“Washington Math” & Why Medicaid Savings Are Not Cuts

Congress is weighing reforms to Medicaid with a goal of saving up to $880 billion as part of the budgetary reconciliation process. Left-leaning legislators have decried the potential Medicaid savings as “deep cuts” or “eviscerating” the program. In reality, Medicaid spending would still increase – just by a smaller amount. This is a perfect example of “Washington Math” which assumes that all types of government spending increase every year. Using this faulty logic, reducing the growth of a program is considered a “cut” even if spending never actually goes down. In FY 2024 alone, the federal government spent $618 billion on Medicaid. The Congressional Budget Office’s January 2025 baseline estimates that Medicaid spending will increase to $986 billion by FY 2034, a growth rate of roughly 5% per year. As the following chart and table show, if Congress implements reforms to lower Medicaid’s spending growth rate to 3% per year, spending will increase to $830 billion by FY 2034. This would generate $918 billion in total savings compared to the CBO baseline. Under this scenario, there would still be a cumulative 10-year spending increase of $1.112 trillion.

Modest Medicaid Reforms

Medicaid is on an unsustainable spending trajectory, which was exacerbated by Obamacare. However, while Congress should eventually address the dramatic expansion of Medicaid benefits, it is possible to achieve savings of at least $880 billion through fiscal year 2034 with modest reforms to control waste and abuse in the program. For example, Medicaid’s true level of improper payments is likely over $1 trillion per decade. Congress can address this tremendous waste of tax dollars by increasing the frequency of eligibility reviews, regularly auditing state-level programs, and holding states accountable for excessive improper payments. Congress can also save over $600 billion in the next decade by addressing the “provider tax” gimmick that state governments use to bilk the federal government. California is abusing the gimmick to an astonishing degree, turning it into a shell game that indirectly uses federal funds to provide health benefits to illegal immigrants. Legislators who face emotional screeds about Medicaid “cuts” should make it clear that the changes under consideration are common-sense reforms that would still allow the program to grow by roughly 3% per year. If “Washington Math” is allowed to win, Americans will pay the price.