Federal Medicaid cuts could leave Missouri with huge budget shortfall

by Clara Bates, Missouri Independent
February 25, 2025

Proposed cuts to Medicaid being considered by the Republican-controlled Congress could create a massive budget shortfall in Missouri, the director of the state Medicaid program told lawmakers on Tuesday.

Todd Richardson, director of MO HealthNet, the state’s health insurance program for low-income and disabled Missourians, told the Senate Appropriations Committee that the state could be on the hook for hundreds of millions of dollars in Medicaid costs under proposals being debated in Congress.

Roughly 70% of the state’s Medicaid funding comes from the federal government. 

Richardson said that while his department is excited about some of the changes Congress is exploring, such as creating more flexibility for states to make Medicaid-related decisions, others will “present a challenge.”

There are “things that I think a state we would wholeheartedly embrace, and would be an exciting opportunity for us to have, but that’s also got to come with the same level of financial commitment,” Richardson said.

“If not,” he told the committee, “it’s going to be a significant challenge for us and for you all to figure out.”

Under one proposal, the federal government would drastically reduce the rate at which it pays states for low-income Americans covered under Medicaid expansion. 

Missouri expanded Medicaid eligibility in 2021, over opposition from Republican lawmakers, via a ballot measure.  The state Supreme Court upheld the measure, and Medicaid expansion is enshrined in the state constitution.

State Sen. Lincoln Hough, a Republican from Springfield who chairs the appropriations committee, prompted the discussion by asking what the Missouri Department of Social Services is doing to prepare for potential federal changes.

“I did want to at least put it on the radar of the committee,” Hough said, “that when people talk about changes at the federal level, there are pretty significant implications in what we’re able to do here.”

Jessica Bax, acting director of the department, told senators that the agency will need to “plan for everything that could possibly happen at the federal level, which is difficult to do.”

Republicans in the U.S. House have forwarded a number of proposals to slash Medicaid in order to help pay for $4.5 trillion in tax cuts pushed by President Donald Trump, along with other priorities including border security. 

The U.S. House is expected to vote on a budget resolution this week.

The federal government currently pays for 90% of the cost of Medicaid for enrollees who qualify under Medicaid expansion. Those are adults who make up to 138% of the federal poverty level, or $21,597 for an individual in 2025.

There are currently over 348,000 enrollees in the adult expansion group in Missouri, making up around one-quarter of all Missourians on Medicaid — so any decrease in the federal match rate would have a significant effect on the state budget. 

Richardson said the department estimates that it could cost the state between $30 million and $35 million for every percent decrease in the federal match rate, meaning even a federal decline from 90% down to 80% would cost between $300 million and $350 million. 

One federal proposal would entirely eliminate the federal match for the adult expansion group. If the federal match rate were eliminated and Missouri kept covering the expansion population, KFF estimated, it would cost Missouri $7.3 billion. 

Missouri’s overall budget for the coming fiscal year is $53.7 billion, as recommended by the governor.

While other states could reverse their decision to expand Medicaid if the federal government drops the reimbursement rate, expansion is codified in Missouri’s constitution, which would require another statewide vote to change. 

Some Republicans have opposed cuts to Medicaid, citing the effect on their constituents. It’s a popular program: According to a survey last year by the health policy organization KFF, 71% of Americans want Medicaid to continue as it is today. 

That includes Missouri Sen. Josh Hawley, who told HuffPost last week: ““I would not do severe cuts to Medicaid.”

One in every five Missourians is enrolled in Medicaid. Nearly 40% of all Missouri children are covered by Medicaid. 

Medicaid in the state pays for two-thirds of all nursing home care in the state, and 38% of all births.

There are several other proposals that have been floated by Congressional Republicans.

One is to impose Medicaid work requirements, which the progressive think tank Center on Budget and Policy Priorities estimated could put 445,000 Missourians at risk of losing coverage.

Another would shift the payment model to a block grant system, limiting states’ flexibility to receive more reimbursement as costs rise. And it’s not the only safety net program on the chopping block: the House Republican plan could also slash the federal food benefits program, Supplemental Nutrition Assistance Program, reducing federal spending by $230 billion over a decade. 

Missouri Independent is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Missouri Independent maintains editorial independence. Contact Editor Jason Hancock for questions: [email protected].

Plan to shift from income tax to sales tax advances to Missouri Senate

by Rudi Keller, Missouri Independent
February 19, 2025

A plan to make Missouri dependent on sales tax for general revenue by eliminating the income tax is heading to the state Senate for debate after a party-line committee vote on Wednesday.

