Questions about Medicaid cuts are unresolved in latest budget reconciliation blueprint (updated)

Note: This article was updated April 10 with the latest news on steps forward in the reconciliation process and a rollback of a specific set of funding by CMS.

As released this week, the Senate’s latest budget reconciliation blueprint provides few answers about the impact a final bill could have on federal healthcare spending, in particular through Medicaid cuts.

Although the bill cites a target reduction of $2 trillion in projected federal expenditures over 10 years, which matches the figure in the House-passed budget blueprint from February, the Senate’s bill offers more leeway to come in way under that figure.

The two chambers continue the drawn-out process of negotiating on a final agreement, and the timeline for completing the work is vague. Also uncertain is whether the final healthcare spending cuts will approach the figure established in the House plan.

That figure was as high as $880 billion, the amount of projected spending for the House Energy and Commerce Committee to cut over a decade. The committee oversees Medicare and Medicaid, with the latter program expected to make up the bulk of the savings.

In the Senate’s bill, released April 2, the Health, Education, Labor and Pensions (HELP) Committee is tasked with reducing spending by merely $1 billion over the 10-year time frame. The committee oversees agencies such as CDC and FDA, but not CMS, which is under the auspices of the Finance Committee. That committee is not obligated to reduce spending, according to the blueprint, but would need to keep net spending at current levels aside from adding $1.5 trillion through new tax cuts.

The discrepancy between the approaches favored by each chamber would need to be resolved in negotiations among House and Senate Republicans — or by one chamber agreeing to take up the other’s bill, possibly because of pressure from President Donald Trump.

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April 7 update

In the early-morning hours of April 5, the Senate passed its reconciliation blueprint by a 51-48 margin.

One amendment to the bill would have eliminated the prospect of cutting $880 billion in Medicaid as proposed in the House version. The amendment had bipartisan sponsorship from Sens. Josh Hawley (R-Mo.) and Ron Wyden (D-Ore.) but failed by a 50-49 vote.

A separate amendment that committed the legislature to protecting Medicare and Medicaid passed, 51-48, with Democrats saying they voted against it because it amounted to a hollow pledge that lacked specifics on whether all Medicaid beneficiaries would be protected.

The House planned to take up the budget blueprint this week, and approval would allow both chambers to move forward with determining specific spending cuts before attempting to agree on a final bill.

Even though passage in the House this week would be merely a step on the road to a final package, fiscal hawks in the chamber reportedly are concerned that signing off on the Senate blueprint would set the stage for relatively limited cuts that do not meet the levels proposed in the House plan. Thus, the fate of the bill in the House was unclear.

Inability to pass the bill would not signal the end of the reconciliation process but would leave next steps uncertain.

April 10 update

The House passed the Senate’s blueprint on a 216-214 vote Thursday. In remarks before the vote, Speaker Mike Johnson (R-La.) and Senate Majority Leader John Thune (R-S.D.) assuaged fiscal hawks in the House by committing to find at least $1.5 trillion in spending cuts when the chambers collaborate on the final reconciliation bill. The House Energy and Commerce Committee, which oversees Medicaid, remains on the hook to find $880 billion in cuts unless the GOP decides to change course.

Work on a formal bill is expected to gain steam when Congress returns from its two-week Easter recess.

In regulatory news about Medicaid, CMS announced it would cease funding designated state health programs (DSHPs) and designated state investment programs (DSIPs). The agency said the programs combined to total $2.7 billion in eligible expenditures in 2025, up from $886 million in 2019, and they generally have no connection to Medicaid beneficiary services. But one program cited in the letter to state Medicaid agencies funded a telehealth infrastructure grant program for rural providers to purchase equipment and high-speed internet access.

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GOP approaches

House Republicans maintain that a sizable portion of Medicaid cuts can come by weeding out fraud, waste and abuse. They point to estimates from the Government Accountability Office (GAO) that Medicaid spending in 2023 included $50.3 billion in improper payments, trailing only Medicare ($51.1 billion) among all government programs.

In 2024, with Medicaid enrollment dropping after the 2023 termination of pandemic-era requirements for continuous enrollment, improper payments in the program fell to $31 billion, according to a newly released GAO report (while the Medicare amount rose to $54 billion). But in a February hearing, House Republicans indicated the 2023 figure could be used to allocate 10-year Medicaid savings as projected to result from a crackdown on improper payments.

