State officials warn of potential hundreds of millions in Medicaid losses if federal proposals advance

Montpelier — Agency of Human Services officials told a joint meeting of the House Committee on Human Services and the House Health Care Committee that a package of federal proposals under discussion in Washington could reduce Medicaid funding to Vermont by hundreds of millions of dollars and would force the state to choose among backfilling with state dollars, cutting provider rates, narrowing eligibility or trimming services.

"This represents $80,000,000 a year in federal funding to the state of Vermont," Ashley Berliner, director of Medicaid policy for the Agency of Human Services, said while outlining elements of the federal proposals. "We think it is very likely that this will go away," she said, referring to the risk to the enhanced federal match for the Affordable Care Act expansion group.

The potential losses are tied to several separate ideas being discussed in Congress or by federal agencies: rescinding the enhanced Medicaid match for the ACA expansion (the "new adult" group), changes to the FMAP formula, limits on provider taxes, work requirements, per-capita caps or block grants and the possible rescission or restriction of Section 1115 demonstration authority that now allows Vermont to operate many programs outside the traditional state plan.

Why it matters: Vermont's Medicaid program covers a large share of the state's health care spending and supports hospitals, home- and community-based services and mental-health programs. Federal Medicaid dollars are paired with state match and other financing mechanisms such as provider taxes; reductions in federal support would have immediate budget implications and likely programmatic effects, committee members were told.

Berliner and committee chairs said the agency is tracking proposals closely and coordinating with the state's congressional delegation and legal counsel. "We're trying to keep super close tabs on it," Berliner said, describing frequent conversations with federal contacts and other states. She told members the administration was modeling impacts and would provide more detailed numbers as information solidifies. "We will have more information, I think, later in April," she said.

Key figures and program risks noted in the presentation included:

- Loss of the enhanced FMAP for the ACA expansion (the "new adult" group) was estimated at about $80 million a year to Vermont if eliminated. Berliner said the enhanced FMAP is "very likely" to be targeted in current proposals.

- A change of 1 percentage point in FMAP was described as roughly $18 million to $19 million per year for Vermont; a multi-point change would scale proportionally.

- Limiting provider taxes (a federal proposal reportedly under discussion) and cutting a commonly used 6% cap to 3% was described as removing about $104 million a year in state match; Berliner said the gross effect if not backfilled would be roughly $252 million.

- Per-capita caps were described as potentially the most damaging over time; Berkeley cited external analyses that estimate about $1 billion in reduced federal funding for Vermont over 10 years if caps were implemented along the modeled lines.

- Section 1115 demonstration authority (referred to repeatedly in testimony as "11/15 waivers") currently supports about $320 million a year in federal funding for Vermont programs, Berliner said. She described it as a major component of the state's Medicaid financing and warned that rescinding or narrowing that authority could force dramatic program changes.

- The agency has budgeted roughly $35 million a year in the state's Medicaid budget-neutrality agreement for two new services authorized under recent waiver guidance (six months of rental assistance and medical respite), but Berliner said those services have not yet been implemented and no state match has been identified.

Committee members pressed the agency on what levers it would use if funding were reduced. Berliner listed the primary options the state could use to respond: backfilling with state-only dollars, reducing provider rates, narrowing eligibility and removing or reducing services. She emphasized that many core state-plan eligibility groups and mandatory benefits are protected by federal law and that some cuts would require legislative action.

"There's no direct programmatic impact as a result of losing the FMAP funding. However ... it's a loss of a huge amount of money to the state every year. And so that in and of itself would have programmatic impacts that would be decided within your body," Berliner said, describing the difference between fiscal effects and programmatic choices made at the state level.

Law and waiver authorities discussed included Section 1115 demonstration waivers, Section 1915 home- and community-based services authorities and the Social Security Act provisions that define mandatory and optional state-plan services and groups. Berliner said rescinding 1115 authority could be done administratively and did not necessarily require new legislation, and that the state's attorney general's office has been in contact with AHS on that possibility.

Representatives and committee chairs asked whether AHS had prioritized possible cuts and whether the state should prepare legislative contingency authority for out-of-session action. Berliner said the agency was beginning to model options and that legislators could expect more analysis in the coming weeks; she also confirmed the agency is coordinating with the governor's office and the attorney general's office and in frequent contact with the congressional delegation.

The presentation also flagged additional federal actions or proposals that could affect specific populations or programs, including proposals to limit work exemptions or to impose periodic eligibility renewals more frequently than the current 12-month period, possible federal restrictions on gender-affirming care for people under 19, and discussion early in the new Congress about whether states that use only state dollars to provide coverage to people without lawful presence could be penalized. Berliner said those topics were under close watch but were less certain in terms of immediate action.

Committee members and AHS staff said they have been participating in multi-state and federal discussions and forming contingency groups. Several legislators urged rapid, prioritized contingency planning, with attention to which programs are mandatory under federal law and which waiver-funded or optional services would be most vulnerable.

The agency did not present final budget models at the hearing and said it would provide more detailed financial modeling and scenario analysis as federal proposals clarified. There were no formal votes or directives recorded at the meeting; the discussion was framed as information-sharing and contingency planning.

The committees asked AHS to return with updated modeling and to continue coordinating with the attorney general's office and the governor's office on legal and budgetary responses as federal proposals evolve.