Medicaid cuts to hit hospitals before OBBB Medicaid cuts

A series of regulatory changes and lack of action in other areas will financially impact hospitals and health systems long before cuts included in the recently enacted budget reconciliation law.

Hospitals have focused recently on the $1 trillion in 10-year Medicaid cuts included in the One Big Beautiful Bill Act (OBBB) signed by President Donald Trump on July 4, but most of those provisions will not go into effect for several years.

This year, provider revenue impacts could come from programs unaddressed by that legislation. If not addressed by Congress, those cuts include:

• Oct. 1: $8 billion in Medicaid disproportionate share hospitals (DSH) payments
• Oct. 1: $500 million for Medicare-Dependent Hospitals and low-volume hospitals 
• Dec. 31: $23 billion in ACA marketplace COVID-era subsidies
• Nov. 1: $90 million from ACA marketplace navigators

The DSH cuts, required by the Affordable Care Act (ACA), total $24 billion over the next three federal fiscal years. Earlier this year, Congress delayed a planned $8 billion cut for the current fiscal year and rescheduled them to start Nov. 1. A further delay was included in the House-passed version of the OBBB but was stripped out by the Senate. Originally scheduled to start in FY14, Congress repeatedly delayed and increased the size of the cut from the original $18 billion. Previously, Congress has included DSH cut delays and funding for Medicare-Dependent Hospitals and low-volume hospitals in end-of-the-year federal spending packages.

In response to the COVID-19 pandemic, in 2021, Congress enacted additional subsidies for the ACA marketplace enrollees for two years and then extended them until the end of 2025. But Republican congressional leaders have indicated they do not plan to extend them. Extending the subsidies would cost $23 billion next year and $335 billion for the next 10 years, according to Congressional Budget Office (CBO) projections.

CBO estimated 2.2 million of the current 24 million enrollees could lose their health insurance in 2026 if the subsidies expire and go as high as 3.8 million without insurance in later years. As ACA marketplace enrollment surged after the additional subsidies were offered, some health systems reported those enrollees provide up to 7% of their revenue.

ACA marketplace navigators, who help applicants find coverage there or under Medicaid, will have their funding slashed 90% for the coming open enrollment period, which starts Nov. 1. The Trump administration said its cut to the program was justified by the relatively small number of enrollees helped and as a way to cut premiums, which are assessed fees to fund navigators. ACA advocates warned that cuts will also reduce marketplace enrollment.

Regulatory actions on hospitals

A growing number of regulatory changes with financial implications for providers will also go into effect this year.

A May 12 proposed rule, which could go into effect later this year, targeted a “loophole” in Medicaid provider taxes with changes it says would reduce Medicaid funding by $52 billion over the next five years. CMS explicitly framed the change as preserving Medicaid for those who are its traditional beneficiaries and preventing states from using it to allow them to fund other spending, such as coverage for illegal immigrants.

Technical sub-regulatory changes to federal hospitals price transparency requirements, effective May 22, require costly and time-consuming compliance by those organizations to avoid steep fines. An outstanding CMS request for information (RFI), which may result in more changes to the price transparency requirements this year. Responses to the RFI are due July 21.

Other regulatory actions

Other healthcare regulatory actions could have downstream effects on hospitals and health systems.

A July 10 policy, effective as soon as it is published in the Federal Register, replaced a Clinton-era interpretation of federal law and bars the use of federal funds going to undocumented immigrants under a range of programs, including Certified Community Behavioral Health Clinics and the Health Center Program.

In a related development in late May, CMS launched a series of reviews to crack down on federal Medicaid funds going to cover those unlawfully present in the country and is planning to recoup any affected federal funds.

ACA marketplace enrollment also could be affected by a June 20 final rule, projected to cut federal spending by $12 billion in 2026. The rule implements a series of changes that aim to end “improper enrollments,” according to a CMS release. Tightening open enrollment, adding a $5 fee for fully subsidized enrollees and other changes were needed to prevent an estimated 5 million improper enrollments costing $20 billion annually, according to CMS.