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The $834 billion cut in federal Medicaid spending in the American Health Care Act would kick off budget battles in the states that go way beyond Medicaid. We could see cuts to higher education, school funding, corrections, environmental protection or other state priorities — or new taxes, depending on the state.

Expand chart
Data: HMA, based on CMS 2017 projections, CBO Medicaid Baseline and CBO letter to House Speaker Ryan; Chart: Andrew Witherspoon / Axios

The bottom line: What began as a Medicaid spending reduction in Congress will end up as a battle of budget priorities.

A new analysis from long time state Medicaid expert Vern Smith at HMA suggests why. To offset the $834 billion in reductions in federal Medicaid spending in the AHCA, states would need to increase their own general fund spending by an average of one third beginning in 2022, and 37% in 2026. States will have to decide whether to eat the reductions and cut their Medicaid programs, raise taxes, or cut spending for other state priorities, or to do some combination of these things.

In the short term, most of the reductions come from curtailing the ACA's Medicaid expansion, and the 31 states plus the District of Columbia that have expanded will be the most affected.

The problem: It's possible that with more flexibility, states could absorb some of the reductions by operating their Medicaid programs more efficiently, but only at the margins.

Medicaid spending is already growing more slowly than Medicare and private insurance on a per capita basis. Virtually all states have already picked the low hanging fruit to rein in their Medicaid costs, and most have already deployed the full spectrum of delivery and payment reforms currently in the arsenal to control spending growth.

Cutting payments to providers is always the Medicaid cut of first resort, but payments to providers are already too low in many states to cut them further.

What to watch: The need to absorb large reductions in Medicaid will pit cabinet agencies, legislative committees and interest groups against one another in some states. Nothing receives more attention from governors, legislators and interest groups than the size of the annual increase in the state general fund and how the increase is divided each year.

The amount of the annual increase that goes to Medicaid is already a sore point in state budgets. Now the annual budget dance will start with a big hole to fill in Medicaid.

It does not seem to have dawned on folks with an interest in state funding for higher education, or corrections, or schools, or environmental protection that the debate about Medicaid could soon become a debate about their issues. But Medicaid is the largest source of federal revenues states receive, and once the proposed reductions trickle down to state budgets, it won't only be a Medicaid debate any longer.

Go deeper

Updated 2 hours ago - World

Pentagon: 8,500 troops on high alert for possible deployment to eastern Europe

Photo: Anna Moneymaker/Getty Images

Defense Secretary Lloyd Austin has placed 8,500 U.S. troops on "heightened preparedness to deploy" to eastern Europe in case NATO activates its rapid-response force over tensions with Russia, the Pentagon announced Monday.

Why it matters: No decisions have been made to actually deploy U.S. forces, but the heightened alert level will allow the military to rapidly shore up NATO's eastern flank in the event that Russia invades Ukraine. The Pentagon warned that Russia has shown "no signs of de-escalating," and continues to amass troops on Ukraine's borders.

Updated 2 hours ago - Politics & Policy

Biden calls Fox News reporter a "stupid son of a b---h" on hot mic

President Biden blasted Fox News' Peter Doocy on Monday after the reporter asked if the nation's soaring inflation is a political liability, saying, "what a stupid son of a b----h."

The latest: The president called Doocy Monday evening, the reporter told Fox's Sean Hannity. "He cleared the air and I appreciated it. We had a nice call," Doocy said when asked whether the president apologized, adding: "I don't need anyone to apologize to me."

Updated 3 hours ago - Politics & Policy

Omicron dashboard

Illustration: Shoshana Gordon/Axios

  1. Health: Fauci: "Confident" Omicron cases will peak in February.
  2. Vaccines: The shifting definition of fully vaccinated.
  3. Politics: New York Supreme Court strikes down Gov. Hochul's mask mandate for public areas — Sarah Palin tests positive for COVID, delaying defamation trial — Virginia school boards sue Gov. Youngkin for lifting mask mandate.
  4. World: U.K. to lift travel testing requirement for fully vaccinated — Beijing Olympic Committee lowers testing threshold ahead of Games.
  5. Variant tracker