A “Save Medicaid” sign is affixed to the podium for the House Democrats’ press event to oppose the Republicans’ budget on the House steps of the Capitol on Tuesday, February 25, 2024.
Bill Clark | Cq-roll Call, Inc. | Getty Images
House Republicans have called for about $880 billion in spending cuts over the next decade that may target Medicaid, a program that provides health care and other services to millions of Americans.
The budget resolution adopted by the chamber on Feb. 25 is aimed at implementing the cuts to help pay for renewing tax cuts expiring the end of this year. The House Energy and Commerce Committee is charged with finding the savings, and Medicaid is under its jurisdiction. Of note, the resolution doesn’t specifically single out Medicaid.
“It is very hard to imagine coming up with enough savings from what’s in their jurisdiction without a hefty cut to Medicaid, just given its size,” said Josh Bivens, chief economist at the Economic Policy Institute.
Republicans including House Speaker Mike Johnson have said they do not plan to cut Medicaid, in keeping with President Donald Trump’s promise not to touch the program.
Neither the White House nor the Energy and Commerce Committee were immediately available for comment.
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Cuts to Medicaid would impact more than 80 million people who rely on the program for health insurance every month, including many individuals who are middle class, as well as older adults who use it for long-term care benefits, Bivens said.
Because the program is the largest federal program for alleviating poverty, cutbacks would increase hardships for already struggling families, according to new research from the Economic Policy Institute.
Moreover, Medicaid cuts of that size would also make the U.S. more vulnerable to a recession, according to the research.
Cuts may have ‘noticeable effects’ on spending
Implementing Medicaid spending cuts to extend tax breaks from the Tax Cuts and Jobs Act would have “noticeable effects” on economywide spending, according to the Economic Policy Institute.
Republicans and Democrats have opposing views on what the impact of extending those cuts may be. While Democrats say renewing the policy would benefit the wealthiest Americans, Republicans contend it could create a windfall for low- and middle-income Americans. Research from the Penn Wharton Budget Model and the Urban Institute has found high-income taxpayers would benefit most.
High-income households would likely save the additional money they see from any tax cuts, and therefore not result in meaningful spending, the EPI predicts.
In contrast, individuals who are affected by the Medicaid cuts would reduce their medical spending, such as by skipping doctors’ visits, the EPI report found. For people with less generous Medicaid coverage, higher out-of-pocket costs would limit their ability to spend in other areas.
A dollar cut to Medicaid generally has a much bigger macro effect than a dollar cut to taxes for high-income people, Bivens said. Because Medicaid beneficiaries are so income constrained, every extra dollar of funding that goes to Medicaid frees up money they can spend elsewhere, he said. Medicaid cuts curb their ability to spend.
An $880 billion cut to Medicaid would prompt a 0.5% drag on economic growth, according to the Economic Policy Institute. That could nudge the unemployment rate up by about 0.3 percentage point, and leave about 550,000 people involuntarily without jobs.
To counteract the slower economic growth, the Federal Reserve could lower interest rates from about 4.25% to around 2.5%, according to the Economic Policy Institute. But that would limit the central bank’s ability to react to any other recessionary shocks that could come up.
Research from the Commonwealth Fund has found when Medicaid is expanded, additional federal funding can help promote stronger state economies. For states that implement expansions, that may boost state output, state gross products and personal incomes in those states, which also benefits the country at large, according to the research.