Washington Medicaid funding on the chopping block: Federal cuts could worsen state deficit

Washington lawmakers are grappling with a projected $12 billion budget deficit over the next four years and the outlook just got uglier. House Republicans in Congress passed a budget resolution Tuesday proposing drastic cuts to Medicaid funding.

At a press briefing Wednesday, Democratic leaders from the state House and Senate reacted to the resolution and painted a grim picture of the difficult decisions ahead.

At the center of the budget crisis is the resolution’s proposed $880 billion, which could include federal Medicaid funding nationwide, a cut that could compound the state’s financial woes.

As of August 2024, more than 1.8 million people — about a fifth of the state’s population — are on Medicaid. The total Medicaid payout in 2023 was $19.6 billion, split 50-50 between state taxpayers and the federal government.

Should Congress cut just 20% of its portion of Medicaid funding? Senate Majority Leader Jamie Pedersen (D-Seattle) said it would drain the state’s budget stabilization fund — often called the state emergency “rainy day” fund — of $1.7 billion.

“Those amounts would get wiped out in a couple of months,” he said during a press event on Wednesday at the state Capitol.

During that same briefing, Democratic leaders addressed a variety of topics, including the governor’s upcoming budget proposal and the potential for tax increases to cover the predicted $12 billion shortfall over the next four years.

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Lawmakers face tough choices

Pedersen described the current legislative session as a battle to find efficiencies before making deep cuts to crucial services.

“We are working very closely with nonpartisan staff, going line by line through the budget, and that process has been ongoing for three months,” he said.

But even with rigorous cost-cutting, lawmakers are staring down major reductions in child care, education and healthcare programs.

House Majority Leader Joe Fitzgibbon (D) echoed these concerns, pointing specifically to Medicaid cuts that could leave Washington’s most vulnerable residents without essential healthcare services.

“That would put at risk the lives of our constituents, especially those in Central Washington and other low-income areas,” he warned.

Republican pushback on deficit figures

While Democrats are working from a projected $12 billion shortfall, Senate Republicans argue the number is inflated. Senator Chris Gildon (R-Puyallup) claimed that a nonpartisan line-by-line review of the budget shows a $6.7 billion deficit, far lower than the figures touted by Democratic leadership.

Pedersen dismissed that claim, explaining the discrepancy stems from how future obligations — like negotiated wage increases for state employees — are accounted for.

“If you assume we can freeze state employee salaries at 0% for the next two years, then sure, maybe it’s closer to $7 billion,” Pedersen said. “But in the real world, we are not going to do that.”

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The Medicaid crisis: A disaster in the making?

Last month, Washington Governor Bob Ferguson said $27 billion, that’s one-third of the state’s budget, is funded by the federal government. House Speaker Laurie Jinkins (D-Tacoma) warned the consequences of the federal funding cuts could be devastating.

“If Congress moves forward with these Medicaid cuts, more and more people will become uninsured,” she said. “That means more folks going to emergency rooms instead of getting preventive care, which drives costs up for everyone. I’m holding my breath for the healthcare disaster that’s going to descend upon us next year.”

Senator Manka Dhingra (D-Redmond), the Deputy Majority Leader, added that healthcare costs and accessibility are directly tied to the state’s ability to raise revenue — or taxes, depending on whether you’re a Democrat or Republican.

“We’re looking at ways to balance the tax code, so the burden isn’t just on working families,” she said.

One proposal being floated includes taxing storage units — a small revenue stream, but one that would bring in funds from an industry currently untaxed beyond standard property taxes.

Where will the money come from?

While the idea of new taxes is politically volatile, Democratic leaders suggested that revenue increases might be necessary.

“We’re not rushing to raise taxes — that’s always a last resort,” Fitzgibbon insisted.

Some ideas being considered include expanding the Working Families Tax Credit, providing property tax exemptions for low-income residents, and increasing the tobacco tax.

Can the state tap into reserves?

One possible solution being debated is moving state reserve funds into the general budget. The state treasurer has already signaled opposition to that idea, but Senate Democrats appear to be weighing it seriously.

“We have a significant cash crunch in the first year of the next biennium,” Pedersen said. “I think it will be part of the Senate budget plan to use that money and ultimately pay it back in four years.”

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What’s next?

With a Friday deadline looming for certain budget-related bills, many progressive initiatives — including expanded free school meals and unemployment benefits for undocumented workers — are at risk of being shelved.

“A lot of good ideas are going to be left on the cutting room floor,” Pedersen admitted.

Ultimately, the fight over Washington’s budget will come down to a tug-of-war between spending cuts and revenue options. If the federal government follows through on its Medicaid cuts, the situation could become even more dire.

Governor Bob Ferguson is set to outline how he plans to implement his proposed 6% departmental budget cuts on Thursday.

Matt Markovich is the KIRO Newsradio political analyst. Follow him on X. 

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