Two proposals — one to immediately end the state individual income tax and depend on sales tax for revenue, and another a proposed constitutional amendment to allow the transition to sales taxes, — make up the package intended to keep Republicans’ campaign promise to eliminate the state income tax.

If the constitutional amendment passes, it would end the individual income tax starting in 2027. 

The two proposals were each approved Wednesday on a 5-2 vote in the Senate Economic and Workforce Development Committee, with all Republicans in support and Democrats opposed.

Democratic state Sen. Barbara Washington of Kansas City said she’s worried about the impact of the immediate tax cut.

“I don’t see a clear plan as to how we make this money up,” Washington said.

Missouri House votes on party lines to eliminate income tax on capital gains

The income tax is a tax on productivity, and shifting taxes to other areas will help the economy, said Republican state Sen. Ben Brown of Washington, chairman of the committee and sponsor of the two bills.

“That has a more negative impact in our society than taxes in other areas,” Brown said of the income tax.

The top marginal rate for Missouri’s income tax has declined from 6% in 2015 to 4.7% this year under a design to slowly cut it as revenue increases that began with legislation passed in 2014.

Two future tax cuts, to a 4.5% rate, are already in state law and will take effect if general revenue growth hits targets.

Income tax remains the single largest portion of state general revenue, with the individual income tax contributing 65% and the corporate income tax about 7% of the $13.4 billion received in fiscal 2024.

The tax cut bill passed in 2014 also began indexing state tax brackets, which had not been changed since the 1930s, for inflation. The top tax rate applies to taxable income of more than $8,900, which is about $23,500 in total income when the standard deduction is included.

The tie between the two measures takes effect after the statewide vote to eliminate the income tax.

The constitutional proposal, intended to be on a ballot by November 2026, would create a mechanism for limiting the growth in state spending and directing revenue in excess of the cap to a special fund dedicated to sales tax reduction.

When the special fund holds at least $45 million, and revenues exceed a cap on spending, the state sales tax rate would be cut by one-hundredth of a percentage point. When the sales tax rate has been reduced to 4%, excess funds would be dedicated to reducing or eliminating the corporate income tax.

While every Republican on the committee voted for the measures, at least one showed he’s nervous about the key revenue-raising portion of the proposal — an expanded sales tax.

State Sen. Kurtis Gregory of Marshall said he couldn’t go along with any proposal that repealed sales tax exemptions enjoyed by farmers. Farmers don’t pay sales tax on fertilizer, fuel for farm vehicles and a host of other products.

“I don’t know where that sales tax rate is going to end up, but I’m just instantly looking at some of this and folks are going to be seeing a $50 to maybe $60 an acre increase in cost of production of row crops,” Gregory said.

The constitutional amendment does not directly repeal any sales tax exemption, Brown said.

“I don’t see anything that would be impacted one way or another by this bill,” he said.

It does repeal a 2016 initiative, placed on the ballot by Missouri Realtors, that barred lawmakers from imposing state sales tax on any market transaction “that was not subject to sales, use or similar transaction-based tax on January 1, 2015.”

Along with preventing any effort to tax services such as mechanic’s labor or tax accounting, the amendment protected from repeal exemptions to the sales tax on tangible goods in law at the time, such as prescription drugs and the general revenue portion of sales tax on groceries.

Retail sales in Missouri are taxed at 4.225% for state purposes — 3% for general revenue, 1% for public schools, 0.125% for the Department of Conservation and 0.1% for state parks and soil conservation. Local option sales taxes are in addition to the state tax and push the total rate in some areas above 10%.

Brown’s proposal would target a state sales tax of up to 4%.

The tax would be applied to “all sellers for the privilege of selling tangible personal property or rendering taxable services at retail in this state.”

The constitutional amendment does target one service with a special, higher tax. Lobbying firms would be required to pay a 6% sales tax on top of the general sales tax of up to 4%.

Missouri Realtors, who have shown substantial financial strength in campaigns, will oppose any effort to weaken the provisions added to the constitution in 2016, said Bobbi Howe, president of the Realtors

“Adding new taxes to services Missourians use every day,” Howe said, “is not sound policy and it unfairly impacts those least able to pay.”

CORRECTION: This article was updated on February. 20 at 7 a.m.  to reflect the changes made when the Senate committee voted for substitute bills.

Missouri Independent is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity. Missouri Independent maintains editorial independence. Contact Editor Jason Hancock for questions: [email protected].