Budget reconciliation bill faces a rocky road as Medicaid and ACA cuts draw provider concerns

In the days after a key House committee approved legislation that includes substantial cuts to Medicaid funding, the bill’s path forward remained full of obstacles.

The healthcare portion of the budget reconciliation bill passed the Energy and Commerce Committee on a party-line 30-24 vote May 14. Since then, reports from Capitol Hill have detailed the separate and conflicting concerns of moderates and hard-liners in the Republican caucus.

On May 16, the House Budget Committee declined to advance the bill, with five hard-liners joining Democrats in voting “no.” Talks were set to continue over the weekend to win over the holdout GOP committee members. One possible change would push up the start of the Medicaid work requirement from 2029 to 2027.

Update: On May 18, the Budget Committee approved the bill after four Republican fiscal hawks switched their votes from “no” to “present.” There was no official word on changes to the bill, which still needs to clear the Rules Committee before advancing for a full vote on the House floor.

Even if House leadership bridges the divides, Senate Republicans have their own apprehensions about the bill and are pledging to make changes. Those differences likewise will have to be resolved before Congress formally signs off on the legislation.

“I think they’ll ultimately get a bill done in the House, but I think that’s then going to be substantially challenging in the Senate,” said Larry Bucshon, MD, a seven-term member of the House as a Republican representing southwestern Indiana before retiring last year, and currently a senior policy adviser and lobbyist with Holland & Knight.

Medicaid implications

One issue likely giving some Republicans pause, Bucshon said, is the projections by the Congressional Budget Office (CBO) about the bill’s impact on insurance rates.

Per the updated projection, 10.3 million fewer people would be enrolled in Medicaid in 2034 if the legislation passes as currently written. Some of the provisions that would affect coverage are the work requirement, repeal of 2024 regulations designed to streamline eligibility and enrollment processes, restrictions on provider taxes that are used to fund supplemental payments, and a tighter limit on those payments.

The cap on tax arrangements would limit a key state funding source for Medicaid, potentially leading to cuts in eligibility, benefits and provider payments. In addition, state-directed payments (SDPs) to providers through Medicaid managed care organizations could not exceed the Medicare rate, whereas now such payments can equal the commercial insurance rate.

Hospitals may take heart in the fact that existing SDPs could remain at their current funding levels, as could SDPs proposed and approved before the date of the bill’s enactment. SDPs totaled more than $110 billion annually as of August 2024, according to a report by the Medicaid and CHIP Payment and Access Commission.

Nonetheless, the tighter caps are expected to have repercussions.

“Setting limits on the amount that can be paid for SDPs into perpetuity will impact the delivery of care for both Medicaid beneficiaries as well as the larger communities served by our hospitals and health systems,” the American Hospital Association (AHA) said in written comments to the Energy and Commerce Committee.

Similar concerns apply to provider taxes, a key funding mechanism for SDPs and other supplemental payments. Not only tax rates but also the dollar amounts appear to be capped permanently in the bill, the AHA wrote.

Marketplace implications

Another issue for hospitals and other healthcare stakeholders arose from the House Ways and Means Committee’s portion of the budget reconciliation bill. Not surprisingly, that committee omitted continued funding of the enhanced premium tax credits (i.e., subsidies) for buying insurance in the Affordable Care Act (ACA) marketplaces. The tax credits will expire going into 2026 enrollment unless Congress reverses course.

With the reconciliation bill incorporating the expiration of the subsidies, along with including a Trump administration proposed rule that seeks to tighten ACA enrollment, the CBO’s preliminary projection for the 2034 net increase in uninsured was 13.7 million.

In comments to the Ways and Means Committee, the Federation of American Hospitals (FAH) cited Century Foundation findings that 5 million people would lose ACA coverage and millions more would incur insurance premium increases of more than 50% if the credits expire. Among the vulnerable groups would be 1.5 million children covered by the marketplaces and 2 million adults with chronic health conditions, according to the federation.

“As Congress works to extend the Trump tax cuts, such legislation should include extending enhanced tax credits in the individual health insurance market to put meaningful health insurance plans within reach for millions of Americans,” FAH wrote. “This will allow small businesses and individuals to be full participants in the American economy, instead of worrying about how to afford health coverage that meets the needs of their families.”

How to ease the burden

Healthcare providers may need to prepare for further restrictions on their reimbursement, Bucshon said, but a federal deregulation push would help them reduce their cost structures and mitigate concerns over the reduced revenue. The Trump administration is pushing deregulation across sectors and has sent out a request for information on steps for the healthcare industry.

“When you have to have entire compliance departments — sometimes hundreds of people in these big hospitals — that costs a lot of money,” said Bucshon, who before serving in Congress was chief of cardiothoracic surgery at the hospital now known as Ascension St. Vincent in Evansville, Ind. “That’s why you’ve seen a dramatic expansion of hospital administration costs.”

He cited Stark Law reform as one pressing example. The prohibition on physician self-referrals of Medicare and Medicaid patients became law in 1990.

During his time in Congress, Bucshon promoted legislation to decrease penalties for minor Stark violations. But he ran into resistance from lobbyists and fellow members of Congress in both parties who were concerned about giving physicians too much leeway to profit from referral processes.

“I get why it was put in place — the anti-kickback stuff and all of that — but you’ve got ridiculous things,” Bucshon said. “You forget to dot an ‘i’ or cross a ‘t’ and you’ll get fined $10,000 or something per incident for little infractions that are really insignificant but cost hospital systems millions every year.”

He added, “You have to address regulation, you have to address Stark Law. You have to do those things if you think that you can decrease the outlays from these federal healthcare programs. Otherwise, it just doesn’t work. You’re going to lose services, particularly in rural America and in underserved urban America.”