Congressional leaders are considering a broad budget proposal known as the 2025 reconciliation bill that would significantly transform federal programs.
Among the areas of top concern is Medicaid, the federal health program for low-income adults, older adults, people with disabilities, and many children.
Currently, roughly 71 million Americans are on Medicaid. Under the proposed modifications, according to experts, access to care would be significantly reduced.
For instance, analysis indicates these changes would lead to an estimated 8.6 million individuals losing Medicaid coverage.
Medicaid is shared between the federal government and the states. Normally, if a state is spending money on Medicaid, then the federal government helps pay the cost.
The House GOP proposal would reduce Medicaid spending by limiting some payments and abolishing some requirements for funds. Major portions of the draft bill are:
• Cap on further payments to providers (including further payments to hospitals and clinics).
• Provider tax caps and freezes (taxes states impose on physicians or hospitals to be paid Medicaid funds).
• New assignments or documents required for enrollers, and additional expenses to share.
• Repealing a temporary 5% boost in federal funds for states that have accepted Medicaid expansion through the Affordable Care Act.
• Strengthened eligibility requirements, for example, documentation of citizenship and regular eligibility verifications.
• Rollbacks of recent regulations on nursing home staff and other Biden-era policies.
Any or all these changes may impact on hospitals, doctor offices, and patients slightly differently. Below, we describe the main changes and describe them in plain language.
Medicaid and Supplemental Payments Explained
What are supplemental payments?
In addition to the normal Medicaid payment rates for a service, states usually pay additional money to some providers. For example, states might pay hospitals an additional “disproportionate share” (DSH) payment if they serve a high number of poor or uninsured patients.
State-directed or upper payment limit (UPL) payments also exist, where states charge providers (such as hospitals or nursing homes) a small fee and then redistribute that money as higher Medicaid payments. This “tax-and-return” system allows states to receive more matching federal dollars.
The House bill would limit supplemental payments. The supplemental Medicaid payment to a provider cannot be more than what Medicare (the federal program for seniors) would pay for the same service.
The new provision of the 2025 reconciliation bill says the aggregate payment by the state for specific Medicaid services is limited to 100% of the total published Medicare payment rate.
Medicaid providers would not be able to receive more than Medicare for the same treatment. (Previously approved payments before the law would still be allowed, but new or higher payments would have to comply with the cap.)
These “supplemental payments” are important because they allow safety-net providers to stay in business.
For example, teaching hospitals and urban or rural hospitals with high concentrations of Medicaid patients depend on these payments. Academic medical centers account for 29% of all Medicaid hospital days, even though they constitute only 5% of U.S. hospitals. Limiting supplemental payments would have a major impact on their income.
The Association of American Medical Colleges (AAMC) determined that these limits “undermine the health care safety net” and “would place profound financial pressure on safety-net providers.” For hospital CFOs and practice managers, this means they need to plan for lower Medicaid payments.
Supplemental payments help to bridge the gap when base Medicaid rates are insufficient to cover costs. With these limitations, hospitals can be compelled to cut back on budgets, trim expenses, or look elsewhere for funds. They need to ensure that they are billing all dollars that they can today.
For instance, if a state has massive pending extra payments that were approved before the new law, providers should hasten to document and bill those, because once the law, the amounts cannot be augmented. Human Medical Billing experts note that streamlining revenue cycle and billing procedures will be extremely vital. Good coding and good billing can help providers receive all the money that they are currently entitled to, which can help counteract the impact of any future reductions.
Freezing and Capping Provider Taxes
Another target is provider taxes. Many states have special taxes on insurance companies, nursing homes, and hospitals to raise money for state Medicaid. These taxes must be fair and levied on many, but they raise a lot of money.
Since the federal government matches state spending dollar for dollar (and sometimes more), states have used these taxes to increase federal Medicaid funding. Now all states but Alaska use some type of provider tax for Medicaid. For example, Texas uses hospitals, nursing home, and managed care organization taxes that essentially pay for Medicaid.
The GOP bill would stop current provider taxes from being changed and bar new ones from being imposed. One of the provisions reads states cannot raise existing provider taxes or add new ones.
In other words, if a state already has a 6% hospital tax, it can’t raise it to 7%. And if Texas wants to tax a new type of clinic, that would be blocked. Overall, the money from provider taxes will stay the same as it is now and can’t increase with inflation or demand. Senate sources indicate the 2025 reconciliation bill could cap provider taxes at 5% of a provider’s net patient revenue.
