As Congress deliberates what the future of Medicaid funding will look like, healthcare executives are worried.
House Republicans proposed Medicaid cuts last month that would have sweeping and disproportionate consequences — particularly for rural hospitals and underserved populations. The plan, which seeks to reduce Medicaid spending by hundreds of billions of dollars over the next decade, lacks specifics but could be implemented through reduced federal funding, block grants or stricter eligibility requirements. Healthcare leaders warn that these cuts would cause uncompensated care costs to balloon, leading to hospital closures and diminished care access.
The experts interviewed for this article agreed that while the proposed Medicaid cuts aim to reduce government spending, the plan will actually end up exacerbating the financial instability of the overall U.S. healthcare system — as well worsen health outcomes for millions of Americans.
Where does the plan stand?
House Republicans introduced a budget plan last month ordering various congressional committees to find at least $1.5 trillion in spending cuts over the next 10 years. It directs the Energy and Commerce Committee, which oversees Medicare and Medicaid, to reduce its spending by $880 billion over that time period.
The GOP’s budget blueprint doesn’t outline how the committee would achieve this target, but it’s clear that doing so would involve significant cuts to Medicaid. The nation’s Medicaid program, which provides health coverage for about 72 million Americans, accounts for one-sixth of all healthcare expenditures and is one of the largest programs under the Energy and Commerce Committee’s jurisdiction.
The day the plan was released, one federal budget expert — Bobby Kogan, senior director of Federal Budget Policy at Center for American Progress and former adviser to the director of the Office of Management and Budget under the previous presidential administration — wrote on X that this plan would undoubtedly require major cuts to Medicaid.
“For Energy and Commerce, it’s mathematically impossible to achieve $880 billion in savings if you don’t cut Medicaid or Medicare. There’s not enough money they have jurisdiction over. Republicans say they’re not cutting Medicare, so that means they’re cutting Medicaid,” he wrote.
A March 5 report from the Congressional Budget Office also found it is impossible to achieve $880 billion in savings without broad cuts to Medicaid.
The House passed the budget resolution on February 25, and the Senate is expected to vote on the plan this month.
How might Congress go about implementing these cuts?
Healthcare leaders certainly don’t have a sunny outlook about the budget resolution making its way through Congress, but it’s presently difficult to quantify exactly how disastrous its effects would be because the plan lacks specifics, said Harold Miller, CEO of the Center for Healthcare Quality and Payment Reform.
There are several ways Congress might go about reducing Medicaid funding, he noted.
For example, lawmakers could lower the federal government’s share of Medicaid funding, which would force states to either cover the difference or slash services. Alternatively, Congress could withdraw federal support for specific services, such as expensive GLP-1 drugs, which would shift financial responsibility to state governments, Miller explained.
Another tactic Congress may choose is cutting eligibility. With Medicaid eligibility reduced, fewer Americans would be insured, which would cause a surge in hospitals’ uncompensated care, Miller remarked.
He also mentioned block grants as a possibility. Instead of covering a percentage of costs, the federal government could provide states with a fixed sum for Medicaid — which would limit funding growth and force states to make tough decisions about whether or not to make their own cuts.
“Many people have argued that [block grants] could give the state greater flexibility in terms of exactly what it covers and how it structures the program. The concern is, if Congress decides it’s going to cut the overall amount, then the state might not have enough money to be able to provide the same level of benefits,” Miller remarked.
He pointed out that Medicaid cuts would likely lead to many difficult decisions for state-level leaders. Since Medicaid is a joint state-federal program, states would have to figure out how to respond to federal cuts — whether to reduce provider payments, get rid of services or maintain coverage by increasing state spending.
Care access and quality would worsen for patients across the board
Medicaid cuts would affect many more Americans than just those covered by Medicaid, noted Megan Cundari, senior director of federal relations at American Hospital Association. This is because the financial ramifications would force hospitals to make cost-cutting adjustments like eliminating departments or laying off staff members — thereby affecting all patients.
Slashing Medicaid funding means hospitals would deliver more uncompensated care. Fewer people would have Medicaid coverage, leading to more uninsured patients unable to pay for their services. A report released this week predicted that Medicaid cuts would result in an $80 billion revenue loss for providers next year, due in large part to a spike in uncompensated care costs.
