Trump's Tax Cuts and Proposals to Reduce Medicaid Spending: The Implications for Who Pays

American Eclectic posts articles twice a month, on the 1st and 15th. This is the third year of publication; previously published articles can be found on my site.

February 15, 2025

There is a moral to this story: There is no free lunch, and the only question is where you want to feel the financial pinch. Republicans in Congress, after meeting with President Trump, say they are getting closer to a deal to extend his tax cuts that were passed in his first term. The House Budget Committee recently voted to present a federal budget to cut taxes significantly and support those cuts with massive cuts to federal spending. The Tax Cuts and Jobs Act is set to expire this year. But beyond extending this act, Trump wants additional tax cuts such as eliminating the Social Security tax (which I addressed in an earlier article, “How Quickly Will Trump Lose His Popularity?”) and reducing the corporate tax from 21 percent to 15 percent. The Tax Cuts and Jobs Act originally cut the corporate tax from 35 percent to 21 percent (former President Joe Biden proposed raising this tax to 28 percent). The focus is not on the tax cuts but on a critical issue interrelated with the tax cuts: Medicaid. The budget proposal that recently passed the House Budget Committee would include cuts to Medicaid. The Concurrent Resolution passed by this committee refers to reducing mandatory spending by $2 trillion, but the wording gives the impression that there would be cuts beyond this amount. As the resolution states:

It is the goal of this concurrent resolution to reduce mandatory spending by $2 trillion over the budget window. If the combined deficit reduction provided by authorizing committees is below this target, it is the policy of the Committee on the Budget of the House that the instruction provided to the Committee on Ways and Means of the House should be reduced by a commensurate amount to offset the difference.

This may be a bit wordy, but the message is that if it is determined that more spending cuts are needed, if the cuts are insufficient to match the tax cuts, then spending cuts might be more than the $2 trillion figure. So, for now, the $2 trillion figure in proposed spending cuts seems arbitrary. The Senate Budget Committee also passed a budget proposal, but it looks more ambiguous about where spending cuts will be made to help pay for the tax cuts.

The issue of how to pay for the tax cuts is a big one, and Republicans in the House of Representatives (a faction of them) want to make drastic cuts to Medicaid to help cover the cost. Whether these debated cuts could come close to helping to offset the tax cuts is not what, I think, is the issue, but what drastic cuts would mean to you and your pocketbook. Republicans in the House suddenly started to realize that the cuts to Medicaid they had imagined were not enough to help offset the Trump tax cuts being considered, so more “politically difficult” cuts are being considered. As one report stated, “House GOP negotiators now believe they will have to dig deeper into Medicaid spending to meet those targets, including potentially cutting benefits for enrollees." One foolish individual on a Fox News show tried to paint Medicaid as filled with “fraud and abuse and misuse.” Representative Mike Johnson (R, LA), Speaker of the House, echoed this sentiment, stating, “If you eliminate fraud, waste, and abuse in Medicaid, you’ve got a huge amount of money that you can spend on real priorities for the country.”

Medicaid and CHIP (addressed below) cover 81 million Americans with 24 percent of them children and 18 percent seniors 65 and over, so fraud and waste no doubt exist and need to be eliminated. But it is often true that just throwing these words around as though they can quickly be addressed or that we should accept them as entirely accurate without seriously challenging what precisely the issues are and how the money will be saved is a more complicated issue. Often, quick sound bite quotes like the one Johnson made are simply that—sound bite quotes. Sometimes, waste in government spending can come down to subjective evaluation. For example, try to go after a military system being developed in a specific congressional district, and a Government Accountability Office (GAO) report has questioned whether it is the best use of tax dollars. The GAO lists five criteria to decide whether a government program is inefficient or wasteful:

1. Whether the necessary leadership is committed to improvement

2. Whether the agencies involved have the staffing and funding needed

3. Whether an action plan exists

4. Whether there is a program in place to monitor progress

5. Whether the people and agencies involved are demonstrating progress

These five criteria sound reasonable, but evaluating and determining whether there is waste or fraud is complicated. Simply saying off the top of your head that there is waste and fraud, so get rid of it sounds about as irresponsible as what Elon Musk and his team of kids are doing as they declare that they are eliminating waste and fraud.

Medicaid and Medicare are sometimes confused about which is which, which is understandable. Medicaid is a joint program run by the federal and state governments for low-income people, or sometimes, the term used is indigent care (70 percent of the money comes from the Federal government). Medicare is run solely by the federal government for people 65 and over. Sounds simple enough, but that is far from the situation.