That would mean if a hospital tax exceeds 5% of revenue, the state would lose federal money on the excess. Currently, a “hold-harmless” rule lets states with high taxes retain them, even if they are over 6%. Removing that would make the 5% cap actual. The CBO estimates capping provider taxes at 5% would save the federal budget approximately $48 billion over 10 years.
Providers indicate this is an issue. Red states, as the high numbers of uninsured residents are commonly referred to, rely heavily on provider taxes to cover Medicaid providers. One report indicates Texas and Florida “would be hit the hardest” if tax constraints become more stringent.
Freezing provider taxes translates to states having to raise more money out of their own pockets if costs increase. Hospital administrators indicate this can translate to hospital and clinic cuts, particularly those already operating on thin profit margins.
For all healthcare stakeholders, the rule is that any provider that receives additional payments from the state must know that future growth is not likely. A state already at the 5-6% tax “safe harbor” may face reductions or cannot tap new tax proposals to get additional money.
CFOs will need to analyze their state’s legislation: if the state is near the current level of taxation, it will need to plan as though additional funding from provider taxes will be eliminated. Providers will need to battle in state legislature for alternative means of raising funds or cautiously lobbying suggested tax reforms.
Tightening Enrollment and Eligibility
In addition to funds, the 2025 reconciliation bill also tightens the rules on who may remain on Medicaid. The language and explanation unveil several new requirements:
1. Work or community participation requirements. One big change that is being talked about a lot is a “community participation” requirement for Medicaid adults who are not disabled, pregnant, elderly, or parents.
Starting in 2029, healthy adults with no dependents will be required to work, volunteer, attend school, or engage in job training for about 80 hours a month to keep their coverage. This is like work requirements some states have tried before.
Research shows many Medicaid adults already work: one study found 61% of Medicaid adults were already working. But having to complete paperwork every month can lead to eligible people becoming uninsured. A previous example is Arkansas: when it briefly had work rules, thousands of people lost their coverage because of paperwork problems.
2. Over 100% cost-sharing. The draft bill refers to “cost-sharing above 100% FPL.” This would entail Medicaid consumers who earn slightly over the poverty level (currently $15,950 for a single person) having to pay infinitesimal fees or premiums.
Now, states are only allowed to charge some premiums and copays to individuals who earn over 150% of the poverty level. The new proposal would allow states to ask for payments from anyone who earns over 100% FPL.
As the American Prospect reports, this would be a huge change: a person who earns 110% FPL and pays nothing currently might suddenly be asked to pay monthly premiums or co-pays for visits to the doctor.
3. New documentation and verification steps. It would be harder to enroll or stay enrolled.
For example, it recommends states verify addresses and Social Security numbers more frequently and even require documentation of U.S. citizenship. (Medicaid only requires proof from people claiming citizenship at enrollment, not at renewal.
The bill would remove “federal financial participation” if citizenship is not documented.) States would need to screen Death Master File data quarterly to purge deceased individuals.
4. Undoing streamlined enrollment rules. New Biden-era federal rules streamlined Medicaid enrollment and renewal (e.g., enrolling in Medicare and Medicaid at the same time, or prorating less frequently).
The House bill would undo many of them. For instance, rules finalized in 2024 that simplify continuous enrollment and redetermination would be delayed until 2035.
Experts note that undoing the changes would be cost-saving because it would generate more “administrative barriers,” causing some people to lose coverage inadvertently.
Most analysts report that these changes in eligibility are also partly aimed at reducing enrollment. By insisting on paperwork, work records, or premiums, some current Medicaid beneficiaries will be disenrolled. For this reason, the AAMC warned the proposal new Medicaid eligibility limitations will lower enrollment and increase the uninsured count.
In Texas, where no Medicaid expansion of Obamacare took place, 3 out of every 4 of the state’s 4.1 million Medicaid beneficiaries are kids or other exempt groups. Yet even for adults, further administrative burdens (like proving 80 hours’ of work monthly, or proving street address, etc.) could lose eligible citizens because of paperwork issues.
For a clinic manager or hospital CFO, the greatest concern is the number of patients will decline. If individuals lose Medicaid, others may become uninsured or delay receiving care. Clinics need to ensure that they have adequate means of getting eligibility information and contacting patients so that no one gets inadvertently lost in the program.
