Congressional hearing highlights the favored approach to cutting Medicaid funding

A recent hearing of the House Oversight and Government Reform Committee showcased the rationale Republicans will use in pursuing significant Medicaid spending cuts.

The Feb. 25 hearing was called to examine various federal programs that made the Government Accountability Office’s (GAO’s) High-Risk List for 2025. Because of the ongoing stakes for Medicaid, much of the discussion focused on that program.

Medicaid spending cuts in dollar amounts totaling well into the hundreds of billions are anticipated for inclusion in the FY25 budget reconciliation process, during which Republicans are looking to fund key aspects of President Donald Trump’s agenda.

The party plans to start its Medicaid work by tackling improper payments, which totaled $31 billion in FY24, according to the GAO. Extrapolating the figure over a decade theoretically would allow program-integrity provisions to comprise a sizable portion of the $880 billion targeted reduction for the House Energy and Commerce Committee, which oversees Medicaid, among other programs.

Democrats warned during the hearing that the cuts needed to reach the target would have a substantial and adverse impact on the healthcare safety net, however. And those implications could spill over to providers, as suggested in a new bulletin from Fitch Ratings, which cited potential Medicaid cuts as one issue creating financial headwinds for the industry.

Such changes “are a bigger risk than three months ago and could be materially negative for healthcare providers depending on the form,” the bulletin states.

Behind Republican majorities, the House and Senate have both passed budget blueprints and are trying to fuse them into a single budget resolution that will guide the final reconciliation bill. Assuming they succeed, details of the proposed spending cuts will be determined from there.

“Downside risk to Medicaid reimbursement has increased following the budget resolution passed by the House of Representatives,” Fitch stated.

Going after fraud

The expectation among Republicans is that fraud-and-waste reduction can go a long way toward reaching the $880 billion in savings for Energy and Commerce.

In 2023, according to the GAO, improper payments in Medicaid totaled $50.3 billion, placing it second to Medicare among all government programs. The number dropped to $31.1 billion in 2024 as states continued to phase out the continuous-enrollment requirements of the COVID-19 public health emergency. However, the GAO notes the statistics do not properly account for Medicaid managed care, which comprises nearly 60% of program spending.

“I would like to think that Democrats are not opposed to eliminating improper payments in Medicaid,” Rep. Eric Burlison (R-Mo.) said during the hearing. “One would hope that that they would not be opposed to finding fraudsters or people who are not supposed to be receiving the benefits.” 

The improper payment rate in Medicaid fell from 8.58% in FY23 to 5.09% in FY24, while improper payments that arose from eligibility issues declined from 5.95% to 3.31%. According to a CMS report issued in November 2024, more than 79% of improper payments resulted from insufficient documentation, such as administrative and clerical errors that “do not necessarily indicate fraud or abuse.”

One set of policies that Republicans could adopt through budget reconciliation would increase eligibility verification requirements. Such steps would be expected to reduce enrollment, potentially at the expense of making it harder to enroll for people who legitimately need the program.

“You have a need for better provider screening, and you have a need for better enrollment screening,” Gene Dodaro, the U.S. Comptroller General, said during the Oversight Committee hearing. “This has been a consistent problem, particularly in the Medicaid area.”

Work requirements

While Republicans are downplaying the possibility of structural Medicaid changes such as per capita caps, work requirements are getting a close look. A bicameral bill introduced in February would require able-bodied adults without children to work or volunteer for at least 20 hours a week to be eligible for Medicaid. The House GOP has projected 10-year savings of $100 billion from such a policy.

In an analysis of a 2023 bill that included similar provisions, the Congressional Budget Office estimated the requirements would apply to 15 million adults per year. A tenth of those would lose access to federal funding. Of those 1.5 million beneficiaries, 900,000 would remain insured through increases in state funding, while 600,000 would become uninsured.

Data from KFF show that among Medicaid beneficiaries who were younger than 65, did not receive disability benefits and were not dually eligible for Medicare, 64% were working at least part-time in 2023, and 28% were not working due to caregiving responsibilities, illness or disability, or school attendance.

There are “a number of [policies] touching Medicaid that we can do that don’t actually [affect] the people that Medicaid was intended for,” Rep. Michael Cloud (R-Texas) said during the Oversight Committee hearing.

Such comments might suggest the budget reconciliation bill could still include constraints on federal funding for the Medicaid expansion population. But amid projections that 20 million people potentially would lose coverage, the idea is not atop the list of considerations.

Supplemental payments

State-directed payments to providers have comprised an increasingly significant part in recent years, and in 2024, the Biden administration issued Medicaid managed care regulations confirming that the ceiling for those payments is equal to the average commercial payment rate.

Members of Congress have not directly commented on whether the payments — which totaled $47.8 billion in FY22, according to estimates from the Medicaid and CHIP Payment and Access Commission (MACPAC) — will be subject to cuts. In theory, reductions could be touted as a way to trim spending without affecting benefit levels. The GAO has expressed the need for more federal oversight of the payments.

“CMS has not taken steps to ensure that [supplemental] payments are economical and efficient at the provider level,” the GAO wrote in its 2025 report. “Implementing this recommendation could help ensure that providers do not receive payments that exceed their cost.”

However, provider advocates have argued that the payments are key to ensuring robust healthcare access for Medicaid beneficiaries.

A policymaker with the GAO said the office’s recommendations for improving Medicaid program integrity include better insight into state-directed payments: “Understanding provider taxes and other things that states use to help finance their share,” Jessica Farb, director of healthcare, said during the Oversight Committee hearing.

The 2024 Medicaid managed care regulations established stricter evaluation requirements for the directed payments. The GAO said the regulations will require states to report their actual directed-payment expenditures at the provider level, whereas the traditional approach has been to rely on state estimates in determinations of whether to approve any such payment.

Per an earlier GAO report, actual spending via the payments can far exceed the provided estimates.