Medicaid should be considered an umbrella with different programs under it. Under that umbrella, 12.5 million people are covered by both Medicare and Medicaid. Of these people, almost 75 percent receive full Medicaid benefits. Some 30 percent of the total Medicaid costs address this part of overall Medicaid spending.

One good thing for the federal budget is that seniors are retiring later. A Gallup survey in 2023 found that retiring later and working longer has been the trend. Some of this is related to the way Social Security works. You can start collecting at 62, but the longer you wait, the higher your monthly check. Collecting at 70 is required. I am sure that under consideration are proposals to raise the required age at which you must take Social Security to 72 or 73. Still, I am not sure that it would necessarily save any substantial amount of money for the federal government.

Seniors (65 and older) comprise 15 percent of the population, increasing to 21 percent by 2030. So, even if retiring later is suitable for the federal budget, the demographics work against expecting too much from this to offset the costs associated with Americans getting older.

We can assume that while there currently are 12.5 million seniors on Medicare and Medicaid together, that number will increase. In 2007, 1 in 5 households (ages 51-64) had a retirement account; today, it is 1 in 10. One of the reasons for extending retirement is undoubtedly related to this depressing figure.

This demographic time bomb shows that 8.9 percent of seniors were classified as living below the poverty level in 2020; today, it is 10.2 percent. In addition, when breaking senior poverty down into age categories, 10.4 percent of seniors between 65 and 69 are living below the poverty line, while 14.7 percent of seniors over 80 are in that predicament. Expect more seniors to fall into this category of being covered by both Medicaid and Medicare as more seniors retire and fall below the poverty line and as more Americans live longer and begin to see their financial status fall below the poverty line.

The demographic time bomb can be seen this year as the first baby boomers turn 80. Just as the number of seniors will increase as a percentage of the overall American population, the same will be confirmed with seniors needing long-term care (35 percent of Medicaid spending). Currently, 6.3 million seniors need long-term care (including Medicaid and everyone else), and by 2030, that will rise to 15-24 million (projections such as this are not easy to pin down). In 2018, long-term care costs were estimated at $849 billion; by 2030, the estimate is that it will be $2.5 trillion. There were 13 million seniors on Medicaid in 2020; by 2027, the figure is estimated to be 15 million. At present, 30 percent of Medicaid recipients receive long-term care. Even if the 30 percent figure remains the same over the next five years, the absolute number of long-term care Medicaid recipients and the costs of this care increase.

Medicaid also covers hospital bills for seniors (about 30 percent of Medicaid spending). Medicaid does not cover a full bill from a hospital but usually reimburses at 72 percent. My late wife was an OB/GYN, and while on the governing board of a medical society, she tried to encourage physicians to take more Medicaid patients—resistance to that idea was normal. If hospitals are not fully reimbursed for care, why do doctors want the same financial treatment from Medicaid that hospitals encounter? She proposed that the state government give tax credits to physicians to take on Medicaid patients, but that did not go well.

If Republicans get their way and significantly cut the federal government's share of Medicaid dollars, we might expect hospital reimbursement to decrease. If that happens, hospitals will shift some of the lost revenue to patients with insurance. Expect premiums on health care plans to go up. I went over the issue of shifting payment with the president of a hospital and the CEO of a health insurance plan. Those interviews were during the mid-1990s, and both saw that this was the normal course of action as Medicaid reimbursement went down. Money has to be found somewhere to cover costs, and the lucky winners are patients with health care insurance.

A report from 2005 quoted a Wal-Mart memo that addressed employees and their children on public assistance programs, including Medicaid. The memo stated:

We also have a significant number of Associates and their children who receive health insurance through public-assistance programs. Five percent of our Associates are on Medicaid compared to an average for national employers of 4 percent. Twenty-seven percent of Associates’ children are on such programs, compared to a national average of 22 percent (Exhibit 5). In total, 46 percent of Associates’ children are either on Medicaid or are uninsured.

The Children’s Health Insurance Program (CHIP) was created in 1997 and has a relationship to Medicaid. When Medicaid was enacted in 1965, children under 5 years old were covered. One study that explained CHIP stated:

CHIP was designed to cover children who fall outside of Medicaid eligibility, but who otherwise were not able to be insured through a family plan. This program vastly increased the number of children eligible for health insurance. However, CHIP is not governed by the same legislation as Medicaid and offers drastically different levels of coverage.

Wal-Mart has low-wage workers, and public assistance programs, including Medicaid, are estimated to help these people for $6.2 billion annually. Wal-Mart is one of many companies with employees and the children of employees receiving public assistance. I cannot find information on the children of Wal-Mart employees on Medicaid and CHIP; I assume they exist.

