Medicaid funding restrictions hit a roadblock in budget reconciliation bill

A Senate official put at least a temporary halt to one of the most contentious sources of Medicaid savings in the budget reconciliation bill.

The chamber’s parliamentarian, Elizabeth MacDonough, ruled that provisions to reduce Medicaid provider taxes cannot be included in the bill in their current form. If Republicans retain the tax limits or other provisions that have been ruled ineligible as presently written, they will need a 60-vote supermajority to get the bill through the Senate. That margin is not possible, given what’s expected to be unanimous opposition among the 47-member Democratic caucus.

John Thune (R-S.D.), the Senate majority leader, indicated that Republicans would adhere to the parliamentarian’s decision. Criteria in such rulings typically involve the stipulation that provisions in the reconciliation bill must have a direct impact on the federal budget. It was not immediately clear why the provider taxes failed to meet that bar, since state Medicaid taxes paid by providers generate federal matching funds.

Thune said Republicans are considering how to rework the various provisions at issue.

“These are speed bumps along the way,” he told reporters on Capitol Hill, indicating at least some of the rulings were “anticipated.”

If nothing else, the decision could make it all the more challenging for Congress to get a final bill to President Donald Trump by Trump’s imposed deadline of July 4. The task might have been difficult anyway, given stated opposition to Medicaid cuts among several Republicans in both chambers.

Provisions at issue

The House narrowly passed a version of the bill that would freeze provider taxes at their current rates, meaning no more than 6% of a provider’s net patient revenue, and would prohibit new taxes. The Congressional Budget Office (CBO) projected that federal Medicaid spending would drop by more than $89 billion over a decade as a result of the change.

Subsequently, the Senate took the proposed restrictions a step further by requiring current provider tax rates to be reduced to 3.5% in phases through 2031 in the 40 Medicaid expansion states.

The parliamentarian has not ruled against proposed reductions to the state-directed payments (SDPs) made through Medicaid managed care organizations. SDPs typically are funded, in part, by provider taxes.

In the House bill, SDPs could be grandfathered in at their current rates, but new SDPs would be limited to 100% of the Medicare payment rate in expansion states and 110% in the 10 non-expansion states. Per the CBO, the corresponding federal spending reduction would be nearly $72 billion over 10 years.

As with provider taxes, the Senate has proposed to go further, saying current SDPs should be reduced by 10% per year until they reach the designated Medicare-based rate.

Other clauses in dispute

Provider taxes were not the only Medicaid provision to be at least temporarily stymied by the parliamentarian’s ruling.

Several provisions geared toward limiting Medicaid coverage for undocumented immigrants were rejected as well. One of the blocked items would deny federal funding to states that provide Medicaid coverage to some categories of noncitizens, including those who have been granted asylum or certain related relief.

On Thursday, Congress was still awaiting rulings from the parliamentarian on several provisions, including one that would require a 10-year delay before implementing Biden administration regulations that would ease Medicaid eligibility determinations and enrollment, and repeal of a 2024 final rule that establishes staffing standards for nursing homes starting in 2026 (core components of the latter rule have been struck down by a federal judge).

The renewed enrollment restrictions would save $81.8 billion through 2034, according to the CBO, while rescinding the nursing home rule would be worth $23.1 billion.

ACA provisions receiving scrutiny

A few budget reconciliation items related to the Affordable Care Act also were found to be impermissible as drafted. One would deny premium subsidies to lawfully present individuals (e.g., refugees and asylum seekers) who are ineligible for Medicaid because their incomes are below 100% of federal poverty.

Another clause deemed ineligible for the reconciliation bill would target the strategy of “silver loading” by marketplace plans. The concept refers to raising premiums for benchmark silver-tier plans to make up for the loss of federal cost-sharing reduction (CSR) payments, which were eliminated during Trump’s first administration. The practice led to increased federal outlays for subsidies that cover the higher premiums.

As stipulated in the new bill, silver loading would be prohibited, and the higher premiums would be replaced with direct payments to insurers to reduce cost sharing for eligible enrollees. The change would be expected to make ACA plans less affordable, especially for those with incomes between 200% and 400% of federal poverty, and would lead to 300,000 fewer marketplace enrollees in 2034.

But the parliamentarian said that provision will not fly in its current form, and she also struck a related provision that would prohibit the reinstated CSR payments from going to any health plan that covers abortion services.

Reviewing the bill’s impact

According to the CBO, Medicaid spending would drop by $840 billion over 10 years as a result of the House bill. Regarding coverage levels, 7.8 million Medicaid beneficiaries and 3.6 million who receive ACA marketplace insurance would be uninsured in 2034. Roughly 500,000 would find other insurance, leaving a net coverage loss of 10.9 million.

The CBO also projects that 4.2 million marketplace enrollees would be uninsured in 2034 as a long-term result of this year’s currently scheduled expiration of the enhanced subsidies for buying marketplace plans. In addition, 900,000 would join the rolls of the uninsured due to recently finalized program-integrity regulations for the marketplaces (that number conceivably will come down as a result of accommodations made in the final rule, relative to the proposed rule).

Tallying those numbers, 16 million more people would be uninsured, relative to current law. The pending limitations on provider taxes would be expected to have a relatively low impact, roughly 400,000, because the restrictions do not constitute a beneficiary-facing provision (by comparison, work requirements would cause 4.8 million to lose coverage).

A scoring of the Senate bill has not been released. If the chamber’s provisions related to Medicaid all end up making the cut in some form, the projections for disenrollment over the next 10 years would be expected to increase in conjunction with the sharper funding reductions.