Health finance professionals need to remain cognizant of state waiver requests (some states would request waivers in an effort to implement these rules) and budget conservatism. Human Medical Billing recommends frequent patient eligibility checks and informing patients of new rules.
Cost-Sharing and Premiums: Charging the Poor More?
Medicaid traditionally has minimal cost-sharing (out-of-pocket) for its beneficiaries. It is free or low-cost for most individuals. The 2025 reconciliation bill as proposed would reverse this.
As noted above, it would permit charging anyone who earns over 100% of the poverty level income. Currently, very few individuals under the poverty level pay premiums; most pay fees for those over 150% of the federal poverty level. Reducing this level will cause poorer Americans to pay more.
Even small copays will deter low-income patients from care. Specialists warn that any added fees or premiums equal a reduction in coverage. As a case in point, the bill’s list of changes states that the cost-sharing rule is “the most potentially explosive item.”
The American Prospect cautions that charging co-pays even at 100% FPL is a “backdoor” cut that few advocate publicly. If the patients are not able to pay the fees, they may miss their medicine or not visit doctors, and this may affect their health and make them pay more in the future.
Put simply, providers can count on Medicaid patients paying some of the bills out of pocket if these bills become law.
Billing personnel will need to contend with new kinds of patient payments. From the perspective of a policymaker, hospital systems and patient advocates have indicated that billing poor patients more is a significant problem.
As one Senate Democrat put it, reducing Medicaid “puts the healthcare of 70 million Americans at risk, from newborns to seniors, rural communities, and veterans.”
Even Republicans who are supporting the bill admit that they will try to preserve coverage for children, disabled, and elderly but the language permits new charges on a significant number of adults.
Cost-Sharing and Premiums: Charging the Poor More?
Apart from the big-ticket items mentioned above, the reconciliation bill makes some minor adjustments to the knowledge bank:
• End to Extra Medicaid Money for Expansion States.
Expansion states were provided with an extra 5 percentage points in federal funding under the American Rescue Plan (2021). The new plan would terminate the extra money (starting in 2026). For example, an expansion state such as California will lose the extra funding. This means states have to pay 5% extra expansion costs from their own budget as opposed to the American Rescue Plan.
• No Additional Budget Cost for Waivers (Sec. 1115).
States often have “demonstration projects” under Section 1115 of the Social Security Act (e.g., Medicaid expansion or pilot programs). The bill would require that any new or current waivers not cost any more money than if the program did not exist. This is another avenue for capping additional spending through new programs.
• No Federal Funding for Unverified Immigrants.
The bill halts federal funding for Medicaid or CHIP if an individual’s immigration or citizenship status isn’t confirmed. States can continue to fund that coverage with their own money, but the federal government won’t assist in paying.
• Restructuring Pharmacy Benefit Managers (PBMs).
A small part of the plan deals with PBMs, which sometimes practice “spread pricing” (paying Medicaid more for a drug than they charge pharmacies). The plan would eliminate spread pricing in Medicaid and require pass-through pricing. This might save some money (around $1.1 billion in 10 years, according to some estimates), but is mainly important to some legislators.
• Stopping Streamlining Rules.
The 2025 reconciliation bill would suspend the new CMS rules to streamline enrollment in Medicaid for Medicare Savings Programs (until January 1, 2035). These rules would have simplified dual-eligibles enrollment; suspending them is estimated to save more than $160 billion.
• Nursing Home Staffing Regulations.
The plan would reverse Biden administration regulations that mandate a minimum staffing level in nursing homes. The Prospect article states that, but it is more Medicare/CMS than Medicaid. In practice, it would reduce nursing home costs but could affect the care of the elderly.
Overall, the House bill is packed with many policy reforms all in the name of saving federal dollars. Most of the reforms do not increase taxes but reduce or redistribute spending.
Impact on Hospitals, Doctors, and State Budgets
How will all that affect state health systems and providers?
The short answer: Less money and financial pressure, particularly for safety-net providers. States get less federal matching dollars to forward to providers, so states will have to cover more out of their own coffers or cut payments.
Consider Texas, for instance. Texas declined the Medicaid expansion under the ACA, so it depends greatly on provider taxes to stay in business at hospitals. According to the Houston Chronicle, Texas and other states have employed hospital “provider taxes” to double federal dollars (since FMAP is so high) and then send the dollars to the hospitals that incurred the tax.