This would strain providers’ finances, and many hospitals would be forced to eliminate certain service lines or reduce their staffing levels, Cundari pointed out.
“There may be, for example, longer wait times at the emergency department because there’s just not as many staff to help serve all the people that need to be served in the community. I think it’s important to understand that the Medicaid cuts are not just Medicaid cuts — and they will not just impact the people who are involved in the program. They’re also going to impact entire communities,” she declared.
There are hundreds of rural and safety-net facilities across the nation that rely heavily on Medicaid reimbursements to cover the cost of care — and for some of these organizations, a significant decline in Medicaid payments will be the straw that breaks the camel’s back, forcing them to close their doors, added Ben Finder, the AHA’s vice president of policy, research, analytics and strategy.
When a rural or safety-net hospital closes, its patients don’t just disappear, he noted. These patients must seek care at the next nearest facility, which is often a regional hospital that is already operating at capacity.
This surge in patient volume can overwhelm staff and decrease provider availability, further diminishing care quality and access for all patients in the area, Finder explained.
Rural hospitals would be disproportionately hurt
Medicaid cuts would hit rural hospitals, those who can least afford it, the hardest. For one, most of these hospitals operate on razor-thin margins — research from last month shows nearly half of the country’s rural hospitals are operating at a loss.
Secondly, many rural Americans receive coverage through the Medicaid program. In rural communities, 18% of adults are covered by Medicaid.
In six states — Arizona, Arkansas, Florida, Louisiana, New Mexico and South Carolina — more than half of children in rural areas are covered by Medicaid or the Children’s Health Insurance Program (CHIP). CHIP provides low-cost health coverage to children whose families earn too much to qualify for Medicaid but can’t afford private insurance. While CHIP is technically a separate program from Medicaid, CHIP is typically managed and administered in conjunction with it.
Nick Olson, CFO of Sanford Health, called Medicaid “the bedrock” of rural healthcare. Sanford is a South Dakota-based system operating 56 hospitals and more than 270 clinics across several states.
Most of the health system’s patients live in rural communities, Olson said. He also pointed out that more than half of Sanford’s skilled nursing facility residents are covered by Medicaid.
“Hospitals across the country are already struggling to break even, and this really puts pressure on their ability to reinvest back into the communities that they’re serving — to reinvest back into increasing and expanding access,” Olson declared. “For us, in 2022 alone, and I believe more recent years are similar, we provided over $159 million in uncompensated care.”
Reducing Medicaid funding would cause that figure to rise to an even more unsustainable level, Olson said.
Another healthcare executive — Alan Morgan, CEO of National Rural Health Association — said there is no question that rural hospitals would close should the government cut Medicaid spending.
“Somewhere between 400 to 700 rural hospitals are at financial risk for closure right now, so any type of reduction in revenue is going to have a dramatic impact on these facilities,” he remarked.
Rural hospital closures would force many Americans to travel long distances for even basic treatments and emergency care. This would cause many rural residents to forgo routine care, leading to greater utilization of emergency departments — the most expensive place to get care — Morgan explained.
This problem would destroy the purported intent of the budget resolution, which is to save money, argued Effie Carlson, CEO of care coordination company Watershed Health.
In other words, the House Republicans’ plan to cut Medicaid funding aims to save money, but it will likely increase overall healthcare spending. Higher utilization rates in expensive settings like ERs and long-term care facilities will lead to higher costs for taxpayers, Carlson said.
“In healthcare, you don’t avoid paying for things — it just gets paid for somewhere else in a less controllable way,” she declared.
To paint an even bleaker economic picture, rural hospitals are often the largest employers in their area, which means that if they reduced staffing or closed, unemployment in those regions would increase, Carlson added.
This would also lead to greater unemployment and reduced tax revenue, thereby pushing rural communities deeper into economic distress, she remarked.
At first, slashing Medicaid funding may appear to save dollars on paper, but experts agree that the real costs are hidden beneath the surface. When hospitals close and care disappears, expenses don’t just go away — they get passed to struggling communities and overwhelmed providers.
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