This year, many states’ budget negotiations are so challenging that several have made national news: from Alaska with its eleventh-hour showdown to Illinois – which just passed its first budget in over two years – to New Jersey with its closed beaches on July Fourth weekend.  Yet if Congress succeeds in passing its ACA repeal and replace legislation, these state budget negotiations would grow exponentially more challenging.  

Last month, the Congressional Budget Office released its score for the Senate’s Better Care Reconciliation Act (BCRA). CBO found that the proposed legislation would cut $772 billion from Medicaid – slashing its funding by 26 percent in 2026, compared to current projected funding. This alone would blow a hole in state budgets, likely leading states to cut essential programs and services for older adults, people with disabilities and children.

However, that is just the beginning of the bad news. Starting in 2020, the BCRA would cap the federal contribution to states’ Medicaid programs and force it to grow at a rate that is slower than per capita Medicaid costs. In 2025, the Senate’s bill would slow the rate of growth even further. These changes are particularly untenable because Medicaid costs already grow more slowly than those of private health insurance, but still above the rate proposed for 2025 and later.

To make matters worse, CBO’s score only accounted for the bill’s impact during the first ten years after passage. CBO later released an estimate of the bill’s impact during the second decade after passage, which found that by 2036 Medicaid funding would decrease by 35 percent.

Federal Medicaid funds help buoy states’ budgets and economies. For example, Medicaid employs hundreds of thousands of health care workers and provides billions of dollars to schools to ensure all students can fully participate in their education. If these draconian federal funding changes pass into law, states will need to figure out how to make up for the massive loss in the federal contributions proposed under the Senate’s bill.

In effect, these proposed changes to Medicaid financing will trigger a massive ‘race to the bottom’ among the states. Research shows that Medicaid spending varies widely not only among states and between categories, but also within categories. For example, Kaiser Family Foundation found that for children, Oklahoma spent as low as $131 per person up to as high as $24,571 in 2014.

A capped funding proposal will incentivize states to enact policies that increase enrollment by young healthy children and families while decreasing enrollment by older individuals or those with chronic conditions or disabilities. This ‘cherry-picking’ may lead to state policies that are particularly harmful to those who most benefit from access to Medicaid coverage. For example, a state might choose to end programs that place enrollment assisters at safety net hospitals or limit policies that permit presumptive eligibility for children and pregnant people. A state might also make it more difficult for those experiencing substance use issues to access care by limiting payments for mental health services or by decreasing provider payments for specialists.

With massive Medicaid cuts on the horizon, every state has a stake in the decisions Congress will make in the coming weeks. The Senate’s proposed Medicaid financing changes will only exacerbate the challenges states are currently facing as they struggle to balance their budgets.