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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

Trump's Republican critics rake in cash

Reps. Liz Cheney and Adam Kinzinger during the first Jan. 6 hearing. Photo: Andrew Harnik-Pool/Getty Images

Republican critics of Donald Trump have raked in campaign cash this year as their votes to impeach the former president and investigate the Jan. 6 Capitol attack have put them in the crosshairs of Trump and his allies.

Why it matters: The 2022 midterms won't just determine which party controls Congress. They're also shaping up to be a test of Trump's continued hold on the GOP. The few remaining Republican dissenters in Washington need to put up big fundraising numbers if they hope to stave off a purge.

The Republicans' mixed mandate message

Illustration: Annelise Capossela/Axios

Republicans have expressed selective rage amid the rise of the Delta variant: They rail against the return of indoor masking but are far less vocal about vaccine requirements.

Why it matters: Masking may help reduce the spread of the coronavirus, but the real solution to the pandemic is getting more Americans vaccinated. Increased support for that — including the use of heavier-handed methods like mandates — will only increase its chance of succeeding.

Mitch’s Sinema secret

Sen. Kyrsten Sinema. Photo: Stefani Reynolds/Bloomberg via Getty Images

Senate Minority Leader Mitch McConnell (R-Ky.) is urging his fellow Republicans to buck up Sen. Kyrsten Sinema of Arizona — a Democrat, sources familiar with the conversations tell Axios.

Why it matters: Republicans view Sinema and her moderate Democratic colleague Sen. Joe Manchin of West Virginia as their last line of defense against sweeping progressive laws — ranging from a $3.5 trillion social welfare bill to potentially irreversible structural changes like eliminating the filibuster and adding new states to the union.