I include CHIP here and associate it with Medicaid because, like Medicaid, the federal government partially funds CHIP. If Trump and Republicans are looking at some substantial cuts to Medicaid, will the same happen with CHIP? Some of the reports about what Republicans might want to do is to create a block grant for the federal government's share of Medicaid spending. CHIP is already a block grant. Block grants have caps where a certain annual amount of money is allocated to the program, and when that cap is reached, states can deny coverage to people.

I expect television news to do a terrible job explaining the term block grants, even if it is briefly raised and explained. The federal government’s grants process—how money goes from the federal government to state and local governments is a complicated and difficult-to-understand process; block grants are simply one type of grant. People I know in local governments who have had to deal with federal grants have told me that they have had to become familiar with only one federal government department and the grants available through that department, such as the Department of Housing and Urban Development (HUD) or the Department of Health and Human Services and that can take up a lot of their time for them to understand and learn how to apply for specific grants.

One study by the Center on Budget and Policy Priorities pointed out that they examined 13 major federal government block grant programs between 2000-2017 and concluded that block grants are a way for the federal government to reduce federal government spending. This study stated, “All but one of these block grants have shrunk after adjusting for inflation and population growth.” A Republican Montana state senator understands the implications of Medicaid becoming a block grant. He stated:

If anybody hasn't been paying attention, things at the federal level have been changing awfully rapidly. It has even changed this discussion, because now what we're talking about is block grants for Medicaid. And if that happens, the block grant that will come to the state of Montana will be much reduced in funds – but also it will reduce the number of strings attached to those funds, so we as a state are going to have to figure out where our priorities lie.

If states are forced to remove people from Medicaid due to federal government cuts, this could lead to an increase in children on CHIP. But, since CHIP is already a block grant, states will more quickly reach the allocated cap. If care is needed for children and the number of uninsured increases, parents or guardians will use hospital emergency sites as their go-to physician. Costs associated with using emergency rooms are higher than those related to routine care (some dental issues can be addressed in a hospital ER, but not all). Here is another way to see hospitals shifting costs to patients with health insurance coverage.

Providing dental care to children can have positive benefits later in life. As one report stated:

The mouth serves as a gateway to the rest of the body. Healthcare professionals continue to uncover evidence supporting the oral-systemic link. Symptoms of various health issues, such as diabetes, cancer, and cardiovascular disease, can often be detected first in the mouth.

Specifically related to children and their teeth, emergency room visits for dental issues cost more than regular dentist visits. Another report emphasized the healthcare costs of poor dental care:

Failure to receive treatment may make necessary the provision of less definitive and more costly care. Individuals who lack a usual source for dental care may visit hospital emergency departments (EDs) to seek relief for dental pain and related conditions. The cost of dental-related visits to the ED is high, totaling more than $2 billion nationally in 2017.

I mentioned above that hospitals receive reimbursement from Medicaid, which is often for the care of patients who have no insurance, including Medicaid. Hospitals will perform uncompensated care, and within Medicaid, there is a program that addresses this: Disproportionate share of hospital payments (DSH, about 2 percent of overall Medicaid spending). As I pointed out above, Medicaid usually reimburses hospitals at 72 percent of the bill, which covers Medicaid patients. DSH addresses patients without insurance but can also reimburse hospitals for Medicaid care. A GAO report from 2019 noted that hospitals through DSH were reimbursed at 51 percent of billing. If Medicaid is made into a block grant, how will hospital reimbursements fare under such a program? We can assume that if reimbursements go down, the costs added to the care for patients with healthcare insurance will go up, and so will the premiums they pay.

After the passage of the Affordable Care Act (ACA), often referred to as Obamacare, states started to expand their healthcare coverage to include more uninsured people; most of this was done through Medicaid expansion. Trump has never been excited about Obamacare simply because it is tied to Barack Obama. Trump talked of doing something about healthcare as “concepts” (a word he used in his debate with Kamala Harris during the Presidential campaign). Making Medicaid into a block grant would probably lead to an increase in the number of uninsured and a regression away from the Medicaid expansion that has been underway. A 2012 Supreme Court case (National Federation of Independent Business v. Sebelius) put the brakes on Medicaid expansion in all 50 states. Ten states have not expanded Medicaid coverage, and while the national uninsured rate is at 7.7 percent, Texas has an uninsured rate of 17 percent (the worst among the 50 states), but Florida is at 11.2 percent. These are among the ten states that have not expanded Medicaid coverage. Medicaid as a block grant may increase the number of uninsured since once those caps are reached, what can states do but begin to throw caution to the wind and not provide healthcare to previously covered people? Nine states have trigger laws in effect that if there are cuts to Medicaid spending, they will remove more than 3 million people from their rolls. No doubt, the hospitals in their states are waiting to see what reimbursements they will get from the Medicaid DSH program before they start passing lost revenue costs onto patients with health insurance.

