The megabill's Medicaid cuts shocked hospitals, but they may never happen

Politico

14 hours ago

And 2028 is not only an election year, but a presidential one.
'Are they really going to want to cut rural hospitals in an election?' asked Chris Mitchell, head of the Iowa Hospital Association. 'We're going to talk to our delegation early and often about the impact of these cuts and how looming cuts down the road impact how hospitals run in the interim.'
Heartening for hospital executives is a now-long history of Congress delaying or repealing the painful parts of major legislation.
Congress, for example, never allowed a tax on high-end 'Cadillac' insurance plans in 2010's Affordable Care Act to take effect, and rescinded a tax on medical devices.
'We saw it with the Affordable Care Act, and we will certainly see it with this bill,' predicted Ben Klein, a former Democratic Senate aide and founding partner of Red+Blue Strategies, a lobbying firm that counts major hospital groups and systems among its clients.
Congress' habit of revisiting painful cuts also guarantees a multiyear windfall for K Street, the Washington corridor where many lobbyists have their shops. Lobbyists with ties to Trump or Republicans in Congress have already seen a surge in revenue this year. Several state-based hospital associations say they will ramp up meetings with lawmakers to stress the need for an off-ramp before the 2028 elections.
Even before the megabill's enactment, some Republicans in competitive districts were suggesting Congress may need to tweak a provision restricting states' ability to extract more money from the Treasury if it causes problems for hospitals.
'If it looks like we have issues and we're not comfortable, we can change it,' Rep. Jeff Van Drew (R-N.J.) said before the House voted to pass the bill last week. 'Things are subject to change. We're going to have different members of Congress. We're going to have a new president. Things are going to be different.'
If the lobbyists are successful in undoing the cuts — which mostly target Medicaid, the state-federal insurance program for low-income people — it'll mean the One Big Beautiful Bill Act will be even more expensive than the Congressional Budget Office expects: $3.4 trillion in deficit spending over a decade.
That will have ramifications across the U.S. economy, exposing Americans to higher interest rates and slower economic growth, budget experts warn.
'If they are successful in getting these reductions delayed, modified, scaled back, … it will be a tax on future generations,' said Bill Hoagland, senior vice president at the Bipartisan Policy Center and longtime GOP Senate budget aide.
But that's a deal hospital executives — who have predicted the cuts could threaten some facilities' survival — are willing to take.
Delays and cuts
States use two tools to get higher Medicaid payments from the federal government. The first is a tax on hospitals and other providers. States use the tax revenue to pay their share of Medicaid, which offers insurance to more than 70 million low-income Americans.
Hospitals don't mind because states cover the tax with bigger Medicaid payments.
Conservative advocates of reining in the practice say it amounts to 'money laundering' because states with bigger Medicaid budgets qualify for larger federal contributions. That can also free up money in state budgets to pay for other things, like coverage for undocumented immigrants.
But states and hospitals say the tax is vital because Medicaid reimbursements don't cover the true costs of care.
The megabill incrementally lowers the rate states can levy from 6 percent of patient revenue to 3.5 percent. In 2028, the cuts start to phase in at 0.5 percent and continue for several years until reaching 3.5 percent. The new law permits the 10 red states that have chosen not to take advantage of a provision in Obamacare encouraging them to expand Medicaid to cover more low-income people to keep their taxes but not increase them.
Restricting the provider taxes will hit hospitals that serve large numbers of Medicaid patients hard, their advocates say.
Second, the bill targets a wonky financial tool states use to boost hospitals' Medicaid revenue called state-directed payments. The tool enables states to boost the rates privately run managed care plans, which contract with states to cover Medicaid patients, reimburse providers. States have ordered higher rates for chronically underfunded hospitals and facilities. In some cases, states have required the plans to pay providers at commercial rates, which are much higher than those paid by Medicaid and Medicare, the federal health insurance program for elderly people.
Overall the bill will cut more than $1 trillion in health spending over the next decade, with the majority coming from Medicaid. This includes not just the state cuts but also the effects of other provisions, such as new rules requiring some Medicaid recipients to work, volunteer or attend school.
Hospitals are trying to figure out how to make up funding gaps that could reach billions of dollars — and warning their representatives and senators of what's ahead.
States could raise income taxes or find ways to shed Medicaid enrollment to help contain costs, hospital executives said.
In West Virginia, facilities may delay construction projects or cut services, said Jim Kaufman, president and CEO of the West Virginia Hospital Association.
Some areas that could be targeted are obstetrics or pediatric care, which are already in short supply in rural areas.
'One out of every two births is covered by Medicaid,' he said.
Getting grandfathered
Lawmakers are likely to hear more in the coming months about the impacts on their local hospitals. The industry has always been a powerful one in Washington since hospitals care for lawmakers' constituents and also employ many of them.
The Iowa Hospital Association's Mitchell said lawmakers may think twice once they see the consequences of the cuts.
'We won't be talking theoretically,' he said. 'Unless there's intervention, we know how things will shake out.'
Republicans did include a $50 billion relief fund for rural hospitals to stretch out over five years. Details on how that money will be distributed remain scant as states await guidance from the Trump administration.
But it is unlikely to fully offset the losses, several hospital groups said.
That's because rural hospitals serve mostly Medicare and Medicaid patients and the rates the government pays are usually far less than what private insurers do.
In Virginia, large hospital systems in urban areas might get a sixth of their revenue from state-directed payments. For rural facilities, it is closer to a third, said Julian Walker, vice president of communications for the Virginia Hospital and Healthcare Association.
Advocates for rural hospitals, as well as urban ones that serve large numbers of Medicaid patients, are highlighting their vulnerability.
Larry Bucshon, a Republican lobbyist and former heart and lung surgeon who served seven terms representing an Indiana House district, said he expects Congress will have to do more to help them.
'There is going to have to be some work done to say, 'Well, we need to have more grandfathering,'' he said.
Still, lobbyists for hospitals said they aren't taking that for granted.
They point out that the Paragon Health Institute, a Trump-aligned think tank, made the case for changes to provider taxes and state-directed payments and that many Republicans believe strongly that Medicaid costs have grown too rapidly and that some states provide benefits to people who don't need them. That threatens the program's stability, Republicans said during the megabill debate.
'They may not be as generous...People from the Paragon Institute work inside the White House and have been pushing for these changes that have now become enshrined in law,' a lobbyist for multiple hospitals, granted anonymity to speak freely on the situation, said.
At the same time, any changes going forward will likely need bipartisan support and Democrats might not be eager to help Republicans out of a jam if the GOP finds itself trying to stop unpopular provisions from taking effect in an election year.
'I don't want to hear Jeff Van Drew, or any Republican from New Jersey, or any Republican in this House telling me that they're going to correct bad things that they did today,' said Rep. Frank Pallone (D-N.J.) after the final megabill House vote last week.
Still, Pallone, the top Democrat on the House Energy and Commerce Committee, said he wants to reverse the Medicaid cuts.
'I'm determined to ultimately reverse all the terrible things they've done to Medicaid, to the ACA, to make health care less affordable, more costly,' Pallone said.