House Republicans are putting Medicaid under a microscope while looking for places to cut federal healthcare costs in order to fund President Donald Trump’s major overhaul of taxes and spending.
The House budget resolution passed last week calls for $880 billion in deficit reduction over 10 years from the part of the budget overseen by the Energy and Commerce Committee, which has jurisdiction over Medicaid.
Recommended Stories
- Measles outbreak threatens US's 25-year elimination status: UN agency
- RFK Jr. advocates vaccination as measles outbreak continues
- What to know about Medicaid work requirements
Medicaid, the joint federal-state program that provides health insurance coverage for more than 72 million low-income adults and children, cost the federal government alone $584 billion in 2024.
Last week, House Speaker Mike Johnson (R-LA), during a CNN interview, ruled out major structural changes to the program, including setting a per-capita limit on federal Medicaid spending or changing the percentage of Medicaid costs the federal government pays to each state.
No policies for achieving the $880 billion deficit reduction goal have been set, but a number of options are on the table. Most likely, the reform will involve policy changes on the margins that will add up to significant savings.
Here’s what to know about a few of the Medicaid-related policies that could be in play:
Improper payments
Honing in on improper payments through the Medicaid and Medicare programs will likely play a significant role in the Energy and Commerce Committee’s strategy to reach its deficit reduction goals.
Last year, the Government Accountability Office identified $50.3 billion and $51.1 billion in improper payments from the Medicaid and Medicaid programs, respectively, in fiscal 2023.
Identifying improper payments for benefits fits squarely with the goals of the Trump administration and Department of Government Efficiency adviser Elon Musk to eliminate waste, fraud, and abuse from all federal programs.
Improper payments are not necessarily fraud. They also include a variety of types of payments that should not be made, such as coding errors, reimbursing providers for services that were unnecessary or not actually provided, or paying for services that recipients are not actually eligible for.
Federal oversight of Medicaid, particularly improper payments, is complicated by the flexibility afforded to states to design and implement their programs to meet their specific needs.
During the first Trump administration, the Centers for Medicare and Medicaid Services substantially increased the number of audits to identify improper payments, increasing the number of investigations from 16 in 2016 through 2018 to 893 in 2019 through 2021.
Work requirements
Republicans have long advocated imposing a minimum number of working hours per month for adult Medicaid recipients under 65 who are not receiving disability benefits, with several states experimenting with work requirements under the first Trump administration.
Work requirements for Medicaid are also popular, with nearly 2 in 3 voters supporting a policy requiring able-bodied adults to work, be in job training, or attend school to receive federal subsidies, according to a 2023 Axios-Ipsos poll.
However, able-bodied adults who would be affected by working requirements only make up a small fraction of the Medicaid population.
According to the left-of-center health policy think tank KFF, 64% of Medicaid adults under 65 are employed full time or part time. About 12% are not working due to caring for dependents, 10% due to illness or disability, and 7% due to school attendance.
That leaves only 8% of non-disabled Medicaid adults aged 18-64 who do not work.
Critics of work requirements argue that most of the cost savings from the policy come from those who meet the eligibility requirements losing benefits due to not complying with paperwork requirements.
When Arkansas briefly implemented a work-requirement policy in 2018, approximately 18,000 people were disenrolled from the state’s Medicaid program.
Most of those who lost benefits met the eligibility requirements but did not fill out the proper monthly paperwork to demonstrate they were either working or qualified for the exemption due to disability or pregnancy status.
“Many of the people who are not reporting anything to the state, it’s not that they weren’t doing the right things,” Dr. Ben Sommers, a Harvard University physician and health economist, told the Washington Examiner. “It wasn’t that they weren’t working or didn’t have a disability. It was that they didn’t understand what they were supposed to be doing.”
The Committee for a Responsible Federal Budget estimates that imposing some form of work requirements could save the federal government approximately $140 billion over the next 10 years.
Provider taxes
Republicans could also take aim at a complicated policy loophole, Medicaid provider taxes, that critics argue allows states to inflate their Medicaid funds with federal dollars.
Under current federal regulations, states can levy taxes on healthcare providers, such as hospitals and nursing homes, to contribute to the state’s Medicaid budget. Those entities then charge states higher fees, and the state governments, in turn, receive a higher amount of federal matching funds.
Conservative critics of Medicaid provider taxes argue that this policy essentially allows states to run up their Medicaid spending without depleting state resources.
Provider tax revenue for the states increased 105% between 2008 and 2015, from $10.7 billion to $21.9 billion. Over that time period, the share of federal spending in Medicaid increased by about 11%, largely due to provider taxes.
Critics of the policy also highlight that the healthcare industry benefits from provider taxes because taxed entities receive increased Medicaid reimbursement funded by federal dollars.
The Congressional Budget Office estimated in a 2022 report that eliminating or lowering the provider taxes safe harbor threshold would essentially force states to rein in their Medicaid spending by placing more of the burden on state budget contributions.
According to CBO projections, states would likely replace only about half of their lost revenue with contributions from their state budgets. This would, in turn, lower the amount that the federal government pays to states in matching funds.
Eliminating the Medicaid provider taxes entirely could save $526 billion over 10 years, according to CBO calculations. Adjusting the policy without doing so could save between $41 billion and $209 billion.
Nursing home staffing rule
Undoing the Biden administration’s minimum nursing home staffing requirements rule is also being discussed in Republican circles as a policy that could contribute to the $880 billion deficit reduction target.
In 2023, CMS officials announced a rule requiring facilities to provide residents with 0.55 hours per day of skilled nursing care from a registered nurse and 2.45 hours per day from a nurse’s aide to assist with daily needs.
To meet these care requirements, nearly 75% of all nursing home facilities will need to hire more staff, which, in turn, requires facilities to raise worker wages to compete for talent amid a nationwide nursing shortage.
Critics of the rule argue that it puts a significant strain on the Medicaid program, which funds about half of all nursing home costs in the United States.
The CMS projected that the unfunded mandate would cost the federal government $41 billion by 2033, $28.2 billion of which is through the Medicaid budget.
WHAT TO KNOW ABOUT MEDICAID WORK REQUIREMENTS
Critics of the policy also note that, due to increased staffing costs, long-term care facilities are likely to raise private payer rates for care. This, in turn, could cause more patients to turn to Medicaid to cover higher costs for long-term care needs.
Leading Republicans in both the House and Senate have condemned the policy since it was first announced by the Biden administration, saying that it will drive up costs for patients, providers, and entitlement programs.