Reconciliation: What’s at Stake for States and Medicaid
Following passage of the U.S. House of Representatives’ budget reconciliation bill, members of the U.S. Senate had ample opportunity to hear from their constituents over the past week while Congress was in recess. This week, the Senate returns to begin their own work on the One Big Beautiful Bill Act. The implications for states, their Medicaid programs, and their budgets are significant.
Changes to Medicaid are a notable consideration for states as the program, which provides coverage to low-income individuals, is jointly financed by the states and federal government. Each state administers its own Medicaid program under broad federal requirements, with states having flexibility in determining various aspects of the Medicaid program, such as eligibility, benefits, reimbursement, and administrative structures. Medicaid makes up a large portion of state budgets (in excess of 30 percent in some states), and federal Medicaid funding is one of the largest revenue sources for states. Several provisions of the reconciliation bill will have a substantial impact on the funding and administration of Medicaid for states.
The Congressional Budget Office (CBO) estimates that the reconciliation bill passed by the House will cause states to realize losses in federal Medicaid revenue over 10 years of at least $800 billion. On average, this is expected to mean an annual revenue loss of 9 to 10 percent of federal Medicaid revenue for states, with states that have expanded Medicaid prone to experience higher revenue loss than those that did not. Aside from the CBO estimate that 7.6 to 10.3 million people are expected to lose Medicaid coverage if implemented as passed by the House between now and 2034, the House-passed bill stands to create continued uncertainty for state budgets at an already increasingly tenuous time for state revenues as forecasted at the beginning of the year.
Limiting our overview strictly to some of the most significant Medicaid provisions in the House passed reconciliation bill, here are the provisions likely to generate significant conversation before the Senate that would impact states, their administrative operations and their budget the most.
Work Requirements (> $280 billion).: Beginning in 2029, states would be required to implement community engagement (work) requirements for their Medicaid expansion populations as a condition of eligibility. Work requirements are expected to contribute to decreased enrollments due to enrollees acquiring work that would make them ineligible, non-adherence to work requirements, and procedural disenrollments.
Increasing Frequency of Eligibility Redeterminations (> $53 billion). Beginning in 2027, Medicaid expansion states would be required to conduct redetermination verifications every six months instead of annually. It’s expected that this will increase enrollment churn and procedural disenrollments.
Reducing Expansion Population Federal Match in Certain States (> $11 billion). Requires a reduction in the federal match states receive for the expansion population from 90 to 80 percent of all expenditures for states that provide Medicaid coverage to undocumented immigrants or cover lawfully residing children or pregnant individuals authorized as an optional coverage population under existing federal law.
Limiting State Provider Taxes and Capping Other Medicaid Payments (>$136 billion). As of enactment, states would be limited in raising provider taxes in certain ways and prohibited from establishing new provider taxes or increasing their existing provider taxes with the intent to raise additional federal Medicaid revenue that, in many cases, increases Medicaid reimbursement rates. Additionally, other state Medicaid programs used to draw down federal Medicaid revenue, known as state-directed payment programs, would be capped at 100 percent of Medicare for expansion states and 110 percent of Medicare for non-expansion states.
As the Senate works to send something back to the House for consideration by the July 4th recess, it is increasingly likely that what passed the House will not pass the Senate verbatim. Expect continued engagement on these Medicaid provisions and others over the course of the next month. However, undoubtedly, the impact to states and healthcare stakeholders that have to work collaboratively with state administrative and legislative officials on implementation will be significant. In addition, losses in federal revenue from Medicaid could cause problems for state budgets. This could have a broader impact as states will need to consider whether to make cuts to their Medicaid program or make up losses from other areas of the budget. For additional coverage on how the reconciliation process impacts state budgets, healthcare coverage and implementation across states, reach out to MultiState for enhanced coverage, research and insights.
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