by Joel Miller
Immediate Past Chair
National Coalition on Mental Health and Aging
March 27, 2025
Executive Summary
Recently approved Congressional budget reconciliation resolutions propose sweeping cuts to entitlement programs across federal agencies. Most concerning is the $880 billion spending reduction mandate directed at the House Energy and Commerce Committee. According to Congressional Budget Office analysis, implementing these cuts would necessitate dramatic reductions in Medicaid funding, potentially eliminating health insurance coverage for millions of beneficiaries, including vulnerable dual-eligible individuals who qualify for both Medicare and Medicaid. If enacted, these reductions would severely undermine Medicaid’s foundational mission of providing essential health care and mental health services to America’s most vulnerable populations, including older adults with mental health conditions and individuals with disabilities. Several approaches – including block grants — are under consideration to reduce Medicaid spending.
BACKGROUND
As of October 2024, Medicaid covered 72,100,00 people in the United States. Medicaid is the largest source of health coverage in the country, providing health care, mental health, and long-term care services to lower-income people. 1
- Medicaid is the largest funder of mental health services and substance use treatments.
- Medicaid provides coverage for a wide range of services, including therapy, long-term support, and medication.
- Medicaid’s coverage is particularly important for people with more serious mental health conditions and/or substance use disorders (SUDs).
POTENTIAL ACTIONS IN 2025
The Trump administration and congressional Republicans are signaling plans for dramatic cuts to federal health care spending, with Medicaid as the primary target. Proposed reductions in Medicaid funding would fundamentally transform the program from an entitlement to a welfare system, representing a nearly irreversible shift in health care policy.
Critics argue that such dramatic cuts would effectively dismantle the program’s ability to provide meaningful, affordable health care and mental health access to millions of America’s most vulnerable citizens.
Congressional Republican lawmakers are looking at several policy levers to reduce the size of Medicaid:
Transforming the Program to a Block Grant System
The proposed shift to a block grant system would fundamentally change how Medicaid is funded, replacing the current unlimited federal matching program with fixed annual payments to states. Under the existing system, the federal government matches state Medicaid spending without any cap, but the new proposal would instead provide states with a predetermined amount based on their enrollment numbers.
Cutting Medicaid Expansion Funding
Under the Affordable Care Act’s Medicaid expansion, coverage was extended to Americans earning up to 138% of the federal poverty level (approximately $20,800 for individuals last year). This expansion, now adopted by 40 states and Washington, D.C., receives generous federal support, with the government covering 90% of costs for the expansion population. However, Congressional Republicans are considering reducing this federal contribution to match the standard Medicaid federal funding rate of about 60%.
Reducing Medicaid Federal Matching Funds
Medicaid’s federal funding structure has historically operated on a sliding scale tied to state wealth, providing higher match rates to states with lower per-capita incomes while guaranteeing all states at least a 50% federal match. Currently, ten states receive this minimum matching rate. In a significant potential policy shift, Republican policymakers are now considering reducing this base federal match rate to 40% or lower, which would substantially decrease federal Medicaid funding for these states.
Proposed cuts to what is known as the “Federal Medical Assistance Percentage (FMAP)” also would have far-reaching consequences for both states and Medicaid beneficiaries. Nine states have established “trigger laws” that will automatically terminate their Medicaid expansion programs if federal funding drops below 90%, potentially stripping coverage for over 3 million Americans.
Adding Medicaid Beneficiary Work Requirements
Republican lawmakers are considering reviving work requirements for the program. Republicans advocate for these requirements that implementing strict work requirements could generate significant cost savings. However, critics challenge this assertion, pointing out that most Medicaid recipients are already employed, pursuing education, or serving as caregivers. They argue that adding work requirements would merely create unnecessary administrative barriers to health care access without meaningfully affecting employment rates among beneficiaries.
Imposing Onerous Enrollment Hurdles
Currently, approximately 10 states implement a continuous eligibility policy that allows certain Medicaid beneficiaries to maintain their coverage for multiple years without renewal requirements. This approach has proven effective in preventing coverage gaps that typically occur when beneficiaries face temporary hardships or struggle with paperwork requirements, situations that often result in unexpected medical bills and personal debt. However, the administration is considering eliminating the waivers that enable states to offer this multiyear continuous coverage, instead requiring all beneficiaries to undergo annual complicated reapplication processes.
