Analysts Warn Federal Medicaid Changes Could Force Large State Budget Cuts

Anne Braun, an analyst with the Department of Legislative Services, told the Appropriations Committee that several federal policy options under discussion could substantially change how Medicaid is funded and administered and that the effect on Maryland’s budget is uncertain.

“These are possible changes that might be made, but the effect on Maryland is still very uncertain,” Braun said, emphasizing the figures in her presentation were estimates rather than predictions.

Braun gave a quick primer on Medicaid’s financing and use in Maryland: Medicaid is a joint federal–state entitlement; the state typically receives a roughly 50 percent federal match for Medicaid spending but some programs receive higher rates. She said Maryland’s Medicaid enrollment was 1.35 million people as of December 2024, including about 500,000 children. The Maryland Children’s Health Program had about 185,000 enrollees as of December 2024 and, she said, receives a roughly 65 percent federal match for those costs.

Braun outlined four categories of potential federal changes and the state budget risks they would create: a move from the current federal reimbursement model to a block grant or per capita cap, reductions or eliminations of enhanced matching funds, changes that narrow eligible groups, and changes to program operations such as work requirements or more frequent eligibility checks.

On the first item, Braun said past national analyses suggest a block grant or per-person cap would likely reduce federal funding over time and might not respond to inflation or enrollment spikes. On enhanced matches, she noted Medicaid expansion under the Affordable Care Act currently receives a 90 percent federal match for expansion-related spending; the expansion group covered about 370,000 people in Maryland as of December 2024. Braun said that if the federal match for that expansion group were cut from 90 percent to 50 percent, Maryland would have to “backfill over $1,000,000,000 in federal support” to continue covering the same people; if the federal match were removed entirely she said the state would need to cover “over $2,300,000,000.”

Braun also identified specific eligibility groups that could be affected by federal legislative changes. Using the DLS baseline she said the state would expect about $110,000,000 in federal funds in fiscal 2026 to cover non‑citizen pregnant women in the state’s healthy babies initiative, and about $97,000,000 in federal support for emergency medical services for undocumented immigrants; she said those amounts would become state general fund obligations if federal funds were prohibited for those groups.

Operational changes could also affect state costs. Braun noted a Congressional Budget Office estimate that work requirements could reduce state enrollment by about 3.5 percent and that Maryland’s approximate budget effect of such a reduction would be roughly $100,000,000 in total funds, though she added additional administrative costs for compliance would offset some savings. She also said more frequent eligibility redeterminations could increase disenrollments but would raise state administrative costs.

Committee members asked for follow-up. One committee member requested a list of Maryland’s Medicaid waivers; Braun said she did not have the waiver count at the table and would follow up with a list. Chair Barnes and committee members repeatedly stressed that the presentation was illustrative of risks and asked DLS to supply additional detail and documentation for members.

Ending

Braun concluded by noting the uncertainty of federal policy: many of the changes discussed have been proposed or written about but there were no formal federal announcements at the time of the briefing. She said DLS would provide additional information to the committee on waivers and other specific exposures.