Good morning Chair and members of the committee. Thank you for the opportunity to testify.
Any reduction in federal Medicaid spending directly harms New Jersey’s budget and its residents. As a state-federal partnership, Medicaid depends on reliable and sustainable federal funding to balance state funds. Regardless of the specific method that Medicaid spending is cut, the end result is the same: less money for the state and costs pushed from the federal budget onto state budgets.
A $2 billion cut, no matter how you slice it
Analysis from national health care researchers estimates that the proposed cuts in the federal Medicaid budget would mean a $2 billion annual cut in New Jersey’s Medicaid budget. (See Appendix A). This corresponds with analysis by New Jersey’s Department of Human Services putting a cost of a minimum of $2 billion on proposed federal changes. (See Appendix B)
By way of comparison the entire proposed state appropriation for Medicaid is $5.7 billion for FY 2026.[i] Another way of contextualizing the numbers – the estimated cuts are the equivalent to the cost of 87% of kids enrolled in Medicaid. (See Appendix A)
I will leave to other experts to discuss the mechanics of particular proposals, whether a per capita cap, a change in federal reimbursement rate, or onerous work requirements. But regardless of the method, the state budget will face a multi-billion dollar hole with no solution.
A trickle-down budget disaster for states, localities, and health care providers
The state budget would take the immediate cut from whichever federal cuts are realized. Some of that effect may be spread out over multiple years but one way or another, the money will stop showing up in the state’s revenues.
But the ripple effects of these cuts would eat even further into the state’s budget.
- If the state chooses to fill in the federal gaps with its own funding, it would have to generate new revenues to do so at a time when the budget is already running deficits.
- If people become disenrolled from Medicaid, they will likely incur costs elsewhere in the health care system, whether in hospital charity care or other uninsured settings.
- Health care providers depend on Medicaid payments, as detailed in the NJ DHS analysis (See Appendix B), and funding cuts would affect their revenues as well.
Limited solutions
Reducing costs for Medicaid at the state level would be difficult for a program that already runs at very low cost compared to the private insurance market. Medicaid costs less to insure an enrollee than the private market and spending has grown more slowly than the private market.[ii]
- Already-low reimbursement rates: New Jersey already has comparatively low reimbursement rates for Medicaid,[iii] limiting options for provider availability if rates are capped or reduced.
- Already-low overhead costs: Overhead costs for Medicaid are already low – around 4.4% for New Jersey.[iv]
- Increased administrative costs of proposed changes: Creating a state system for work requirements or other potentially onerous federal mandates would increase, not decrease, those administrative costs.
One additional note of caution: recessions typically see an increase in demand for Medicaid, as people become unemployed or underemployed.[v] If economic uncertainty produces a recession, this would further increase the state budgetary cost of reduced federal Medicaid spending. In the 2001, 2008, and 2020 recessions, the federal government increased Medicaid reimbursement rates, but that may be unlikely this time around.
The takeaway: A Medicaid cut by any name would impose huge costs on the state budget, with few solutions and devastating effects on New Jerseyans’ health.
End Notes
[i] State of New Jersey, The Governor’s FY 2026 Budget: Detailed Budget (2025), p. D-209.
[ii] Hannah Katch et al., Frequently Asked Questions about Medicaid, Center on Budget and Policy Priorities (Nov. 22, 2019), https://www.cbpp.org/research/correcting-seven-myths-about-medicaid
[iii] New Jersey Health Care Quality Institute, Primary Care in New Jersey: Findings and Recommendations to Support Advoanced Primary Care (January 2024) https://www.njhcqi.org/wp-content/uploads/2024/01/Primary-Care-Report_2024_v11.pdf.
[iv] Medicaid and CHIP Payment and Access Commission (MACPAC), MACStats: Medicaid and CHIP Data Book (December 2024), p. 46 exh. 16, https://www.macpac.gov/wp-content/uploads/2024/12/EXHIBIT-16.-Medicaid-Spending-by-State-Category-and-Source-of-Funds-FY-2023.pdf.
[v] Katherine Young et al., Medicaid Spending Growth in the Great Recession and Its Aftermath, FY 2007-2012, Kaiser Commission on Medicaid and the Uninsured (July 2014), pp. 5-6, https://www.kff.org/wp-content/uploads/2014/07/8309-03-medicaid-spending-growth-in-the-great-recession-and-its-aftermath-fy-2007-2012.pdf
