Senate Finance Committee Proposes Stricter Medicaid and CHIP Funding Cuts
The Senate Finance Committee recently introduced preliminary bill language for its portion of the Senate Republican budget reconciliation measure. This proposal intensifies the cuts to Medicaid and the Children’s Health Insurance Program (CHIP) beyond what was passed in the House version, H.R. 1. According to Congressional Budget Office projections, these cuts could lead to an additional 7.8 million uninsured individuals by 2034. The new provisions primarily focus on altering provider tax regulations, which are a crucial revenue source for states financing their share of Medicaid costs. A key change involves reducing the current safe harbor threshold for provider taxes, but only in states that have expanded Medicaid.
This reduction will phase down starting October 1, 2026, with incremental decreases until it reaches 3.5% in fiscal year 2031. This adjustment affects existing taxes on various healthcare providers, including hospitals, except for nursing homes and intermediate care facilities for individuals with intellectual disabilities, provided their taxes were already in effect as of May 1, 2025. Puerto Rico and other territories are exempt from this reduction.
Data from the Kaiser Family Foundation reveals that currently, 18 expansion states impose hospital taxes exceeding 3.5% of net patient revenues, which would be prohibited under the new thresholds. Seven of these states exceed 5.5%, facing immediate restrictions next year. Consequently, these states may need to either increase other taxes, reduce budgets elsewhere, or drastically cut their Medicaid programs to compensate for lost revenues.
Beyond hospitals, existing taxes on managed care plans and ambulance providers in several states also surpass the proposed limit. Loss of these revenues could exacerbate budget gaps, compelling severe reductions in Medicaid services. Additionally, the bill retains two provisions from the House bill: one barring states from instituting new provider taxes or increasing existing ones, and another codifying a CMS rule prohibiting certain "uniformity waiver" provider taxes without transition guarantees.
These combined measures significantly jeopardize state Medicaid funding, potentially forcing states to eliminate Medicaid expansions or drastically reduce enrollment and benefits. Furthermore, they deter non-expansion states from adopting Medicaid expansion in the future due to increased financing difficulties. Ultimately, this could result in widespread cuts to Medicaid coverage, affecting children, seniors, and individuals with disabilities.
In conclusion, the proposed changes present a formidable challenge to states' ability to sustain Medicaid programs effectively. With reduced flexibility in raising funds through provider taxes, states may be compelled to make difficult choices between raising other taxes, cutting essential services, or severely curtailing Medicaid coverage. This scenario underscores the potential long-term impact on healthcare access and affordability for millions of Americans.