Medicaid is about 26-30 percent of a state government’s budget, rivaling education spending (K-12 and higher education), which is 28 percent. It would be difficult for states to make up the difference and find the money somewhere to cover what could be lost if the federal government cuts Medicaid spending and turns it into a block grant.

Republicans will try to present converting Medicaid into a block grant as the most incredible thing imaginable, but you should see it as putting lipstick on a pig. In addition, there will be a lot of hoopla about a work requirement for people on Medicaid, even though 92 percent of adults on Medicaid are working full-time or part-time. However, the theatrics of saying Republicans will push the importance of a work requirement will play well on all those talk radio shows that willingly repeat Republican lines. Tax cuts cost money, and the money has to come from somewhere. Soundbite television will not help people understand that this is an incredibly complex system, and trying to address a costly healthcare program by making changes to give Trump the tax cuts he wants will cause problems and lead to increased spending. Medicaid covers almost 1 in 5 Americans and more than 4 out of 10 births in this country (I still wonder if Representative Lauren Boebert’s grandchild, born after her then 17-year-old son got his girlfriend pregnant, benefitted from Medicaid). One analyst of Medicaid stated, “It's really the backbone of many aspects of our health care system.” Trump threw vague promises around during the campaign about reforming healthcare, but proposals to make Medicaid into a block grant with all the dire consequences that can follow are where we might be headed. Trump has said he will “love and cherish” Medicaid, but since I doubt he understands this program, I do not know what his use of love and cherish means. Enjoy your Trump tax cuts.

(I briefly address dental care as part of Medicaid but within it, there is the Early and Periodic Screening, Diagnostic and Treatment program, EPSDT, which accounts for 3 percent of Medicaid spending.)

NOTES

15 Diseases Caused by Poor Dental Hygiene, The American Academy for Oral & Systemic Health (2025): https://www.aaosh.org/connect/15-health-issues-caused-by-poor-oral-health

Jonathon Ambarian, “Senate votes down bill to begin phasing out Montana Medicaid expansion,” KTVH (February 11, 2025): https://www.ktvh.com/news/senate-votes-down-bill-to-begin-phasing-out-montana-medicaid-expansion

Richard Best, “Medicaid vs. CHIP: Understanding the Differences,” Investopedia (June 26, 2022): https://www.investopedia.com/articles/health-insurance/091016/medicaid-vs-chip-understanding-differences.asp

Collin Blinder and one other, “Elderly poverty statistics 2025,” Consumer Affairs, Journal of Consumer Research (February 20, 2024): https:// www.consumeraffairs.com/finance/elderly-poverty-statistics.html

Alice Burns, “What Does the Medicaid Eligibility Rule Mean for Low-Income Medicare Beneficiaries and the Medical Savings Programs (MSPs)?” KFF (November 1, 2023): https:// www.kff.org/medicaid/issue-brief/what-does-the-medicaid-eligibility-rule-mean-for-low-income-medicare-beneficiaries-and-the-medicare-savings-programs-msps/

Concurrent Resolution, Establishing the congressional budget for the United States Government for fiscal year 2025 and setting forth the appropriate budgetary levels for fiscal years 2026 through 2034.119th Congress, 1st Session: https://docs.house.gov/meetings/BU/BU00/20250213/117894/BILLS-119NAih.pdf

Congressional Research Service, Overview of the ACA Medicaid Expansion (June 9, 2021): https://crsreports.congress.gov/product/pdf/IF/IF10399

Janet Currie and Anna Chorniy, “Medicaid and Child Health Insurance Program Improve Child Health and Reduce Poverty But Face Threats,” NIH National Library of Medicine, National Center for Biotechnology Information (June 7, 2022): https://pmc.ncbi.nlm.nih.gov/articles/PMC9172269/

Arindrajit Dube, Ken Jacobs, and Steve Wertheim, Internal Wal-Mart Memo Validates Findings of UC Berkeley Study, University of California, Berkeley, Center for Labor Research and Education (October 26, 2005): https://laborcenter.berkeley.edu/pdf/2005/walmartmemo.pdf

