The Federal Government’s Role in Medicaid
Medicaid is one of the most famous examples of federalism in U.S. public policy. When it was created in 1965, the federal government set broad rules but gave the states significant discretion to administer the program within their own borders.
The federal government has always paid more than the states. This federal program, which Congress imposed on the states, relies crucially on federal funding, without which the states could not administer it in its current form.
The argument made in Congress that the states are not truly paying their share because they are pushing the costs onto the providers is fallacious. Both federal and state governments get revenue from a variety of taxes, including taxes on providers, in order to pay for Medicaid.
If taxes collected by the state do not count as state funds, what does? Putting aside these legal and ethical considerations, as a practical matter, it would be a double whammy to reduce the federal funds available for Medicaid and simultaneously to reduce the typical state funds available by limiting or eliminating taxes on providers.
People Insured by Medicaid
Injuries and sickness of over one-fifth of United States residents are treated through the health care provided by Medicaid, which is the nation’s largest public health program. Coverage reflects the U.S. income and ethnic makeups: 42 percent European American, 28 percent Latino, 19 percent African American, and 6 percent other ethnicities.
Coverage is austere because, nationally, Medicaid pays health providers only 72 percent as much as Medicare, and only 56 percent as much as private insurers for the same services.
Babies who are just entering the world and their mothers are the most frequent Medicaid patients admitted to hospitals making up 41 percent of all inpatients. Medicaid also pays for health care of 42 percent of U.S. children under 15.
Thirty-six percent of the total U.S. population with disabilities is covered by Medicaid. Medicaid also provides health care for 66 percent of the nation’s homeless residents, 54 percent of whom have disabilities.
Misery in the lives of homeless individuals spills over into the communities where they live, where the public is often exposed to their distress. Deprivation of health care through Medicaid cuts will not solve homelessness. It will make homelessness more frequent, desperate and publicly disruptive.
Another barrier is that many employers do not provide health insurance. Their employees depend on Medicaid for health care. This job deficiency affects a fifth to a quarter of workers in many low-wage industries.
Medicaid cutbacks would increase medical debt among individuals who need hospital care but no longer have hospital coverage. Medical debt is a significant factor contributing to homelessness and can prolong the time individuals experience homelessness. It can lead to financial instability, making it difficult to afford housing, and can also negatively impact credit scores, hindering access to rental housing.
Only five percent of working-age Medicaid recipients do not work, engage in child or family member care, or have a disability. The proposed mandate in the pending federal budget bill requiring able-bodied adults to report at least 80 hours a month of community engagement such as employment, volunteer work or school would affect very few, yet impose a large government administrative burden to verify employment.
Health Needs of Medicaid Recipients
Nine percent of Medicaid infants are diagnosed with a medical disorder, including respiratory and digestive disorders that may become chronic, life-altering disorders without adequate medical treatment if Medicaid is unavailable.
Medicaid is the largest payer for 16 out of 18 types of body system distress that bring patients into hospital emergency departments. Foremost among the urgent health care needs are perinatal conditions (the period beginning with pregnancy and continuing one year after birth), pregnancy complications and respiratory problems.
Mental disorders are the primary problem resulting in hospital encounters by homeless individuals. Reduced access to Medicaid for homeless individuals would increase the number of individuals with severe psychoses living on the streets and be tragic for the already dispossessed population that does not have a place of their own to sleep.
Economic Shrinkage from Medicaid Cutbacks
Medicaid paid for $835 billion in U.S. health care costs in 2023. Payments to upstream suppliers are embedded in payments to health care industries. Over half of the value provided by the health care sector comes from industry supplier chains. Cutbacks in the primary industries will cascade down to their suppliers, along with local providers and hospitals.
Medicaid expenditures have a multiplier impact in the economy, more than doubling the size of expenditures by the direct providers who receive the funds.
The total number of jobs created equals 202 percent of the direct employment by Medicaid providers. The total economic output equals 220 percent of the economic output by Medicaid providers.
The additional economic stimulus comes from the multiplier effects of increased production in the supplier chain and increased wages and consumer spending power for employees.
Reduced spending would have the same multiplier reduction in shrinking the economy.
