State: Governor’s Proposed 1.5% Cut to Medicaid

Governor Bob Ferguson recently unveiled his plan for $7 billion in budget cuts. As part of his proposal, he has suggested a 1.5% reduction in Medicaid rates. While this may seem like a low number, the impact on the community behavioral system could be much larger when you consider the broader context. For example, once inflation and increases in insurance premiums and deductibles are factored in, providers will face more significant fiscal impacts.

The 1.5% reduction also does not account for separately proposed changes to special enhanced rates, long-term care rates, and others, which means we could be grappling with multiple substantial reductions.

Federal: Based on the New Administration’s Changes to Federal Agencies and Budget

Summary of main changes:

• Medicaid Budget Cuts: Proposed federal budget cuts could severely limit access to mental health and substance use care, shifting financial burden to states.
• Work Requirements and Eligibility Changes: New work requirements and eligibility criteria could restrict access for vulnerable populations and add administrative burden on states and providers, which means providers will be serving more clients without a funding source.
• Medicaid Per Capita Caps: The introduction of per capita caps may result in funding shortfalls for key services, putting additional strain on state resources.
• Impact on Behavioral Health Services: Cuts to Medicaid funding will reduce access to community behavioral health services and place extra financial strain on state budgets, as well as city and county budgets.
• Impact on Mental Health and Substance Use Treatment: Reductions in Medicaid funding could undermine progress in addressing the mental health and overdose crises, increasing state responsibilities.
• Appropriations Process: The ongoing appropriations process and the potential for a year-long continuing resolution (CR) could impact Medicaid funding, leading to additional financial burden on the state. This uncertainty also causes disruptions in the workforce, where we’re still struggling with a serious shortage.

Proposed Changes to Federal Community Behavioral Health Programs

These changes could see us back and shift the financial burden to the state and CBHOs.

As part of our ongoing commitment to keep you informed, we are providing a detailed update on the recent federal developments that may have significant implications for Medicaid and the community behavioral health services we provide. The federal government is considering various policy changes that could profoundly affect access to mental health and substance use disorder treatment, particularly through Medicaid. These potential federal changes could result in significant financial burden being shifted from the federal government to the state and community behavioral health organizations. We are actively working with stakeholders, including national organizations, to advocate for the best possible outcomes for the individuals we serve and for the stability of the care systems that our communities rely on. 

Overview of the Current Landscape 

There is substantial uncertainty surrounding potential changes to Medicaid, which may deeply impact both the providers and recipients of behavioral health services. Given the essential role Medicaid plays in providing mental health and addiction treatment, these changes could have far-reaching consequences for our district, state, and the nation at large. As these potential federal changes progress, the burden of maintaining access to these critical services may increasingly fall to the state. While we continue to monitor developments closely, we want to keep you informed about the key changes under consideration. 

Key Areas of Potential Impact 

• Medicaid Budget Process and Potential Cuts: The process of finalizing the Medicaid budget is lengthy and ongoing, with significant negotiations still to come. The House of Representatives has passed a budget resolution directing the Energy & Commerce Committee to find nearly $900 billion in savings for an upcoming legislative package. Since this committee oversees Medicaid, these cuts could devastate access to mental health and substance use care.
  
  • Medicaid currently serves over 75 million people nationwide, including 2 in 5 individuals with mental health or substance use disorders, and 1 in 10 veterans. 
  • Cuts to Medicaid would likely result in millions losing coverage and severely limit access to life-saving services, particularly in behavioral health. These federal cuts would place significant burden on state resources to fill the gaps in coverage. 
  • The ongoing appropriations process and the potential for a year-long CR could impact Medicaid funding, leading to significant funding shortfalls for various programs, including Medicaid, and exacerbating these challenges. 
• Work Requirements and Eligibility Changes: Proposed changes to Medicaid may include work requirements for recipients, which could limit access to essential care for our most vulnerable populations. Historically, work requirements have been difficult to implement due to legal challenges, but a more targeted approach may be introduced. This approach could focus on excluding certain groups, such as the elderly, blind, and disabled, which would likely lead to more restrictive eligibility criteria.
  
  • Implementing such requirements would create significant bureaucratic hurdles for recipients, complicating the process and limiting access to services. This shift in policy would add an administrative burden on the state to enforce these new criteria. 
• Medicaid Per Capita Caps: The introduction of per capita caps would impose a limit on the amount of federal funds a state can receive for Medicaid recipients, based on the state’s wealth.
  
  • This cap would have profound impacts on the distribution of funds, potentially leading to funding shortfalls for key services, including mental health and addiction treatment. 
  • The proposed changes to per capita caps could harm services across the board, leading to cuts in provider rates, limiting access to care, and destabilizing the Medicaid system overall. The state would have to manage the shortfall, further straining state resources. 
• Provider Tax Limits: The proposal to limit provider taxes, which are essential for securing matching federal dollars, could have disastrous consequences for Medicaid providers.
  
