Eric Gay/AP Photo
Protesters demonstrate in support of Medicaid, July 6, 2017, in San Antonio, Texas, during Donald Trump’s first term.
When the Office of Management and Budget (OMB) issued its memo last week demanding a pause to all federal grants and loans, it very explicitly exempted Social Security and Medicare. It also said “mandatory programs” like Medicaid would not be affected. But when Medicaid portals that state entities depend on for access to federal funds suddenly seized up, everyone from state officials to nonprofit social sector providers panicked.
Suddenly, nursing home operators could not receive health care data updates. Hospitals could not be sure of reimbursement for patient care. And the system was on the verge of breaking down. Lawsuits flew, which would eventually lead to two restraining orders and a rescinding of the memo from OMB.
The White House claimed “an outage” unrelated to the payment freeze rendered Medicaid portals inaccessible, with the inference that they never intended to attack it. But on Wednesday, The Wall Street Journal reported that the next target for what has become a coordinated assault on the nation’s fiscal plumbing is the Centers for Medicare & Medicaid Services (CMS), the $1.5 trillion heart of the national health care system. Elon Musk’s “government efficiency” team has settled in to examine the agency’s contracts for evidence of the elusive standbys of “fraud or waste.” The DOGE team has not gained access to Medicaid and Medicare personal information “yet,” according to the Journal.
The cruel joke here is that we already know the primary source of fraud in the health care system: the overpayments to Medicare Advantage, the privatization of Medicare. A report last year from the Medicare Payment Advisory Commission found $83 billion in overpayments just in 2024. But that’s not what Musk and his pals are looking for.
State officials are rightly anxious about the threats to Medicaid, the 60-year-old anti-poverty program whose evisceration has been a Republican Party obsession since the 1980s. The program, which served over 72 million Americans as of last October, is by far the largest component of state budgets.
The current GOP goal, already enunciated for this Congress, is establishing Medicaid spending caps, which if successful would free up the dollars to pay for expiring 2017 tax cuts. Considering the inability of congressional Republicans to reach any kind of consensus so far, that remains a big if.
But the DOGE team’s poking around at CMS is something different. They could in theory disrupt or disable payments to states they think are applying the program improperly, or even toss out individual claims based on conspiratorial claims of fraud. This is powerful leverage to get states to comply with additional rules or risk lower matching funds.
Medicaid caps by themselves would be catastrophic; a compliance regime would be worse. No state in America, not even behemoths like California, Texas, and Florida, can fill the fiscal holes left by the sudden disappearance of billions of dollars in federal reimbursements and grants.
Medicaid caps by themselves would be catastrophic; a compliance regime would be worse.
Though entitlement programs like Medicare and Social Security have long been the third rail—weaponizing seniors who vote in high numbers traditionally hasn’t been smart politics—Medicaid is another issue. Medicaid is a federal entitlement, too, paid for by the states and Washington; anyone who is eligible under state rules, including poor families and individuals, pregnant women, seniors, and people with disabilities, can participate.
But most Medicaid enrollees are Black, Latino, or Native American, that is, poor people of color. As a result, the program has never enjoyed the same level of popular support that seniors have. What is missed in the selective demonization of poverty is that most Medicaid dollars go to nursing home care; to middle-class (on paper) people suffering the indignities of a Medicaid “spend-down,” having to voluntarily impoverish themselves to become eligible for Medicaid reimbursements of their exorbitant nursing home bills.
House Republicans want to see trillions of dollars in Medicaid cuts by converting a program that sends percentages of overall program spending to states to a program that sends a fixed block grant payment based on a per-enrollee formula, regardless of changes in the real world. The GOP tends to use the word “cap” in this instance, rather than the more draconian-sounding “cut.” But while cutting Medicaid works for the federal government, freeing up money for tax cuts, it clearly damages the long-term fiscal health of states.
Congressional Republicans in general feel more secure in going after Medicaid. However, Republicans in poor states with large numbers of Medicaid recipients—roughly one-third of the residents of Arkansas, Louisiana, Kentucky, and West Virginia are on Medicaid or the Children’s Health Insurance Program (CHIP)—are more nervous about making that choice.
“It’s turning a program away from it being an entitlement program, which gives people the medical care they need, into a limited welfare program, which gives them what the state can afford. That is a legitimate concern,” says MIT economist Jonathan Gruber, one of the architects of the Affordable Care Act.
There have been two high-profile attempts to cut Medicaid before. During the 1994 government shutdown, House Speaker Newt Gingrich tried to cut Medicaid and failed. In 2017, Sen. John McCain (R-AZ) displayed his famous thumbs-down on an ACA repeal, which saved the Medicaid expansion embedded in that law. Gruber says what actually sank the repeal was the threat of “eviscerating Medicaid.” But despite this 0-2 record, Gruber says that “everyone has the right to be worried.”
On January 28, Massachusetts, along with attorneys general representing 21 other states and the District of Columbia, filed a lawsuit against OMB after the Bay State failed to secure $40 million through the Medicaid portal. Federal Judge John J. McConnell Jr. granted a temporary restraining order three days later, ruling that a freeze “will cause severe disruption.” But the coordinated assault on federal departments and agencies goes much further than that; it’s “cry havoc and let slip the dogs of war”—“war” in this case being a battle for the power of the purse that Congress failed to beat back.
Massachusetts Gov. Maura Healey (D) has described the OMB action as “a blue state, red state, every state issue.” Most state budgets rely on state taxes, but federal funds are a major slice of the budget pie in 16 states. In New Hampshire, Vermont, and Maine, federal dollars make up roughly 40 to 45 percent of their budgets. But Alaska, Arizona, Louisiana, South Dakota, and Wyoming rely on federal funds for around 50 percent of their spending plans.
The Bay State’s budget for fiscal year 2025 is nearly $60 billion, with one-quarter of that in federal reimbursements. Overall, about one-third of the state budget relies on federal funds. “Having those billions taken out of the budget is not something that you could rearrange funding or move things from one year to another,” says Phineas Baxandall, policy director for the Massachusetts Budget and Policy Center. “It would be a devastating blow to the budget like losing a major organ.” The state has some safeguards, with a nearly $9 billion rainy day fund, but federal reimbursements are about $15 billion.
The ongoing 3D chess game in Washington led the offices of the Massachusetts state comptroller and the administration and finance director to scope out their possible strategies. They sent out a memo to agencies and departments instructing them to prepare for interruption of funds, as they would for a potential government shutdown. Though they cautioned that additional state funding might not be available, they asked that officials identify other funds that could be used if federal dollars stopped flowing and to find out if legislative authorization would be required to move those dollars around.
In this climate, a governor has to be alert to opportunities for a state to generate its own revenues, be it by socking away a rainy day fund or taking up federal shutdown–type emergency planning. But overhauling Medicaid, or facing down gatekeepers to the CMS system in Washington, would usher in an unprecedented host of uncertainties.
Carpet-bombing federalism, the separation of powers, and checks and balances ultimately serves no one but the people piloting the bombers. The collateral damage in this war on so-called big government are the most vulnerable Americans who depend on federal dollars to help them just barely keep their lives together. But Republicans are on a different mission, to prove that government doesn’t work for the people it’s supposed to serve, without coming up with a viable alternative to make a dent in poverty except untenable cuts that exacerbate the crisis. “The programs will function poorly. That will (a) hurt people who need them but (b) will lower support for them because ‘Why do I need that? It doesn’t work,’” says Gruber. Then again, reaping maximum havoc is the point.
