COUNCIL OF ECONOMIC ADVISERS
July 11, 2017
TO:
SUBJECT:
•

BRIAN BLASE, NATIONAL ECONOMIC COUNCIL
Medicaid Savings

The Congressional Budget Office (CBO) estimates the Senate’s proposed Better Care
Reconciliation Act (BCRA) results in 12 million fewer Medicaid enrollees by 2026 due to the
repeal of the individual mandate and additional States not adopting the Affordable Care
Act (ACA) Medicaid expansion.1 CEA estimates that these two provisions alone would
reduce Federal expenditures by $459 billion over the next 10 years.2 BCRA also generates
meaningful Federal Medicaid cost savings by reducing the Federal reimbursement rates to States
for newly eligible adults and by imposing a per-capita cap on Federal expenditures to the States
for Medicaid costs or block granting the funds.3
o BCRA removes tax penalties imposed by the ACA on individuals who do not obtain
health insurance, commonly referred to as the individual mandate. According to CBO,
removing the individual mandate reduces the insured Medicaid population by 4 million
people in 2018 and an additional 3 million people by 2026 due to individuals choosing
not to have health insurance. This results in $289 billion in savings over the next 10 years
(chart below depicts annual savings).4
o BCRA prevents States that have not already adopted ACA Medicaid expansion from
receiving enhanced Federal funding if expanding Medicaid to new populations (States
are exempt if they already expanded). This results in 5 million fewer people enrolling in
Medicaid by 2026 and a savings of $170 billion over the next 10 years (chart below
depicts annual savings).5
Bi l lions of Dollars, Fiscal Years

Federal Medicaid Cost Savings

180
Individual Mandate
150

States Not Expanding
Other

120

90

60

30

0
2017

*
* 2019

2018

2020

2021

2022

2023

2024

2025

2026

Source: CMS 2016 Actuarial Report, CBO, CEA calculations.
* Note: The 2018 and 2019 savings take CBO projections as given and mayinclude small effects of States not expanding.

1

For our analysis, we are taking this estimate of the reduction in enrollment as given.
The data and projections in this memo are taken from the CBO cost estimate of the BCRA published on June 26, 2017, the 2016
Actuarial Reports produced by the CMS, and the CBO projections of the individual mandate published in December 2016, located at
https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/52142-budgetoptions2.pdf.
3 In this memo, we define costs as the Medical Assistance Payments (MAP). MAP accounts for approximately 95% of Medicaid
expenditures. It excludes administrative payments, the Vaccines for Children Program, and collections.
4 The CBO report does not provide information on States not expanding prior to 2020. It is likely that a small amount of the savings
value calculated for the individual mandate in 2018 and 2019 should be attributed to States not expanding.
5 See footnote 4.
2

 o The rest of the Medicaid savings, estimated by CEA to be $313 billion, primarily comes
from two other sources. ACA promised Federal reimbursement rates to States for newly
eligible adults on Medicaid greater than those of other enrollment groups on Medicaid.
BCRA begins to reduce this higher reimbursement rate in 2021, matching that of other
enrollment groups by 2024. Finally, BCRA limits the currently open-ended Federal
funding to States’ Medicaid programs promised by setting, for each State, per-capita caps
on Medicaid expenditures.6

6

Alternatively, States can apply for a block grant from the Federal government for their Medicaid expenditures instead of receiving
reimbursements subject to the per-capita caps. The methods to devise the per-capita caps and grants are beyond the scope of this memo.