A 12 percent reduction in federal Medicaid funding would result in $220 billion dollars in annual economic shrinkage throughout the United States. This represents $701 annual shrinkage in the economy for each resident of the United States.
The Role of Medi-Cal in Hospital Finances
Many hospitals across the United States are struggling to maintain solvency. In 2019, researchers estimated that 28 percent of U.S. hospitals experienced serious financial distress.
Medicaid is an essential lifeline for these hospitals’ finances. It bolsters their ability to fulfill a unique societal mandate: the necessity to treat low-income patients who may not be able to pay their bills on time or at all. Too much uncompensated care or overdue patient debt can drain a hospital’s available cash and lead to failure.
The hospital system extends far beyond the strict definition of “hospital.” In many communities, there are no hospitals, but there are other health care facilities that received reimbursement funds via Medicaid. The losses that the system would incur if Medicaid funding were reduced extend to a wide range of often scarce facilities.
Emergency care and small rural hospitals and communities would be significantly impacted by the pending budget bill. Hospitals and nursing facilities are primarily concentrated in large metropolitan areas. Rural communities are more likely to be served by critical access hospitals and rural health clinics.
Access to these facilities becomes more limited in rural areas where it is not uncommon to drive 50 or 60 miles without encountering a single health care facility. Although these regions are more sparsely populated, they are not unpopulated. These residents do not have easy access to health care—and the ones who do live near a health care facility would lose access if this singular institution happened to go out of business.
Skilled nursing facilities have the most beds—more than double the number of beds available in general acute care hospitals. These facilities can serve many patient needs, but there are many treatments they are not able to provide. More specialized facilities—like renal transplant, acute respiratory care, and pediatric intensive care units (ICUs)—are rare and under-resourced.
This inequality is likely to grow in the wake of Medicaid cuts for the following two reasons: (a) a hospital bankruptcy would reduce somewhat reduce the capacity in metropolitan areas, but it would completely eliminate all bed capacity in counties with only one hospital; and (b) bankruptcies are more likely in locations where hospitals are already operating on thin margins, which tends to be rural counties.
According to the World Bank, per 1,000 residents, the United States has 2.7 beds, ,the European Union has 5.3 beds, Central Europe and the Baltics have 6.4 beds, Japan has 12.7 beds, and South Korea has 12.8 beds.
The Projected Impact of Medicaid Changes on Redetermination Processing and Churn
Administrative burdens plague Medicaid. Those burdens are likely to worsen due to federal funding cuts. “Redeterminations” is the process for reviewing the annual renewal requests of Medicaid enrollees. The recent surge in disenrollment after the end of the COVID-19 public health emergency offers lessons for future cuts. The “churn” of enrollees who leave the program and return within a 12-month period creates turnover inefficiencies and costs. Federal support should minimize rather than increase these costs.
A survey of Medicaid enrollees to understand their experience with the paperwork identified five problems that were barriers to maintaining enrollment: obtaining the right paperwork, lack of information about how to renew enrollment, lack of assistance from government agencies, lack of understanding of the consequences if they did not fill out the renewal form, and glitches in online renewal systems.
The proposed work requirements are likely to force millions of eligible individuals into confusion and uncertainty, trying to navigate another round of renewal paperwork with limited assistance. Tragically, the people who will be impacted the most are the ones who already experience disproportionately poor access to health care in the United States — namely, residents of color, residents facing language barriers, and other socioeconomically marginalized groups. The subgroup at the highest risk of churn is children.
The U.S. House of Representatives bill threatens to eliminate most retroactive by reducing the retroactive eligibility period from three months to one month. The lessons from the frequent breaks that occur in Medicaid coverage indicate that the most vulnerable members of society are most likely to experience these cuts because they are the ones who struggle the most to renew their coverage, leaving them in the limbo of churning eligibility.
News Coverage
Up to 210K LA County residents could lose food benefits under new federal law
By Larry Buhl, LA Public Press (July 15, 2025)
白卡聯邦撥款削減 波及21%美國人
By World Journal (June 30, 2025)
Proposed cuts to Medicaid would affect 2.9 million Angelenos
By Frank Stoltze, LAist (June 27, 2025)
