Last week, the House Energy & Commerce Committee marked up legislation that would significantly affect the Medicaid program, including changes to state Medicaid financing mechanisms, state directed payment programs that supplement Medicaid reimbursement to hospitals, and Medicaid eligibility for individuals.
The Energy & Commerce provisions, along with recommendations from eleven other House committees, have been incorporated into a larger legislative package (Reconciliation Bill) that will implement President Trump’s domestic policy priorities. On Sunday, May 18, the House Budget Committee approved the Reconciliation Bill with “minor modifications,” according to the Speaker of House of Representatives Mike Johnson (R-LA). Additional modifications may be made before the House of Representatives votes on the Reconciliation Bill this week, prior to a scheduled Memorial Day recess. Should the Reconciliation Bill pass the House, the Senate is expected to make further changes, all of which would have to be approved by the House. Key Medicaid provisions, particularly those related to provider tax restrictions and work requirements, are expected to reappear in future reconciliation efforts as budget negotiations and markups continue.
Although the Reconciliation Bill addresses a broad range of policy areas – including the Affordable Care Act, prescription drug pricing, and non-health care sectors such as tax, energy, and the environment – this article focuses on Medicaid sections affecting state financing, hospital reimbursement, and eligibility, including the following sections:
- (Sec. 44132) Moratorium on new or increased provider taxes. This section freezes the current provider tax rates and amount as of the date of the enactment of the Reconciliation Bill and prohibits states from establishing new provider taxes. Every state except Alaska has implemented a provider tax. Accordingly, the moratorium on provider taxes threatens to undermine state Medicaid financing by restricting a vital revenue source that supports the state’s ability to fund the state share of its Medicaid payments, including supplemental Medicaid payments that helps maintain access to care for vulnerable populations.
- (Sec. 44133) Revising the payment limit for certain state directed payments (SDPs). This section directs HHS to revise current regulations to limit state directed payments for services furnished on or after the enactment of the Reconciliation Bill from exceeding the total published Medicare payment rate. This section would not affect total payment rates for state directed payments approved prior to the enactment of the Reconciliation Bill. Approved SDPs that are in place on the date of enactment are not subject to the limit. This section could affect preprints (the state’s formal submission to CMS outlining the parameters of the SDP) that need to be approved by CMS moving forward, including new preprints, modifications to existing preprints or SDPs , or preprint/SDP renewals. This provision modifies current rate-setting parameters under 42 CFR § 438.6 by setting Medicare rates, rather than the Average Commercial Rates (ACR), as the upper payment limit.
- (Sec. 44134) Requirements regarding waiver of uniform tax requirement for Medicaid provider tax. This section changes how HHS evaluates whether a healthcare-related tax is considered “generally redistributive.” A tax will now fail this test if providers with lower Medicaid volumes are taxed at lower rates than those with higher volumes, or if Medicaid-related tax rates are higher than those based on non-Medicaid services. Existing provider tax waivers that do not meet these new standards must be revised, and after a transition period, states with noncompliant tax structures would be penalized by losing the full amount of the associated tax revenue.
The Reconciliation Bill will also have a significant impact on Medicaid eligibility. Among the Reconciliation Bill’s various sections affecting individual Medicaid eligibility, the proposed work requirements in Section 44141 stand out as particularly consequential, given their potential to affect eligibility and coverage for a substantial portion of the adult Medicaid population. This section mandates that states require adults without dependents to meet community engagement criteria – such as working, volunteering, participating in work programs, or attending educational programs – for at least 80 hours per month. Several groups are exempt, including but not limited to pregnant or post-partum women, minors, seniors, parents of a dependent child, caretakers, medically frail individuals, or incarcerated individuals or recently released from incarceration within the past 90 days. States must verify compliance regularly, providing advance notice and outreach, and offer due process protections before denying or terminating Medicaid coverage. One of the reported “minor modifications” made to the Reconciliation Bill last night would be to accelerate the effective date of these work provisions, from 2029 to potentially 2027.
Other sections affecting eligibility include (i) more frequent eligibility redeterminations for individuals enrolled under their state’s Medicaid expansion (e.g., eligibility determinations to be conducted every six months rather than the current 12 months) and (ii) limiting retroactive coverage in Medicaid to one month (rather than the current three months) prior to an individual’s application date.
As the Reconciliation Bill will undergo further changes during the legislative process, we will continue to monitor its progress closely, as these proposed Medicaid reforms represent serious policy shifts with potentially far-reaching consequences for state financing, Medicaid payments, and Medicaid eligibility.
The version of the Reconciliation Bill adopted by the House Budget Committee last night is available here (Title IV, Subtitle D – Health on pp. 295-453) and an overview of the provisions before the Energy & Commerce Committee markup is available here.
