GOP Medicaid Cuts: A Recipe for Medical Debt Disaster

Republican proposals to slash the Medicaid program by $880 billion would push more Americans into medical debt. After years of reducing the number of people with medical debt, Republicans’ current budget proposal would significantly reduce Medicaid coverage and reverse that financial progress.

Third Way estimates that Republican proposals would push an additional 2.8 million people into medical debt and increase the total medical debt that Americans owe by $26 billion—a 10% jump.¹ This memo explains the relationship between health coverage and medical debt, how Republican proposals would reduce coverage, and the impact of Medicaid cuts on medical debt.

Health coverage reduces medical debt.

Medical debt afflicts 100 million people in the United States.² Patients, doctors, and hospitals struggle with $269 billion in unpaid medical bills.³ The threat of medical debt also weighs on those who are lucky enough not to carry that burden. Six of 10 people worry that medical bills will overwhelm their family’s budget if they get sick or have an accident.⁴

The cure for medical debt is adequate health care coverage. Coverage protects families from unforeseen costs and gives them access to care that keeps them healthy. Medical debt has declined in the United States as fewer families are uninsured as shown below.⁵

In fact, a key study called the Oregon Health Insurance Experiment found that Medicaid coverage reduced medical debt rates by 13.3 percentage points.⁶ The study was possible because of a lottery for a limited number of slots for Medicaid coverage in 2008.⁷ Researchers looked at how people fared with Medicaid coverage compared to a control group without Medicaid coverage. The rate of medical debt fell from 56.8% in the control group to 43.5% in the group with Medicaid coverage.

Millions would lose health coverage due to Medicaid cuts.

Republicans’ budget proposal would slash $880 billion over 10 years from Medicaid, representing a 13% cut in funding. A cut of that size could produce a corresponding 13% cut in the number of people with Medicaid. As a result, ten million people could lose their Medicaid coverage starting next year.⁸

But this could be a conservative estimate. Given the complexity of the Medicaid program and uncertainty surrounding how individual states will respond to decreased federal funding, it is possible that 20-36 million people could be at risk of losing their coverage. Two proposals gaining traction with Republican leadership could lead to these drastic coverage losses unless states increase their spending:

• Work Requirements: Despite the poor track record of Medicaid work requirements at the state-level, Republican leadership is pushing hard to add this unnecessary bureaucratic burden to the program nationwide. It would cause people to lose coverage and would not increase employment rates.⁹ If Republicans enact it, 36 million enrollees could find their coverage at risk, and about 5 million could lose coverage next year.¹⁰
• Cuts to Medicaid Expansion: Other Republican leaders are focused on rolling back aspects of the Affordable Care Act’s (ACA) Medicaid expansion program. Since it was enacted, 41 states (including Washington, DC) have expanded Medicaid, and millions have become newly eligible for Medicaid.¹¹ Now, some Republicans want to reduce the percentage of costs that the federal government will cover for these enrollees and force many states to cut back on eligibility. Estimates project that as many as 20 million people could lose Medicaid coverage as a result.¹²

Less coverage means more medical debt.

Republicans’ proposed Medicaid cuts would increase the number of people in families with medical debt by 2.8 million.¹⁵ This estimate is based on medical debt in households—not just individuals—because just one person with medical debt can affect everyone in a family. For example, if an adult in a family loses coverage and needs health care they cannot afford, the whole family takes on the burden of medical debt.

For families losing Medicaid coverage, the increase in medical debt could be as much as $22,800 depending on whether they already had medical debt.¹⁶ We estimate that:

• 87% of households would accumulate that high level of debt because they previously had none.
• 13% would have additional medical debt of $8,790 on top of $13,490 of existing medical debt despite having had coverage.

Medical debt across the nation from Republicans’ Medicaid cuts would increase $26 billion.¹⁷ That amount would be an increase of 10% percent over the current amount of $269 billion.¹⁸

The projected medical debt increase in each state is below. Red states like Texas, Florida, and Ohio would have a significant increase in medical debt from $10 to $14 million, assuming the states didn’t take any action to counteract the federal cuts to Medicaid.¹⁹

Under a less conservative assumption (that the proposed Medicaid cuts cause twice as many people to lose coverage—20 million instead of 10 million), the total increase in medical debt would also be twice as much: $53 billion.

Conclusion

If Republican leaders get their way, millions of Americans will lose their health coverage, and the burden of medical debt will grow more intense for American families. After years of declining medical debt thanks to coverage gains under the Affordable Care Act and Democratic improvements, Republicans are set to erase this progress and put the health and financial security of millions of working-class families at risk.