News Briefs: Budget reconciliation bill finalized with big implications for Medicaid

Declines in coverage and spending await the healthcare industry under the budget reconciliation bill signed into law by President Donald Trump on July 4. The Congressional Budget Office (CBO) projects $912 billion in reduced Medicaid spending and 10 million additional uninsured Americans in 2034 as a result of the law known as the One Big Beautiful Bill Act.

The Medicaid provisions that could most directly affect coverage and hospital finances are set for 2027 and 2028.

Implementation of the new Medicaid work requirement technically is mandatory by the start of 2027. States, however, can apply for an exemption that could run through 2028 if they show good-faith efforts at compliance.

A five-year, 2.5-percentage-point reduction in hospital tax rates as an allowable percentage of net patient revenue will hit expansion states starting in 2028, reducing a key funding mechanism for Medicaid provider payments.

For supplementary state-directed payments (SDPs) made to providers through Medicaid managed care organizations, future arrangements are immediately capped at 100% of the Medicare rate in expansion states and 110% in non-expansion states. Beginning in 2028, existing SDPs must be reduced by 10% per year until they reach the new limits.

Constriction looms for the ACA marketplaces

Federal policy developments portend a big contraction of the market for individual insurance in 2026 and beyond.

At the end of 2024, a record 25.4 million people had insurance through ACA marketplace plans and other nongroup plans, driven by more than 22 million subsidized enrollees.

Those numbers are set to drop going into 2026, with the pending termination of enhanced subsidies for buying marketplace insurance. Congress would need to authorize an extension, and to date, the Republican majority has not shown an inclination to do so.

More than 2 million marketplace enrollees have been projected to fall off the insurance rolls in 2026, and by 2034, the Congressional Budget Office (CBO) projects an increase of more than 5 million in the number of uninsured who, as of 2025, have a marketplace health plan.

Those projections are having an impact on plan premiums for 2026, according to a report issued by the Center on Health Insurance Reforms at Georgetown University. Among early-filing states, the report lists proposed increases of more than 20% in Rhode Island and Washington, 19% in Pennsylvania, more than 17% in Connecticut and Maryland and more than 13% in Massachusetts.

Proposed Medicare hospital payment rule includes a surprising cut

Although payment rates technically would increase under Medicare’s 2026 proposed rule for hospital outpatient care, a key provision would chip away at hospital finances.

As a group, hospitals that meet quality-reporting requirements would receive a base increase of 2.4% in their Medicare payment rate for 2026, before factoring in a key adjustment.

That adjustment stems from a Supreme Court ruling establishing that CMS lacked a legal basis for reducing Medicare payments for 340B drugs starting in 2018 and lasting through most of 2022. The agency then agreed to make up the shortfall via a $9 billion remedy payment to affected hospitals.

Determining that the payments needed to be budget neutral, per the Medicare statute, CMS then instituted a 0.5% reduction in the annual payment update for non-drug items and services over a 16-year period beginning in 2026.

However, the Trump administration now says it would be more appropriate to increase the annual reduction to 2% starting in 2026 and extending over an estimated six-year time frame.

If finalized, the provision would all but negate next year’s payment increase, which otherwise would be barely above 2% for many hospitals after factoring in wage-index and outlier-threshold adjustments.

CMS plans to implement site-neutral payment for drug administration

The 2026 Medicare proposed rule for hospital outpatient care also would usher in an expansion of site-neutral payment.

Drug administration services furnished in off-campus hospital outpatient departments (HOPDs) would be reimbursed at the physician payment rate starting in 2026, according to the proposed rule, with CMS saying the policy is needed to stanch “unnecessary” growth in the volume of those services.

According to a 2023 report by the Actuarial Research Corporation, Medicare payments for drug administration services are at least 229% higher in off-campus HOPDs, compared with physician offices. For Level 3 services, as designated by ambulatory payment classification, the difference is 304%. It’s notable that only 5.6% of drug administration services are performed in off-campus HOPDs, however.

Since 2019, site-neutral payment has been in place for clinic visits at off-campus HOPDs.

CMS also proposes to phase out the inpatient-only list over a three-year period, starting with 285 musculoskeletal and related procedures in 2026. Services removed from the list would be reimbursable by Medicare in outpatient and other ambulatory settings.

Supreme Court retains the ACA’s mandate to waive cost sharing for preventive care

The status quo prevailed for coverage of preventive care under the Affordable Care Act (ACA), with the Supreme Court backing a mandate for preventive services to be cost-free if supported by an expert panel.

With a 6-3 decision issued June 27 in Kennedy v. Braidwood, the court overruled an appeals court’s finding that members of the U.S. Preventive Services Task Force were not constitutionally appointed. If the Supreme Court had agreed with the earlier decision, health plans could have reverted to charging out-of-pocket costs for any service recommended by the Task Force since the ACA was enacted in 2010.

For example, offering cost-free screening for colorectal cancer to patients ages 45-50 would have been up to the insurer, as would first-dollar coverage for some other screenings and pre-exposure prophylaxis treatment.

A different decision likely would have left obligatory cost-free access in place for some services, including those endorsed by the Health Resources and Services Administration (HRSA) and the CDC’s Advisory Committee on Immunization Practices (ACIP). The HRSA and ACIP recommendations remain the subject of a separate case brought by the Braidwood plaintiffs.

Tax on executive compensation widens in the budget reconciliation bill

An excise tax on executive compensation at not-for-profit organizations is being expanded via the finalized budget reconciliation bill.

A 21% tax on compensation exceeding $1 million has been in place for the five highest-compensated employees at an organization in a given year, plus anyone else who has been on the list from a prior year. The legislation covers all employees in the $1 million-plus category, not just the top five and prior entrants.

Experts say some larger health systems may have 15 to 20 executives whose compensation will be subject to the tax.

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Annualized increase in healthcare costs, 2005-2025