The Trump administration’s flagship budget package — which includes the biggest Medicaid funding cuts ever proposed in the history of the program — is currently awaiting a Senate vote, having already made it through the House of Representatives last month.
Experts believe the legislation would cause a slew of negative effects — such as millions of people losing access to care, worsened public health, unsustainable revenue losses for providers and higher premiums for commercially insured patients.
Decreasing Medicaid enrollment by millions
To understand why this bill will hurt hospitals, one must first understand how it affects low-income Americans. If signed into law, it would kick more than 10 million Americans off Medicaid, according to estimates from the Congressional Budget Office.
The main provision causing this is one that imposes strict work requirements for able-bodied adults ages 19 to 64. These enrollees would be required to work at least 80 hours per month in order to maintain their coverage — unless they can prove they are enrolled in an education, job training or substance abuse treatment program. There are also exemptions for people who are pregnant, postpartum, recently released from prison, and serving as full-time caregivers for dependents with disabilities.
Under the legislation, enrollees would have to regularly report their work hours, which creates a high administrative burden. Many people would be at risk losing coverage not because they aren’t working, but because of things like paperwork errors, inconsistent employment or difficulty navigating the reporting system.
If the bill is passed, these requirements would begin on December 31, 2026 — and it would mark the first time that Medicaid work requirements are a federal-level policy.
Only two states, Arkansas and Georgia, have implemented work requirements for Medicaid enrollees. Arkansas did so in June 2018 — and by December 2018, more than 18,000 people lost coverage due to noncompliance. However, a federal judge put an end to the work requirements in 2019, citing concerns about coverage losses and the effort’s alignment with Medicaid’s objectives.
Georgia’s work requirements program, which went into effect in July 2023, is still active. The state projected that 100,000 people would become enrolled in the new program during its first year — but only about 5,100 people participated as of October of last year.
The GOP’s spending bill also would shift Medicaid from an annual enrollment process to one that requires recipients to enroll every six months — and it would undo a Biden-era policy that sought to simplify enrollment and renewal.
Additionally, the legislation seeks to decrease federal matching funds for states’ Medicaid expansion populations, which may compel states to scale back or eliminate expanded coverage. It would also limit states’ ability to use provider taxes as a way to draw down federal Medicaid matching funds — and both of these restrictions would go into effect immediately upon enactment of the legislation.
Provider taxes refer to taxes that states impose on healthcare providers in order to help fund their Medicaid programs. These fees are a crucial financing tool that states have been using for decades to fund their share of the Medicaid program, pointed out Char MacDonald, executive vice president of public affairs at the Federation of American Hospitals.
“The bill would freeze provider taxes and cap state-directed payment programs, forcing states to choose between cutting critical benefits and raising taxes on families and small businesses. The freeze will hinder states’ abilities to respond to changes in the economy or the health and wellbeing of their Medicaid population — especially in times of crisis or disaster,” she stated.
States that have yet to adopt Medicaid managed care or to fully develop their Medicaid financing programs will be hit the hardest, MacDonald noted.
Because the bill seeks to freeze provider taxes and cap state-directed payment programs without adjusting for inflation, these states will have an especially difficult time figuring out how to fund Medicaid properly, she explained. Some of these states include Alaska, Connecticut, Idaho, Montana and Nebraska.
The spending bill says that states’ funding resources are being restricted in the name of eliminating waste, fraud and abuse — but American Hospital Association CEO Rick Pollack thinks this claim is disingenuous.
“We reject this notion as these critical, legitimate and well-established Medicaid financing programs are essential to offset decades of chronic underpayments of the cost of care provided to Medicaid patients. These new policies are estimated to decimate federal support for the Medicaid program by more than $700 billion over 10 years and will displace healthcare coverage for millions of Americans, moving them from insured to uninsured status,” he said in a statement.
Hurting hospitals’ already-fragile operating margins
Uninsured people still need healthcare, and hospitals serve everyone who walks through their doors regardless of their insurance status, noted MacDonald of the Federation of American Hospitals.
She highlighted that an increase in uninsured patients will lead to more uncompensated care — which will drive up hospitals’ costs during a time when their expenses are already climbing steadily.
The Robert Wood Johnson Foundation estimates that uncompensated care will increase by $278 billion over the next decade if the spending bill is enacted.
During an interview in March, Nick Olson, CFO of South Dakota-based Sanford Health, said that his health system spent $159 million in uncompensated care in 2022 alone. Decreasing Medicaid funding would cause that figure to rise to an even more unsustainable level, he stated.
Another healthcare expert — Seth Cohen, president of healthcare billing company Cedar — also expressed concern about what this spike in uncompensated care is going to do to hospitals’ already-thin margins.
“There could be up to 20% decline in operating margins for hospitals — and for those that are safety net hospitals, that primarily serve underserved communities, we see their margins being impacted by 50-60%. These are massive hits,” he remarked.
Hospitals factor in things like bad debt and unpaid patient bills when they’re negotiating rates with insurers — and this often ends up driving up healthcare costs for the average consumer, Cohen pointed out.
In other words, the more bad debt that hospitals have to write off as a result of uncompensated care, the more they are going to have to raise their negotiated rates with commercial payers.
Cohen emphasized the inefficiency of the spending bill. It promises to save money, but it’s really just shifting costs from the Medicaid program onto individual patients and health systems, he explained.
Ripple effects across the system
In addition to raising premiums, the bill could also further impact insured people through diminished care access and quality, pointed out Katherine Hempstead, senior policy officer at the Robert Wood Johnson Foundation.
“There’s ripple effects from these changes that are going to go well beyond just the people that are most immediately affected,” she declared.
Hospitals facing financial stress could be forced to reduce their staffing levels, cut services or even close their doors, Hempstead said.
This is especially true for the nation’s rural hospitals, she noted, as rural providers are often financially fragile and dependent on Medicaid revenue. In rural communities, 18% of adults are covered by Medicaid.
Between 400 to 700 rural hospitals across the country are at financial risk of closure — and any type of reduction in revenue will have a drastic impact, Hempstead stated.
Hospital closures in rural America would also pose a threat to many local economies — as rural hospitals are often one of the biggest employers in their area, she added.
Overall, she believes the spending bill would reverse the progress that the Medicaid program has made in the past decade.
When coverage is expanded, more people have access to preventive care — and the downstream effects of this are things like improved chronic disease management and reduced mortality, she explained. But the spending bill moving through Congress threatens to halt that progress before those benefits can fully take hold.
Since the legislation seeks to fundamentally reshape the way Medicaid operates, it’s difficult to predict the exact economic impact it will have or how soon the effects will be realized, Hempstead said. She expects provider revenue and patient cost challenges to compound over the next decade if the bill gets enacted.
Experts agree that the bill would cast an oppressive and ongoing financial burden onto providers and patients.
They warn that these changes will not only leave millions without care, but also destabilize hospitals already-shaky financial footing, as well as increase costs for all patients regardless of coverage status.
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