The Trump administration’s flagship budget plan, including the largest Medicaid funding cuts proposed in the program’s history, is currently awaiting a Senate vote, which had already voted through the House last month.
Experts believe the legislation will have a series of negative impacts, such as thousands of people losing health services, worsening public health, unsustainable loss of income from providers, and providing higher premiums for patients with commercial insurance.
Reduced millions of Medicaid enrollment
To understand why the bill hurts hospitals, it is necessary to first understand how it affects low-income Americans. According to the Congressional Budget Office’s estimates, if signed into law, it would kick out Medicaid for more than 10 million Americans.
The main provision that causes this is to impose strict work requirements on sound adults aged 19 to 64. These participants must work at least 80 hours a month to maintain their coverage – unless they can prove that they have participated in education, vocational training or abuse treatment programs. Pregnant people, recently released from prison and also have exemptions as full-time caregivers for people with disabilities.
Under legislation, admissions must regularly report their working hours, which can create a huge administrative burden. Many people are at risk of losing coverage, not because they don’t work, but because of paperwork errors, job inconsistencies, or difficulties in navigation reporting systems.
If the bill passes, these requirements will begin on December 31, 2026 – which will mark the first time that Medicaid job requirements are federal-level policies.
Arkansas and Georgia only have two states that implement job requirements for Medicaid participants. Arkansas did so in June 2018, and by December 2018, more than 18,000 people lost coverage due to non-compliance. However, a federal judge ended the job requirement in 2019, citing concerns about coverage losses and aligning with Medicaid goals.
Georgia’s Job Requirements are scheduled to take effect in July 2023, but are still active. The state expects 100,000 people to enroll in the new program in the first year, but as of October last year, only about 5,100 people participated.
The Republican spending bill also shifts Medicaid from the annual admission process to requiring recipients to register every six months – which would revoke Biden-era policy that attempts to simplify admission and renewal.
Additionally, the legislation aims to reduce federal matching funding for states’ Medicaid expansion population, which could force states to retreat or eliminate expanded coverage. This will also limit states’ use of provider taxes as a way to reduce Medicaid matching funds, both of which will come into effect immediately after legislation is enacted.
Provider tax refers to taxes imposed by states on health care providers to help fund their Medicaid programs. The fees are the key financing tools that states have used for decades to fund their share of Medicaid.
“The bill will freeze provider tax and CAP state-guided payment plans, forcing states to choose between cutting critical benefits and increasing taxes for households and small businesses. The freeze will hinder states’ response to economic changes, or health conditions during times of crisis or disaster, especially the health and well-being of their Medicaid population.”
McDonald noted that states that have not yet adopted Medicaid managed care or have adequate Medicaid financing plans will be hit hardest.
She explained that because the bill attempts to freeze provider tax and CAP state-guided payment plans without adjusting inflation, these states will be difficult in figuring out how to properly fund Medicaid. Some of these states include Alaska, Connecticut, Idaho, Montana, and Nebraska.
The spending bill says states’ funding resources are restricted in the name of eliminating waste, fraud and abuse — but Rick Pollack, CEO of the American Hospital Association, believes that the claim is unwise.
“We reject this idea because these critical, legal and established Medicaid financing programs are critical to offset the inadequate payments for long-term care provided to Medicaid patients over decades. These new policies are estimated to reduce federal support for Medicaid over $700 billion over a decade and will replace their insurance on Americans, allowing them to place them in the insured and put them in the insured.
Hurts the operating profit margin that the hospital has already troubled
McDonald of the American Federation of Hospitals noted that uninsured people still need health care, and hospitals serve everyone who walks through the door.
She stressed that the increase in uninsured patients will lead to more unpaid care – which will promote hospital expenses as their expenses have steadily climbed.
The Robert Wood Johnson Foundation estimates that if a spending bill is in place, unpaid care will increase by $278 billion over the next decade.
In a March interview, Nick Olson, chief financial officer of Sanford Health, South Dakota-based Sanford Health, said his health system spent $159 million in unpaid care in 2022 alone. He said reducing Medicaid funding would lead to the number rising to a more unsustainable level.
Another healthcare expert – Seth Cohen, president of healthcare billing company Cedar – also said he was concerned about the already thin profit margins of hospitals will be paying attention to the excitement in this kind of unpaid care.
“The operating margins of hospitals are likely to drop by 20%, and for those safety net hospitals that serve primarily underserved communities, we see their margins being affected by 50-60%. That’s a huge hit.”
Cohen notes that hospitals consider things like bad debts and unpaid patient bills when negotiating tax rates with insurers – which often promotes health care costs for the average consumer.
In other words, the more bad debts the hospital has to write off due to no compensation care, the more they have to raise the negotiated interest rates with commercial payers.
Cohen stressed the inefficiency of the spending bill. He explained that it hopes to save money, but that really just shifts the cost of Medicaid to individual patients and health systems.
Ripples effect of the entire system
In addition to raising premiums, the bill could further impact the insured through reduced access to care and quality, he noted, noted Katherine Hempstead, a senior policy officer at the Robert Wood Johnson Foundation.
“The chain reactions of these changes will be far beyond those most affected,” she declared.
Hempstead said hospitals facing financial pressures may be forced to lower staffing levels, cut services and even close doors.
This is especially true for rural hospitals in the country, she notes, because rural providers are often financially vulnerable and depend on Medicaid income. In rural communities, 18% of adults are covered by Medicaid.
Hampstead said 400 to 700 rural hospitals nationwide have financial risks of closures – any type of revenue reduction will have a huge impact.
She added that hospital closures in rural America will also pose a threat to many local economies – because rural hospitals are often one of the largest employers in the region.
Overall, she believes the spending bill will reverse the progress made by Medicaid over the past decade.
She explained that as coverage expands, more and more people have access to preventive care—its downstream effects are things like improving chronic disease management and reducing mortality. But the spending bill through Congress threatens to stop such progress until these benefits are fully realized.
Hampstead said that because the legislation attempts to fundamentally reshape the way Medicaid works, it is difficult to predict the exact economic impact it will have or when it will be achieved. She expects provider revenue and patient cost challenges to increase over the next decade if the bill is enacted.
Experts agree that the bill will create oppression and ongoing financial burdens on providers and patients.
They warn that these changes will not only cause millions of people to be careless, but will also destroy hospitals with a solid financial foundation and increase costs for all patients regardless of their coverage status.
Photos: dkfielding, Getty Images
