Reconciliation bill with substantial Medicaid cost-cutting is set to become law

Note: The headline and some information in this story were updated July 3 in response to events in Congress.

July 3 update

The House passed the reconciliation bill by a party-line 218-214 vote (with two Republicans voting “no”), teeing it up for President Donald Trump to sign into law July 4. See the original story below for details on the bill and the prospective impact on the healthcare industry.

News of final passage did not sit well with hospital advocates.

“Americans will feel the reverberations of this legislation in communities across the nation — whether directly due to a loss of coverage, the increase of their costs, or as doctors and hospitals scramble to sustain services and keep their doors open,” Chip Kahn, president and CEO of the Federation of American Hospitals, said in a written statement. “Members of Congress will have to revisit this calamity to mitigate the effects on their constituents and communities.”

Kahn said that effort should start by extending the enhanced subsidies for buying Affordable Care Act marketplace insurance. Without an extension, more than 4 million enrollees would be unable to afford insurance and would lose coverage heading into 2026, according to projections by the Congressional Budget Office. It would be considered a surprise if Republicans in Congress opt to extend the subsidies.

Rick Pollack, president and CEO of the American Hospital Association, referred to the looming Medicaid cutbacks: “No matter how often repeated, the magnitude of these reductions — and the number of individuals who will lose health coverage — cannot be simply dismissed as waste, fraud and abuse. The faces of Medicaid include our children, our disabled, our seniors, our veterans, our neighbors and friends. The real-life consequences of these reductions will negatively impact access to care for all Americans.”

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July 2 update

As of early Wednesday evening, the House had not made apparent progress in getting the bill passed. Leaders were striving to ameliorate the concerns of both moderates who think the Medicaid cuts in the Senate’s bill go too far and deficit hawks who think spending needs to be pared further. The latter group appeared to be the most staunchly opposed.

Nonetheless, late in the afternoon, Speaker Mike Johnson (R-La.) was telling reporters he thought final passage could happen as soon as Wednesday night.

As of mid-evening, however, at least one moderate Republican and three conservatives were refusing to support a key procedural vote, citing concerns about the bill.

See below for an update on the projected impact of the bill on rural healthcare funding.

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Original story

A landmark bill that cleared the Senate on Tuesday includes an influx of funding for rural healthcare providers but nonetheless would usher in a scaling back of the healthcare safety net.

The Senate passed the budget reconciliation bill, 51-50, with Vice President J.D. Vance casting the tiebreaking vote. Budget reconciliation rules allow the chamber to pass legislation via a simple majority, rather than requiring at least 60 votes in favor, as is typical.

The bill still must gain approval in the House, which last month passed its own version but now has to consider the Senate’s revisions. A vote to finalize the bill could happen as soon as Wednesday, although some House Republicans have expressed reservations that the Senate’s bill goes further in restricting Medicaid funding for providers, among other areas of concern. If the House does not give a final sign-off this week, the timeline for passage would be in flux.

President Donald Trump has urged Congress to quickly pass the bill, also known as the One Big Beautiful Bill Act, as a way to ratify key campaign promises and policy priorities such as sustained tax relief and border security. The healthcare provisions in the bill are financing mechanisms for those initiatives, although Republicans also have argued that efforts to tighten Medicaid enrollment will ensure the program remains viable for the traditional categories of beneficiaries (e.g., people with disabilities and mothers of young children).

Big rollback in store

The Congressional Budget Office (CBO) completed its assessment of the Senate’s bill, as it stood on June 27, and reported that Medicaid spending would drop by $1.02 trillion through 2034, relative to current law, while 11.8 million more Americans would be uninsured that year. Those projections are up from $863 billion and 10.9 million under the previous House bill.

The CBO previously calculated that 5.1 million people would lose insurance over the 10-year span from non-legislated changes to the Affordable Care Act (ACA), including more than 4 million due to the anticipated expiration of enhanced subsidies for buying marketplace insurance going into 2026. Assuming that same number holds, the total decline in insurance enrollment is projected to be 16.9 million.

That overall impact would not be felt immediately since most of the big Medicaid changes would be two to three years away, including those that curtail reimbursement to providers.

