Republican senators' proposed Medicaid cuts threaten to send red states ‘backwards'

The Guardian

5 days ago

Advocates are urging Senate Republicans to reject a proposal to cut billions from American healthcare to extend tax breaks that primarily benefit the wealthy and corporations.
The proposal would make historic cuts to Medicaid, the public health insurance program for low-income and disabled people that covers 71 million Americans, and is the Senate version of the 'big beautiful bill' act, which contains most of Donald Trump's legislative agenda.
'With the text released earlier this week, somehow the Senate made the House's 'big, bad budget bill' worse in many ways,' said Anthony Wright, the executive director of Families USA, a consumer healthcare advocacy group, in a press call.
The Senate's version makes deeper cuts to Medicaid and so-called Obamacare (Affordable Care Act) plans, 'both by expanding paperwork requirements and making it harder for states to fund Medicaid coverage for their residents', said Wright.
If passed, the House-passed bill would have already made the biggest cuts to Medicaid since the program's enactment in 1965. With red tape and an expiration of additional healthcare subsidies to Obamacare, the Congressional Budget Office (CBO) estimated that the House version would leave 16 million people without health insurance by 2034.
CBO has not yet released estimates, or 'scored', the impact of the Senate proposal, but advocates and experts said the cuts are more draconian, 'punish' states that expanded Medicaid, and attack Medicaid by going after its byzantine financing structures.
'If we look at the big picture of our healthcare system that's where the inefficiencies are – not in Medicaid – but in all the groups profiting off the system,' said David Machledt, a senior policy analyst at the National Health Law Program, referring to Republicans' assertions that they are targeting 'waste, fraud and abuse' with cuts.
'What these cuts are going to do is look at the most cost-efficient program and squeeze it further, and take us backwards, and put us back at a system where the people at the low end are literally dying to fund these tax cuts for rich people and businesses.'
A recent study found that expanding Medicaid, as was done during the Obama administration, probably saved an additional 27,400 lives over a 12-year period, and did so cheaper than other insurance programs. The same study found that about a quarter of the difference in life expectancy between low- and high-income Americans is due to lack of health insurance.
Republicans, such as Senator John Thune of South Dakota, argue that their bill 'protects' Medicaid by 'removing people who should not be on the rolls', including working-age adults, legal and undocumented immigrants; by adding work requirements and by going after a tax maneuver states use to bring in more federal Medicaid funding.
'Removing these individuals is just basic, good governance,' said Thune.
But experts and advocates argue the cuts will not only remove the targeted individuals, including many who are working but struggle to get through red tape, but will also place states in impossible situations with potentially multibillion-dollar shortfalls in their budgets.
Both versions contain so-called work requirements, which analyses show will cause people to lose coverage even if they are eligible, experts said. Instead, the largest difference between the Senate and House versions of the bill is the Senate's attack on Medicaid's complex financing arrangements.
Medicaid is jointly financed by states and the federal government, making it simultaneously one of states' largest expenditures and sources of revenue. The Senate's version specifically attacks two ways states finance Medicaid, through provider taxes and state-directed payments.
With a provider tax, states bring in additional federal revenue by increasing payments to providers. Because the federal portion of Medicaid is based on a percentage rate, increasing payments to providers in turn increases the amount that federal officials pay the state. States then tax those same providers, such as hospitals, to bring the funding back to the state.
Although this maneuver has been criticized, it has also now been used for decades. It's in place in every state except for Alaska, is legal and openly discussed. The Senate bill caps this manuever by cutting the tax rate by about half, from 6% to 3.5%, according to Machledt.
In a 2024 analysis, the Congressional Research Service estimated that lowering the provider tax cap to 2.5% would effectively cut $241bn from Medicaid payments to states. Although the exact impacts of the Senate tax cap are not yet known, Machledt expects it would be in the billions, which states would then be under pressure to make up.
'We took great pains to close a $1.1bn shortfall caused by rising healthcare costs,' said the Colorado state treasurer, Dave Young, in a press call. 'To protect healthcare and education, we had to cut transportation projects, maternal health programs and even $1m in aid to food banks.'
Because of taxing provisions in Colorado's state constitution, Young said: 'It will be nearly impossible to raise taxes or borrow money to make up the difference.'
Similarly, the Senate bill goes after 'state-directed payments'. To understand state-directed payments, it's helpful to understand a big picture, and often hidden, aspect of American healthcare – health insurance pays providers different rates for the same service.
Providers are almost universally paid the worst for treating patients who have Medicaid. Medicare pays roughly the cost of providing care, although many doctors and hospitals complain it is still too little. Commercial insurance pays doctors and hospitals most handsomely.
To encourage more providers to accept Medicaid, lawmakers in some states have chosen to pay providers treating Medicaid patients additional funds. In West Virginia, a federally approved plan allows the state to pay providers more for certain populations. In North Carolina, state-directed payments allow the state to pay hospitals rates equal to the average commercial insurance rate, if they agree to medical debt forgiveness provisions.
The first state-directed payment plan was approved in 2018, under the first Trump administration. These kinds of payments were criticized by the Government Accountability Office during the Biden administration.
However, the Senate bill goes after these rates by tying them to Medicaid expansion – a central tenet of Obamacare – and gives stricter limits to the 41 states that expanded the program. Doing this will effectively be 'punishing them', Machledt said, referring to states that participated in this key provision of Obamacare, 'by limiting the way they can finance'.
Advocates also warned of unintended knock-on effects from such enormous disruption. Medical debt financing companies are already readying new pitches to hospitals. Even people who don't lose their insurance and are not insured through Medicaid could see prices increase.
When Medicaid is cut, hospital emergency rooms are still obliged to provide stabilizing care to patients, even if they can't pay. Hospitals must then make up that shortfall somewhere, and the only payers they can negotiate with are commercial: for example, the private health insurance most people in the US rely on.
'Folks who do not lose their health insurance will see increased costs,' said Leslie Frane, the executive vice-president of SEIU, a union that represents about 2 million members, including in healthcare. 'Your copays are going to go up, your deductibles are going to go up, your bills are going to go up.'
Republicans hope to pass the bill by 4 July.