Gene Dodaro, U.S. comptroller general, said during the hearing that the estimates for improper Medicaid payments are extrapolations that do not involve extensive audits of Medicaid managed care organizations (MCOs). Provisions to more closely scrutinize MCOs could be part of the reconciliation bill.

Rep. Vern Buchanan (R-Fla.), chair of the House Ways and Means Committee’s Health Subcommittee, said during Politico’s 2025 Health Care Summit on April 2 that he wants to prevent Medicaid cuts that would risk coverage for populations such as at-risk children and families.

But he also said there are “a lot of inefficiencies [with the program]. We’ve got to find a way to trim a lot of the costs down, to do better things for less.”  

State-directed payments at risk

Several proposals receiving consideration are generating concern among Democrats and advocates for providers and beneficiaries. Their argument is that it will be difficult to cut Medicaid anywhere near the target figure without sacrificing coverage and access.

America’s Essential Hospitals (AEH) wrote a Feb. 19 letter to the bipartisan leadership of the Energy and Commerce Committee, emphasizing that state-directed payments (SDPs, also referred to as directed payment programs) to providers should be maintained at their current levels.

Those supplemental payments have provided a key boost, and in 2024, the Biden administration issued regulations confirming that the payment rate can equal what a hospital gets from commercial insurers, on average.

SDPs “ensure that essential hospitals receive adequate compensation for the care they provide to Medicaid enrollees,” AEH wrote.

Paragon Health Institute, the conservative think tank at which the leaders have ties to Trump’s first administration, recently published a report describing the system of SDPs as being a component in a “money laundering” scheme to increase the share of Medicaid funding that comes from the federal government.

The American Hospital Association (AHA) fired back in a blog post published April 3.

“Medicaid MCOs’ low provider payments have created the need for additional provider support through state-directed payments, particularly for hospitals that serve disproportionately high rates of Medicaid and other public-payer patients and routinely operate with negative margins,” the AHA wrote. 

Work requirements getting a look

AEH also expressed concern about the potential for work requirements to be applied in Medicaid.

“Experience shows that Medicaid work requirements are very difficult to implement given the nature of the population served and the complexity of complying with such requirements,” AEH wrote in its letter, saying such changes would reduce access to care and increase uncompensated care costs.

An analysis by the liberal-leaning Urban Institute, with support from the Robert Wood Johnson Foundation (RWJF), concluded that at least 4.6 million adults living in Medicaid expansion states will lose coverage in 2026 if work requirements are applied to the expansion population of beneficiaries.

About 6.3 million would not receive automatic exemptions based on characteristics that states routinely check, meaning they would have to report work-related activities or request an exemption. The report estimates subsequent noncompliance of at least 72% based on data from work-requirement programs previously implemented in Arkansas and New Hampshire.

“Most people who would lose coverage under a Medicaid work requirement would do so because of difficulty filling out paperwork,” the report states.

If work mandates are applied beyond the expansion population to include all able-bodied adults in Medicaid, more than 10.5 million additional beneficiaries would be subject to the requirements, with correspondingly higher numbers of disenrollments.

“If you’re talking about single moms with three kids, I don’t know how [a work requirement] works,” Buchanan said at the Politico event. “But the bottom line is that’s something some people feel strongly about. You’ve got to look at it based on the situation.”

Expansion funding under the microscope

A more substantial cut than implementation of work requirements would be elimination of the enhanced federal matching rate for the Medicaid expansion population. In preliminary proposals, the federal payment rate would be reduced from 90% to equal the rate for the traditionally eligible population in each state.

“I think it’s something they’re going to look at,” Buchanan said, referring to the Energy and Commerce Committee. “That’s just my feeling — we haven’t gotten there on that discussion.”

The Urban Institute and RWJF issued research indicating that if all 40 states (plus Washington, D.C.) eliminated the Medicaid expansion in response to the funding pullback, revenue to hospitals would drop by $31.9 billion in 2026, while costs of uncompensated care would rise by $6.3 billion.

Commentary from Drew Altman, president and CEO of KFF and formerly New Jersey’s health commissioner, posits that states would struggle to make up for the lost federal funding and thus would be hard-pressed to continue with the expansion. States that seek to replace the funding likely would have to offset the increase with cuts to nonhealthcare programs.

“There is an unwritten handbook state human services and Medicaid officials use for cutting Medicaid if they have to,” Altman wrote. “First, make the case for the state funding to replace any shortfalls. Then cut payments to providers (which are often already low), then selectively reduce benefits if you can. Then last on the list, cut people from the program. With large cuts in federal spending, the latter will be unavoidable.”