Freezing provider taxes could mean Texas hospitals lose access to “billions of dollars in federal Medicaid funding”. Although Texas can maintain its existing taxes, it “couldn’t expand them even as healthcare costs rise”.
The Texas Hospital Association warned such a cut “would likely lead to the closure of clinics and a reduction in hospital services”.
Safety-net hospitals, which have a high volume of Medicaid and uninsured patients, will be hit hardest. They already have very thin margins. The AAMC cites that its members, such as teaching hospitals and academic institutions, have a high volume of Medicaid patients (29% of inpatient days) and depend on supplemental payments to remain operational.
If further payments are capped and taxes are not increased, these hospitals will come under “serious financial pressure.” Rural hospitals and emergency services issued signed letters saying that “capping additional payments would mean rates would not be able to cover costs” and may lead to closure.
Conversely, budget hawks claim Medicaid spending increased extremely quickly in the recent past, and the reforms will compel the states to eliminate waste.
What Healthcare Providers Can Do
Healthcare leaders need to begin implementing these proposals:
• Engage in advocacy. Hospital organizations, clinics, and hospitals frequently speak to federal and state governments regarding Medicaid issues.
Given that significant changes are being considered, provider organizations can provide feedback on how provider taxes and supplemental payments enhance patient care.
Numerous large organizations (e.g., the AAMC, hospital associations, and medical societies) already are speaking out. Local hospital administrators or CFOs should speak to state Medicaid offices and legislators regarding the potential local impact.
• Budget for cuts in the budget. CFOs and practice managers must create scenarios assuming Medicaid payments will decrease. This could include budgeting for a small decrease in overall Medicaid payments.
Since additional payments may decrease and base rates may decrease too, hospitals need to find methods to become more efficient and decrease costs.
Human Medical Billing advises simplifying revenue-cycle processes now: collect all current Medicaid payments before cuts are made. For example, file claims timely, make sure providers qualify for each additional payment (e.g., DSH or disproportionate share), and make sure all patient eligibility is properly documented. Closely watching cash flow now will provide some protection.
• Assist patients in transitions. If states implement work rules or documentation, additional patients will be at risk of losing coverage on a temporary basis. Hospitals and clinics can assist by informing patients. For instance, remind Medicaid patients to re-verify, help with renewal forms, or refer to community services if they have a possible gap in coverage. This assists both patients and providers by preventing unpaid care.
• Consider service lines. Anticipating reductions could involve reviewing which services rely most heavily on Medicaid payments. Clinics that primarily treat Medicaid patients (such as children’s services, mental health, and long-term care) should review whether they can remain financially viable.
Some may have to seek additional grants or cut expenses. In other cases, providers can consider adjusting where they deliver care (such as shifting services to community health centers where payment policies are different).
• Keep up to date on what your state is implementing. States are required to conform with federal changes. Each state Medicaid agency will develop its own rules, but they must be approved by the federal government.
Check for public notices from your state Medicaid office. Some states might not implement some of the optional provisions or might create waivers. Providers should try to get on Medicaid advisory boards or work groups if at all possible.
• Utilize human medical billing expertise. Human Medical Billing brand claims that with the use of special billing technology and services, one can receive the maximum money back. With these regulations, it is necessary to make sure nothing is overlooked.
For example, if extra payments are limited, providers need to make sure they are receiving the maximum amounts possible under current law. Human Medical Billing can provide support in coding strategies, audit assistance, and revenue management to deal with funding adjustments. Even minor improvements in billing accuracy can be beneficial when the total Medicaid funds are smaller.
Conclusion
The 2025 House budget plan aims to reduce federal Medicaid expenses by limiting hospital payments, freezing taxes, and placing new conditions on those receiving benefits. It would, if passed, transform Medicaid finances to curb the increase in spending and finance tax reductions. Its critics argue it will leave millions with no coverage and constrict hospital budgets. Providers and health officials need to watch closely for specifics, advocate for patients, and modify financial planning.
Medicaid will still cover millions of needy Americans. Payment for their treatment may include novel models. Members of Congress will be debating such proposals in the near future. Physicians must press for equitable changes that do not compromise patient care. Hospitals and clinics must simplify billing now so that they can reap the greatest amounts of money under any new legislation.
