Senate version of the budget reconciliation bill does not look promising for providers

Note: The lead section of this article was updated June 17 with clarifying information on state-directed payments.

As released late Monday afternoon, the Senate Finance Committee’s healthcare proposals that would be part of the budget reconciliation bill go beyond the House bill in constraining Medicaid spending.

Key changes from the version passed by the House would further limit provider taxes as a funding source for Medicaid supplemental payments. The Senate would phase down the maximum rate in the 40 Medicaid expansion states from 6% to 3.5% between 2026 and 2031. Non-expansion states would be prohibited from implementing new taxes but would not face the rate cut.

For state-directed payments, the Senate appears to be proposing a 10% annual reduction in pending SDPs that are implemented within six months of the bill’s enactment. Starting in 2027, the payment rate would drop by 10 percentage points annually until it reaches 100% of the Medicare rate for expansion states and 110% for non-expansion states (current regulations cap SDPs at the commercial payment rate).

June 17 update: A fact sheet released by the Senate Finance Committee states that all current SDPs would be reduced by 10% annually until reaching the new limits (see page 44 of the PDF).

In contrast, the House version of the bill also known as the One Big Beautiful Bill Act allows taxes already in place to remain at higher rates nationwide, and only yet-to-be-proposed SDPs would be subject to the Medicare-based rates. The tighter restrictions drafted by the Senate could face an uphill struggle to gain enough Republican support to pass either chamber.

In a change that likely would widen the impact of the Medicaid work requirement, parents would be subject to the requirement if their dependents are all older than 14.

Rural hospitals in a jam

In the days before the Senate committee published its bill text, researchers were striving to estimate how Medicaid and Affordable Care Act (ACA) items in the House bill would affect the healthcare industry and consumers.

Of roughly 1,800 rural hospitals nationwide, more than 1 in 6 are in a situation that could leave them endangered by the consequences of the House bill, according to one of the analyses.

That analysis was requested by Senate Democratic leaders and conducted by the Cecil G. Sheps Center for Health Services Research, which has a long track record of assessing the vitality of rural hospitals. Democrats enclosed the findings in a letter to President Donald Trump and Republican congressional leaders.

Drawing on projections by the Congressional Budget Office (CBO) that 7.8 million Medicaid beneficiaries would end up uninsured in 2034 as a result of the bill, the Sheps Center lists 338 rural hospitals that either have an especially high Medicaid payer mix or already face substantial financial strain.

Among the latter group, 133 hospitals had incurred negative margins over at least the previous three years, while 83 were deemed to be at highest risk of financial distress based on statistical modeling.

The analysis did not quantify the bill’s prospective impact on rural hospitals but stated, “Medicaid cuts are likely to have a proportionate impact — meaning that hospitals most reliant on Medicaid are both more financially fragile and more vulnerable to revenue reductions. … In response, hospitals may be forced to reduce service lines, convert to a different type of healthcare facility or close altogether.”

Ramifications for all hospitals

The overall hospital sector would be looking at a $424 billion revenue hit through 2034, part of a $1.06 trillion impact on healthcare providers from provisions in the House bill, according to an analysis conducted by the left-leaning Urban Institute with support from the Robert Wood Johnson Foundation.

That projection assumes Congress also will allow the year-end expiration of the enhanced subsidies for the ACA marketplaces. By itself, the reconciliation bill would affect hospital revenue by $321 billion and overall industry revenue by $797 billion.

At the state level, spending on hospital care would fall by more than $10 billion in 10 different states if the House reconciliation bill passes and the subsidies expire, topped by Texas ($52.6 billion), California ($44.3 billion) and Florida ($40.5 billion). Whereas the loss of Medicaid coverage primarily would affect expansion states, the termination of the enhanced subsidies would be felt more so in the non-expansion states.

Uncompensated care at hospitals would increase by $85 billion over the 10-year period if the House bill becomes law and the subsidies expire. Per the researchers’ estimates, providers would foot the bill for 51% of an overall $283 billion increase.

The Medicaid portion of the analysis was based on a previously developed proprietary statistical model that projects how the loss of health insurance among the expansion population would affect healthcare utilization and spending. For provisions that also would affect non-expansion states, the analysts apportioned the impacts based on the share of beneficiaries who live in each category of state.

The GOP view

According to a messaging document put out in mid-May by the House Energy and Commerce Committee, which wrote most of the healthcare provisions, the CBO’s earlier projections overstated the impact of the legislation: “In reality, the only Medicaid enrollees losing coverage from this bill are illegal immigrants, people who are not actually eligible for Medicaid but receiving coverage anyway, or able-bodied adults choosing not to work.”

Subsequent to passage of the bill in the House, the CBO projected that 4.8 million people in expansion states would become uninsured by 2034 as a result of the work requirement. The work requirement is expected to have a minimal impact in non-expansion states because, per the House bill, most people in the traditionally served Medicaid population would be exempt.

The document states that Republicans have learned from the administrative snags encountered by the few states that previously tried to initiate a work requirement, and they will ensure the same mistakes are not made. But that statement was made before a change to the House bill pushed the start of the requirement from 2029 to 2027, giving states less time to prepare.

Roughly 900,000 people not referred to in the categories described in the messaging document would be projected to lose coverage over 10 years as regulations to ease eligibility determinations and enrollment processes are halted and new provider taxes and state-directed payments are restricted.

Nonetheless, the document states, “The bill does not cut hospitals. For years, states and providers have relied on gimmicks like provider taxes and state-directed payments to draw down excessive federal funds and offset other state expenses. Our bill puts a stop to these gimmicks by prohibiting any new ones from being put in place.”

However, the Senate bill would affect existing taxes and SDPs as well.