Phil Galewitz, “9 states poised to end coverage for millions if Trump cuts Medicaid funding,” Stateline (December 5, 2024): https:// stateline.org/2024/12/05/9-states-poised-to-end-coverage-for-millions-if-trump-cuts-medicaid-funding/

Government Accountability Office, Older Workers: Retirement Account Disparities Have Increased by Income and Persisted by Race Over Time, GAO-23-105342 (July 23, 2023): https://www.gao.gov/products/gao-23-105342

Government Accountability Office, Medicaid: States’ Use and Distribution of Supplemental Payments to Hospitals, GAO-19-603 (July 2019): https://www.gao.gov/assets/gao-19-603.pdf#:~:text=The%20amount%20of%20DSH%20payments%20made%20to,least%2050%20percent%20of%20uncompensated%20care%20costs.

Sahil Kapur, Melanie Zanona, and Kyle Stewart, “House GOP releases budget calling for trillions in cuts to taxes and spending,” NBC News (February 12, 2025): https://www.nbcnews.com/politics/congress/house-gop-releases-budget-calling-trillions-cuts-taxes-spending-rcna191215

Jennifer Kusma, Jean Raphael, James Perrin, Mark Hudak, “Medicaid and the Children’s Health Insurance Program: Optimization to Promote Equity in Child and Young Adult Health,” Pediatrics, Vol. 152, Issue 5 (November 2023): https://publications.aap.org/pediatrics/article/152/5/e2023064088/194465/Medicaid-and-the-Children-s-Health-Insurance?autologincheck=redirected

Samantha Michaels, “Which Companies Have the Highest Number of Workers on Medicaid and Food Stamps,” Mother Jones (November 22, 2020): https://www.motherjones.com/food/2020/11/which-companies-have-the-highest-number-of-workers-on-medicaid-and-food-stamps/

Natasha Murphy, “Medicaid Block Grants and Per Capita Caps Jeopardize State Budgets, Health Care Access, and Public Health,” CAP (January 28, 2025): https://www.americanprogress.org/article/medicaid-block-grants-and-per-capita-caps-jeopardize-state-budgets-health-care-access-and-public-health/

Pamela Owens, Richard Manski, and Audrey Weiss, “Statistical Brief #280. Emergency Department Visits Involving Dental Conditions, 2018,” NIH, National Library of Medicine, National Center for Biotechnology Information (August 19, 2021): https://www.ncbi.nlm.nih.gov/books/NBK574495/

Brad Reed, “GOP mulls ‘politically difficult’ plan to take massive ax to Medicaid: report,” RawStory (February 10, 2025): https:// www.rawstory.com/amp/gop-mulls-politically-difficult-plan-to-take-massive-ax-to-medicaid-report-2671126120

David Reich, Isaac Shapiro, Chloe Cho, and Richard Kogan, “Block-Granting Low-Income Programs Leads to Large Funding Declines Over Time, History Show,” Center on Budget and Policy Priorities (February 22, 2017): https://www.cbpp.org/research/federal-budget/block-granting-low-income-programs-leads-to-large-funding-declines-over

Lori Robertson, “Trump’s Agenda: Taxes,” FactCheck.org (December 20, 2024): https:// www.factcheck.org/2024/12/trumps-agenda-taxes/

Leah Sarnoff, “Everything to know about Medicaid, the largest US public health insurance program,” ABC News (January 30, 2025): https://abcnews.go.com/Politics/medicaid-largest-us-public-health-insurance-program/story?id=118189440

Jennifer Tolbert, Sammy Cervantes, Robin Rudowitz, and Alice Burns, “Understanding the Intersection of Medicaid and Work: An Update,” KFF (February 4, 2025): https://www.kff.org/medicaid/issue-brief/understanding-the-intersection-of-medicaid-and-work-an-update/

Jonathan Vespa, “The Graying of America: More Older Adults Than Kids by 2035. The U.S. Joins Other Countries With Large Aging Populations,” United States Census Bureau (March 13, 2018): https:// www.census.gov/library/stories/2018/03/graying-america.html#:~:text=Starting%20in%202030%2C%20when%20all%20boomers%20will%20be,the%20country%20will%20add%20a%20half%20million%20centenarians.

Nathaniel Weixel, “GOP leaders downplay Medicaid cuts as they seek $2T in savings,” The Hill (February 2, 2025): https:// thehill.com/policy/healthcare/5139533-house-republicans-medicaid-cuts/

Which government programs does the Government Accountability Office consider inefficient? USAFACTS (December 5, 2024): https://usafacts.org/articles/which-government-programs-are-considered-wasteful-or-inefficient/