Medicaid funding cuts currently under debate in Congress would force states to contend with impossible choices: either raise taxes significantly, slash funding for critical services like education, infrastructure and public safety, or strip millions of residents of their health coverage.
While these devastating impacts have been well-documented, the potential damage to states’ credit ratings is emerging as a lesser-known but equally serious risk. A new analysis by Georgetown’s Center for Children & Families (CCF) highlights this underappreciated threat, warning that cutting Medicaid would dramatically weaken states’ fiscal standing. The risk is particularly acute because federal Medicaid dollars fund nearly one-fifth of states’ total spending, making the program a critical pillar for state budgets.
Credit agencies and state leaders are taking notice. S&P Global’s U.S. States 2025 Outlook warned that “any benefit, formula, or reimbursement rate changes to Medicaid, made as an offset to the cost to extend the [Tax Cuts and Jobs Act of 2017], or otherwise, could have state-level credit quality effects as well.”
State leaders can’t afford to ignore these risks.
Additional highlights from the analysis are included below:
- “These federal ‘savings’ would be achieved not by reducing health care inflation but by cutting federal Medicaid payments to states. This will force states to dramatically raise taxes, cut other parts of their budget like K-12 education to make up the shortfall and, as is most likely, make deep and damaging cuts in eligibility, benefits, and/or payments to providers and plans.”
- “The resulting increase in the number of uninsured Americans — there’s been no reported discussion of ‘replace’ — will disrupt a critical source of revenue for many hospitals, clinics, nursing facilities, and other providers, especially in those rural and urban communities where Medicaid is a dominant payor.”
- “In short, federal Medicaid funds alone represent a little under one fifth of states’ total spending. A significant cut in federal Medicaid funds will matter. For this reason, companies that track state creditworthiness are watching the unfolding Medicaid debate in Congress carefully.”
- “There are lots of questions that state and local officials, as well as constituents, should be asking their Congressional delegations about how their state or locality can be expected to deal with hundreds of billions (if not trillions) of dollars in cuts in federal Medicaid spending over the next ten years.”
For more information on Medicaid’s vital role, visit https://modernmedicaid.org.