Taking A ‘Meat Axe’ To Medicaid Is A Bad Idea

Perhaps you are thinking that a left-leaning Democrat expressed this opinion, but it was none other than Steve Bannon, former White House chief strategist and influential voice within the MAGA movement.

Bannon has repeatedly issued stark warnings to Republican leaders, including President Donald Trump and Department of Government Efficiency (DOGE) head Elon Musk, urging caution in approaching Medicaid reductions.

His central argument hinges on the demographic reality that a significant portion of Trump’s base—working-class voters in key states—relies on Medicaid for healthcare coverage. Bannon’s comments, delivered through his War Room podcast and amplified by political analysts, emphasize the political risks of aggressive cuts to a program that serves over 72 million Americans (79 million when the affiliated Children’s Health Insurance Program, on CHIP, is included), including an estimated 20 million Republicans.

While Bannon’s remarks were politically motivated, there are other reasons to be concerned about the budget resolution passed by the U.S. House of Representatives by a narrow 217-215 vote that set in motion a reconciliation process targeting $880 billion in cuts to Medicaid over the next decade.

Impact of the Proposed Cuts

Medicaid serves as the primary insurer for 40% of U.S. children, 60% of nursing home residents, 64% of non-elderly adults with disabilities, and 59% of non-elderly individuals with income below the federal poverty level. In other words, many of the nation’s most vulnerable citizens.

The proposed cuts in Medicaid – which is funded by a combination federal and state money – could be achieved in a variety of ways, including establishing per-capita caps on federal matching funds, lowering or eliminating the federal matching funds floor, repealing recently issued rules increasing Medicaid access, eligibility and enrollment, and implementing work requirements for most able-bodied adults ages 19 through 55.

Kaiser Family Foundation (KFF) modeling indicates that establishing work requirements alone would eliminate coverage for 4.6 million individuals (although two-thirds of Medicaid recipients already work), including students, single parents with dependent children, caregivers for family members with disabilities, and beneficiaries who are looking for work. In addition, reduced federal support could force states to further reduce eligibility, increase premiums and co-pays, and impose benefit limits unless offsetting reductions are made in non-Medicaid expenditures.

Beyond individual coverage losses, Medicaid cuts threaten the healthcare infrastructure:

• Hospital Closures: 32% of Medicaid spending flows to hospitals, including 60% of rural facilities already operating on negative margins. A 10% federal cut could trigger 200+ additional closures by 2030, as Medicaid reimbursement levels are already 85-89% below hospitals’ cost to provide the care.
• Other At-Risk Providers: Federally Qualified Health Centers (FQHCs), home health providers, dentists, maternal and infant care providers, providers serving communities of color, and office-based providers generally (who could experience a $6.4 billion drop in revenue).
• Employment Effects: The health sector employs 16 million Americans, many in Medicaid-related roles. A $880 billion reduction could eliminate 1.2 million jobs over five years.

In addition, the 41 expansion states would have to increase Medicaid spending an average of 24% in order to avoid having their uninsured populations increase by an average of 62%. They would face lose-lose scenarios:

• Maintain Expansion: Absorb $626 billion in new costs by raising taxes or slashing education, transportation and other budgets.
• Terminate Expansion: Lose $1.2 trillion in federal funds and incur $34 billion in uncompensated care costs annually.

How Much is Waste, Fraud and Abuse?

Republican leaders have promised to dramatically cut spending by targeting waste, fraud and abuse in Medicaid while sparing beneficiaries, prompting Democrats to charge that there is no way to achieve anything close to the $880 billion target without gutting the program.

This dispute is political and ideological, but it’s also definitional. To beat back Democratic arguments, Republicans are adopting an expansive meaning of “waste, fraud, and abuse” that depends on the contention that a large share of Medicaid beneficiaries don’t actually qualify for the program — even after states spent 2023 and 2024 purging the rolls — or shouldn’t be eligible because they are “able-bodied.”

Republicans have a clear reason to hammer home the notion that waste, fraud, and abuse in Medicaid are so rampant that they can save close to $1 trillion without affecting providers and beneficiaries: the public doesn’t favor Medicaid cuts.

Just 17% of Americans want Congress to reduce Medicaid funding, according to a KFF survey Forty percent of respondents said Medicaid funding is at the right level already, while 42% want it increased. Even among self-reported Trump supporters, only 35% support Medicaid cuts, while 43% want to maintain the status quo and 22% want higher Medicaid spending, the survey found.

Having reviewed multiple studies by credible organizations without any obvious political bias, my conclusion is that the Democrats are correct: tackling actual waste, fraud, and abuse alone will not enable Republicans to come even close to their Medicaid cost reduction target.

Improper payments (usually a result of clerical and bureaucratic errors) can be reduced, and provider taxes and other budgetary gimmicks that states use to maximize federal reimbursement could be eliminated, but only significant shrinkage of the program itself would enable the federal government to claw back $880 billion.

Furthermore, improving performance on rooting out waste, fraud, and abuse would cost more initially because federal and state agencies would have to build and implement new systems and increase oversight and audit staff at the Center for Medicare & Medicaid Services (CMS), which runs contrary to the administration’s simultaneous efforts to reduce government spending.

Let’s Call a Spade a Spade

House Republicans’ primary aim in cutting $880 billion from Medicaid is ultimately to slash $2 trillion from the federal budget over 10 years in order to partially offset the $4.5 trillion cost of extending the tax cuts that President Trump enacted in his first term, which are due to sunset this year.

While the House budget’s proposed cuts are not a done deal – as the Senate budget resolution does not envision a similar scale of cuts (the House and Senate resolutions will need to be negotiated into a single compromise resolution to move forward with the reconciliation process) – the House budget’s focus on Medicaid clearly would create a regressive wealth transfer.

According to the Economic Policy Institute’s analysis of Congressional Budget Office data, implementing the proposed Medicaid cuts would effectively reduce the bottom 20% of earners’ incomes by 7.4 percent while handing the top 1% percent at 3.9% tax benefit.

For a family of four earning $30,000 annually, losing Medicaid equates to a $7,000–$10,000 effective income reduction—the equivalent of a 23-33% pay cut. By contrast, households earning over $500,000 would gain $19,500 annually from extension of the Trump tax cuts.

As a moderate Republican (if there still is such a thing) and fiscal conservative, I agree that federal expenditures must be meaningfully decreased in order to reduce the federal deficit and ultimately balance the budget. However, I do not agree that these goals should be achieved on the backs of our most vulnerable citizens in order to fund tax benefits for the wealthy.

In addition, I abhor the intellectual dishonesty behind House Republicans’ contention that Medicaid is fraught with waste, fraud, and abuse, and that anything close to $880 billion can be saved by eliminating it. If they just think we should make significant cuts in the nation’s primary healthcare safety-net program, they should have the guts to admit it and be prepared to pay the price in the mid-term elections.