  • Limiting these funds would force states to either increase their own contributions or reduce services, destabilizing hospitals, clinics, and other providers of mental health care, and resulting in further access restrictions for clients. This would significantly increase the financial burden on the state. 
• Impact on Community Behavioral Health Services: Medicaid is the largest provider of mental health and substance use disorder services nationwide. Any cuts to Medicaid funding would directly impact community behavioral health services, with the risk of reduced access to care for vulnerable individuals.
  
  • Behavioral health services, including those provided by Certified Community Behavioral Health Clinics (CCBHCs), could be severely affected. While CCBHCs currently have bipartisan support, any Medicaid funding cuts would indirectly threaten these critical services. States would need to find alternative funding sources to maintain these services. 
  • State-level budget restrictions may also trickle down, reducing resources available for behavioral health providers, even in the absence of direct proposals targeting CCBHCs. This would place additional strain on state budgets and resources. 
• Impact on Mental Health and Substance Use Treatment: The ongoing mental health and overdose crises, which worsened during the pandemic, continue to be a priority. Although overdose deaths began to decline in 2023, largely due to improved access to treatment and services, there is still much work to be done.
  
  • Medicaid plays a critical role in providing access to substance use disorder treatment for tens of millions of Americans, including a significant portion of those seeking mental health care. Any significant reduction in Medicaid funding would undermine these improvements, putting lives at risk and destabilizing the progress made in addressing the overdose crisis. States would have to address these gaps in care, increasing the burden on state health systems. 

Concerns and Advocacy for the Future 

The potential cuts to Medicaid are concerning for several reasons. Reducing Medicaid funding to achieve hundreds of billions in savings will lead to the following consequences: 

• Loss of Coverage: Millions of individuals could lose access to health coverage, including those receiving critical mental health and substance use services. 
• Provider Instability: Many healthcare providers, including those who specialize in behavioral health, could be forced to close their doors or limit services. 
• Economic Harm: Signficant cuts to Medicaid would also result in budget shortfalls at the state level, which could harm the economy and negatively impact other services, including public health responses and law enforcement. 
• The Issue of Impoundments: Where changes in spending are contrary to provisions included in appropriations bills, it could further complicate the funding landscape for Medicaid and community behavioral health services, leading to additional financial burden on states. 
• The House Budget Bill Faces Significant Challenges Due to Differing Priorities Among Republicans: Some want to use the reconciliation to fund Republican priorities, while others want to cut taxes. This internal conflict, along with the need toa address the SALT issue and Trump’s promise to eliminate taxes on tips and Social Security, adds complexity to the appropriations process and could impact Medicaid funding and community behavioral health services. 

Timeline of Key Dates

• March 14, 2025: Federal Government runs out of money and shuts down
• May 1, 2025: Sequestration is implemented, resulting in a $45 billion cut to defense under the “Massie Rule” 
• Sometime in May or Early June: Treasury exhausts extraordinary measures associated with the debt ceiling 
• December 1, 2025: The Tax Cuts and Jobs Act of 2017 expires

Conclusion

The proposed Medicaid per capita cap, if implemented, could have significant implications for Washington State’s Medicaid system and its behavioral health services. Washington’s Medicaid budget could face substantial reductions, shifting financial responsibility to the state. Under such a per capita cap, Washington would likely encounter increased pressure to reduce eligibility or services, potentially affecting over 2 million residents who rely on Medicaid, including a significant portion accessing mental health and substance use services. 

Federal funding cuts could reduce Washington’s Medicaid spending by an estimated $1 billion, placing the burden on the state to either increase funding or make deep cuts. These changes, combined with Governor Ferguson’s proposed 1.5% Medicaid cut, would further strain the state’s resources. Community Behavioral Health Organizations (CHBOs) in Washington, already facing a 6.5% cut, could face service reductions, exacerbating the state’s challenges in addressing the mental health and substance use crises. 

In addition to the financial stress, these changes may also increase the number of uninsured individuals, leading to higher demand for emergency services and public health intervention, further straining the state’s budget. 

Given the potential federal changes and their significant impact on Medicaid and community behavioral health services, it is crucial for the state legislature to invest in solutions that support community behavioral health organizations. These investments will help address policy and funding issues, reducing the impact on vulnerable individuals who rely on these critical services. By proactively supporting and funding community behavioral health efforts, the state can mitigate the adverse effects of federal cuts and ensure continued access to essential mental health and substance use disorder treatment for all residents. The stability and well-being of our communities depends on it.