Pivotal changes loom

Medicaid 10-year savings would come from various provisions, most notably the launch of a national work requirement for able-bodied adults, including parents whose children are older than 14 ($325 billion in savings). The requirement is scheduled to begin in 2027, but states can ask HHS for up to a two-year delay if they show good-faith efforts to comply. Adding to the potential burden, states also would need to conduct Medicaid eligibility redeterminations every six months for expansion beneficiaries beginning in 2027, up from yearly under current law.

Another major policy change would be a tighter limit on hospital taxes, a key funding mechanism for Medicaid supplemental payments ($191 billion in savings). All states would be barred from enacting new taxes. While non-expansion states could maintain the allowable limit of 6% of net patient revenues for current taxes, expansion states would have to phase down their rates to 3.5% over five years starting in 2028.

State-directed payments (SDPs) made through Medicaid managed care organizations would drop substantially ($145 billion in savings) by capping yet-to-be implemented SDPs at the Medicare rate for Medicaid expansion states and 110% of the Medicare rate for non-expansion states. Existing SDPs, which 2024 regulations confirmed can equal the average commercial rate, would be reduced by 10% per year starting in 2028 until reaching the tighter limits.

Hospitals also would need to prepare for the FY26 start of a three-year, $24 billion cut to Medicaid disproportionate share hospital (DSH) payments. The cut has been pending for more than a decade as a cost-savings measure to offset the ACA’s coverage expansion. A further delay, until FY28, was in the House bill but not in the Senate package, although there is still time to alleviate the cut via the FY26 appropriations process.

Help for some hospitals

A new addition to the bill in the form of a $50 billion fund is designed to provide hospitals and other healthcare providers in rural areas with a cushion to withstand the changes. Reportedly at the behest of Sen. Lisa Murkowski (R-Alaska), whose vote was needed to secure passage of the bill, the funding pool was doubled Tuesday after being proposed at $15 billion and then $25 billion over the weekend.

Funding would be distributed to states at $10 billion per year starting in 2026, helping recipients prepare for Medicaid reimbursement cuts. At least a few GOP members of the House have expressed reservations about whether the fund will achieve its desired effect, including because half the allocation will be directed based on CMS’s assessment of which states have the biggest need.

The funding would be used as part of a “transformation plan” for rural healthcare facilities, including steps to improve access and outcomes, implement emerging technologies and establish strategic regional partnerships with larger healthcare providers, among other initiatives.

July 2 update: An analysis by KFF estimates that federal Medicaid spending in rural areas would decrease by $155 billion over the 10-year projection period, calling into question whether the amount allocated to support rural hospitals would be adequate. The anticipated reduction from the previous House bill was $119 billion.

Dodging a blow

A late amendment under consideration would have considerably expanded the bill’s Medicaid impact. A group of deficit hawks led by Sen. Rick Scott (R-Fla.) pushed an amendment that would have cut Medicaid funding from the federal government to the states for the expansion population, specifically able-bodied working-age adults without children. The expectation was that the amendment at least would be put to a vote, but that never happened.

Federal funding for new enrollees in that group would have been phased down from 90% of state costs under current law to 50%, matching the rate for the traditionally served Medicaid population. Existing members of the expansion population would have been grandfathered in, and the reduction would have begun in 2031.

The amendment was projected to have among the biggest fiscal impacts of any Medicaid provision, according to a preliminary estimate by the CBO, with savings of $313 billion through 2034.

Fearing the fallout

Even without the Scott amendment, hospital advocates said the bill’s impact on the healthcare industry would be profound.

The legislation “will drive up uncompensated care for hospitals and health systems, which will affect their ability to serve all patients,” Rick Pollack, president and CEO of the American Hospital Association, said in a written statement. “It will force hospitals to make service line reductions and staff reductions, resulting in longer waiting times in emergency departments and for other essential services, and could ultimately lead to facility closures, especially in rural and underserved areas.”

In a letter to Republican leaders prior to the Senate vote, HFMA said implementation of healthcare policies in the bill should be delayed to give an opportunity for formal consideration of how to mitigate the consequences.

In remarks during the June 24 general session at HFMA’s Annual Conference, Kevin Holloran, senior director with Fitch Ratings, suggested the type of rollbacks being considered in the bill could affect the not-for-profit hospital sector’s credit rating — even though the Medicaid impact likely would be more about attrition than a sudden decline.

“There is nothing in the legislation that says on Jan. 1, 2026, 8 million people will be cut from the rolls,” Holloran said. “That’s not how it works. It works by basically making it harder to keep [coverage] and harder to re-up every time.”