694
  Change in Revenuesb 0 0 * * -1 -1 -1 -2 -2 -3 -1 -10
  Decrease (-) in the Deficit 0 0 -2 -42 -63 -78 -95 -114 -136 -154 -107 -683
Apply Caps to Adult and Children Eligibility Categories Only, With Growth of Caps Based on the CPI-Uc  
  Change in Outlays 0 0 -2 -44 -61 -75 -90 -106 -125 -141 -108 -646
  Change in Revenuesb 0 0 * * * -1 -1 -1 -2 -2 -1 -10
  Decrease (-) in the Deficit 0 0 -2 -44 -61 -74 -89 -105 -123 -139 -106 -636
Apply Caps to Adult and Children Eligibility Categories Only, With Growth of Caps Based on the CPI-U Plus 1 Percentage Pointc  
  Change in Outlays 0 0 -2 -32 -47 -57 -69 -81 -96 -109 -81 -493
  Change in Revenuesb 0 0 * * -1 -1 -1 -1 -2 -2 -1 -8
  Decrease (-) in the Deficit 0 0 -2 -32 -46 -56 -67 -80 -95 -107 -80 -485
 

Data sources: Congressional Budget Office; staff of the Joint Committee on Taxation.
CPI-U = consumer price index for all urban consumers; * = between -$500 million and zero.
a. This approach would take effect in October 2023, although some changes to outlays and revenues would occur earlier.
b. Estimates include the effects on Social Security payroll tax receipts, which are classified as off-budget.
c. Excludes elderly and disabled people.
d. This approach would take effect in October 2024, although some changes to outlays and revenues would occur earlier.

Medicaid is a joint federal-state program that pays for health care services for low-income people in various demographic groups, chiefly families with dependent children, elderly people (people over the age of 65), nonelderly people with disabilities, and—at the discretion of individual states—other nonelderly adults whose family income is up to 138 percent of the federal poverty guidelines. Under current law, the federal and state governments share in the financing of Medicaid, and almost all federal funding is open-ended: If a state spends more because enrollment increases or costs per enrollee rise, larger federal payments are generated automatically. On average, the federal government pays about 65 percent of program costs, with the federal share ranging among states from 53 percent to 79 percent, reflecting variations in each state’s per capita income and its share of enrollees (if any) that became eligible for Medicaid as a result of the optional expansion under the Affordable Care Act (ACA).

This option includes two approaches to limit federal Medicaid spending. The first approach would establish overall caps that set a maximum amount of funding that the federal government would provide a state to operate Medicaid. The second approach would establish per-­enrollee caps with an upper limit on the amount a state could spend on care for each Medicaid enrollee with different limits set for different eligibility groups. For each approach, the Congressional Budget Office analyzed two alternatives to implement those caps: The first alternative would limit spending for all eligibility groups, and the second would limit spending for adults and children only (spending for elderly and disabled people would not be limited). Using 2019 as the base year, CBO then applied two different growth factors to the alternatives in each approach: the annual change in the consumer price index for all urban consumers (CPI-U) and the annual change in the CPI-U plus 1 percentage point. Both approaches would exclude Medicaid’s disproportionate share hospital payments to inpatient facilities that serve a higher percentage of Medicaid enrollees and uninsured patients, spending under the Vaccines for Children program, administrative spending, and assistance with Medicare cost sharing and premiums for those dually eligible for Medicaid and Medicare.

This option would affect more than just outlays for Medicaid. CBO estimates that the option would result in lower Medicaid enrollment; consequently, the option would also affect other types of mandatory spending and revenues as some of the people losing coverage would qualify for subsidies to buy coverage through the marketplaces established by the ACA, others would enroll in coverage through an employer, and others would become uninsured. Those effects are incorporated in the estimates for this option.