Eliminating Health Care Provider Taxes
States currently employ health care provider taxes as a crucial mechanism to fund their portion of Medicaid expenses. Most states utilize this financing tool, often redirecting the tax revenue to increase Medicaid reimbursement rates for the same provider groups who pay the tax. The Congressional Budget Office suggests that limiting or eliminating these provider taxes would reduce both state and federal Medicaid spending, as federal contributions are proportional to state expenditures.
POTENTIAL IMPACT OF CHANGES ON BENEFICIARIES
While the full impact of proposed Medicaid changes remains uncertain, significant coverage losses appear inevitable. Several vulnerable groups face particular risk, including individuals who struggle with the proposed monthly work-reporting requirements and complex verification systems. Others likely to lose coverage include those unable to successfully navigate periodic exemption processes, as well as individuals experiencing temporary unemployment or job loss. Many clients will lose Medicaid coverage due to cuts and work requirements. Decreased coverage often leads to interrupted treatment plans. Those who remain eligible will likely face higher copays or reduced benefits.
Potential impacts on older adults with mental health conditions include:
Reduced funding for mental health services: Since Medicaid is the largest funder of mental health services and substance use treatments in the country, cuts would directly reduce the financial resources available to providers serving vulnerable populations.
Increased administrative burdens: Proposed changes like work requirements, complex verification systems, and more frequent eligibility redeterminations would create significant administrative challenges for agencies that help older adults and those with mental health conditions navigate health care systems.
Coverage disruptions: Many clients would lose Medicaid coverage due to cuts and new requirements, leading to interrupted treatment plans, particularly problematic for those with chronic mental health conditions requiring consistent care.
Higher financial barriers for remaining beneficiaries: Those who maintain eligibility would likely face higher copays or reduced benefits, creating additional access barriers for fixed-income older adults.
Potential closure of specialized practices: Mental health providers serving predominantly low-income populations would face revenue reductions, potentially forcing some to close, especially problematic in already underserved areas.
State funding challenges: Block grants or reduced federal matching rates would shift costs to states, likely resulting in further service reductions as states struggle to make up funding gaps.
Advocacy challenges: Organizations representing older adults with mental health needs would face increasingly complex systems to navigate when helping their constituencies.
Particular vulnerability of dual-eligible populations: Older adults who qualify for both Medicare and Medicaid (often those with the most complex needs) would be especially vulnerable to coverage disruptions.
CBPP analysis suggests that approximately 36 million current Medicaid beneficiaries across all states face a potential loss of their health care coverage under these various reform proposals under consideration by Congressional Republicans. That means millions losing their mental health benefits.
POTENTIAL IMPACTS OF MEDICAID CUTS ON MENTAL HEALTH AND AGING AGENCIES
Medicaid cuts would have several significant impacts on mental health providers, aging agencies, and groups representing older adults with mental health conditions:
Key impacts on mental health and aging groups include:
Reduced Operational Funding: State agencies/coalitions may face significant budget shortfalls affecting core operations and advocacy work
Diminished Coordination Capacity: Less ability to coordinate services across multiple providers and regions within states
Limited Policy Influence: Weakened capacity to influence state and local mental health policies
Program Consolidation: Forced elimination or merging of specialized programs as resources contract
Data Collection Challenges: Reduced ability to track outcomes and demonstrate program effectivenessTraining Cutbacks: Fewer professional development opportunities and affiliated providers
Strained State-Federal Partnerships: Increased tension between state needs and federal funding priorities
Grant Competition Intensification: More aggressive competition for remaining funding sources
Workforce Retention Issues: Difficulty maintaining qualified staff amid funding uncertainty
Innovation Suppression: Less capacity to develop and implement new service delivery models
Advocacy Resource Depletion: Reduced ability to mobilize grassroots support for critical policy initiatives
Cross-Sector Collaboration Reduction: Decreased partnership opportunities with healthcare, housing, and education sectors
The combined effect would likely be a significant reduction in access to mental health services for older adults who depend on Medicaid, creating both immediate care disruptions and longer-term strain on the mental health infrastructure serving these populations.
NEXT STEPS AND ADVOCACY
NCMHA will closely monitor the reconciliation budget process that Congress will take over the next few months to consider Medicaid cuts and other actions, such as potentially repealing portions of the Affordable Care Act (ACA). We will alert you to advocacy opportunities through action alerts and talking points.