Understanding Budget Reconciliation and Its Potential Impact on Medicaid Funding

The current Republican-led Congress has spent its early weeks developing plans to use the budget reconciliation process to significantly reduce the federal budget over the next decade. On February 7, 2025, the Senate Budget Committee advanced a Budget Resolution for fiscal year (FY) 2025, and the House Budget Committee advanced its own draft Budget Resolution on February 13th. Among its instructions, the House bill directs the House Committee on Energy and Commerce to identify $880 billion in savings in laws under its jurisdiction for FY 2025 through FY 2034.

As the Energy and Commerce Committee develops legislation to reach the nearly $900 billion threshold, major cuts are anticipated to come from the Medicaid program given recent discussions about potential reforms. Potential reforms include establishing Medicaid block grants or per capita caps that would limit how much funding state Medicaid programs receive from the federal government.

Given the potential impact on Medicaid, this post provides a primer on the complex Budget Reconciliation process. In our new blog series, Medicaid at a Crossroads: Funding & Policy Implications, future posts will review policy options and discuss potential effects on states and beneficiaries.

What is the Budget Reconciliation Process?

Developed under the Congressional Budget Act of 1974, the Budget Reconciliation process creates an avenue for Congress to change laws and adjust spending in an expedited manner. Since its first use in 1980, Reconciliation has become a key tool for policy advancement on issues that exclusively focus on mandatory spending, revenue, and/or the debt ceiling. 

Budget Reconciliation side-steps certain procedural norms which can limit passage of bills in the Senate. During Budget Reconciliation bills can pass at a simple majority rather than the 60-vote supermajority typically needed to avoid filibuster, meaning that bills can currently be advanced along party lines.

How does the Budget Reconciliation Process work?

The Budget Reconciliation process includes five key steps:

1. The Budget Resolution: The Reconciliation process starts with the inclusion of Reconciliation Instructions within the Budget Resolution. The Budget Resolution is not law, but rather a high-level plan (often described as a blueprint) which sets the thresholds for the subsequent Committee process and cannot be filibustered. The Resolution gives guidelines and themes that direct committees to draft legislation that meet the prescribed levels of spending or savings, while setting the grounds for changes to mandatory programs and revenues. 

2. Committee Process: In Committee, the Budget Resolution is translated into an actionable bill. Committee jurisdiction is limited, and policy changes can only impact areas over which the committee has oversight. Changes cannot intersect multiple committee jurisdictions. The Committee process is dictated by compliance with two primary levers: the Byrd Rule, which dictates that provisions must result in a change to spending or revenues and cannot 1) raise the deficit beyond the budget window, 2) be incidental to the budget, and 3) impact Social Security, and compliance with the pay-as-you-go rule which requires that any spending increase be offset by cuts to mandatory programs. 

3. Budget Assembly: The Budget Committee accepts drafted bills from each committee and assembles them into a unified omnibus bill which can be sent to the floor for a vote. In addition to this administrative role, the Budget Committee will review the individual bills to ensure each committee met their savings or spending requirements. However, the Budget Committee cannot make any substantive policy changes to the bills. Once an omnibus bill has been assembled, the Budget Committee acts as the lead committee in bringing the legislation to the floor for consideration.

4. Floor Consideration: After the Budget Committee develops a unified bill, it then goes to the floor for consideration. In the House, there are special rules for the Budget Reconciliation Process limiting the number of amendments and maximum debate time allowed, but the biggest changes to Parliamentary rules occur in the Senate. As mentioned, the bill can pass with a simple majority rather than 60 votes and debate is limited to 20 hours. After the 20 hours, the Senate enters the Vote-a-Rama phase, in which an unlimited number of amendments can be introduced and considered with little or no debate, leading to numerous votes in rapid succession.

5. Legislative Compromise (if necessary): As of February 20th, both chambers have introduced separate Resolutions, meaning a compromise process may be necessary to generate a unified document. This document would then go to the floor in both chambers, though the Compromise Debate is limited to ten hours in the Senate. It subsequently goes through a final up-or-down vote. Should it pass, the bill goes to the President for signature or veto.

Why is Budget Reconciliation important for Medicaid?

The Republican party holds the majority in both chambers and sees the Budget Reconciliation process as the best tool to address their top priorities. Republican Congresspersons see Medicaid as a critical vehicle for achieving broader GOP goals to reduce federal spending, especially as the leadership has indicated that changes to Medicare and Social Security will not be considered.

If Medicaid cuts are of the magnitude expected, it will affect states tremendously. In FY 2023, the federal government funded 69% percent of total Medicaid costs, and ranging between 59% and 83% percent of costs across the states. Reduced federal funding means less money for states to deliver key services, improve care delivery, and support already overwhelmed state employees administering the program. Without a clear mechanism for closing the funding gap, there is a high potential that states would reduce services or limit eligibility. This could significantly impact the overall health and well-being of people with Medicaid, negatively impacting health outcomes and increasing costs. For instance, if access to commonly used essential services such as home-and-community based services were reduced, more people may ultimately require institutional care.

Medicaid at a Crossroads: Funding & Policy Impacts

For more information regarding the potential impacts of Budget Reconciliation on Medicaid programs, be on the lookout for Aurrera Health’s continued analysis in our blog series Medicaid at a Crossroads: Funding & Policy Implications. If you would like to discuss how these developments might affect your state, please reach out to Aurrera Health Managing Principal Kristal Vardaman.

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Authors

Erik Hirschman [Policy Consultant]

Kristal Vardaman [Managing Principal]