Medicaid Impacts of H.R.1 – You Asked, We Answered
From new eligibility conditions to noncitizen coverage policy changes and state-directed payments, 80 Million readers are seeking clarity on H.R.1.
Authors: Patti Boozang, Jocelyn Guyer, Anne O’Hagen Karl and Kinda Serafi
Editor: Amanda Eisenberg
Click here to subscribe to receive more content like this!
Help shape The 80 Million: What should we write about next?
tl;dr
Manatt Health hosted an Ask Manatt Anything session for 80 Million subscribers on July 22, discussing with more than 200 participants the Medicaid impacts of H.R.1.
Participants had myriad questions, including what’s in and what’s out of the final law, and our take on the timing and process for implementation.
Some readers seemed to hold out hope that implementation will be delayed by the federal government, which will face challenges guiding fast rollout of the law.
We think federal delay is highly unlikely, despite the likely impact of Medicaid eligible people losing coverage due to implementation problems.
The 80 Million Impact
The Congressional Budget Office estimates that H.R.1, which President Trump enacted on July 4, will reduce federal Medicaid funding over the next decade by more than a trillion dollars. Some of the largest changes in direct federal funding include:
-$325.6 billion in federal funding reductions for coverage terminations due to work requirements
-$225.7 billion in federal funding reductions related to provider taxes and waiver of uniform tax requirement provisions
-$149.4 billion in federal funding reductions attached to state-directed payment changes that will reduce payment to hospitals and other providers
-$121.9 billion in federal funding reductions for the delay of select Biden-era eligibility and enrollment final rule provisions
-$62.5 billion in federal funding reductions due to coverage terminations related to more frequent eligibility redeterminations
-$104.5 billion in federal cuts attached to all other Medicaid provisions
An increase in federal funding of $50 billion for a new rural health transformation fund
Earlier this week, The 80 Million hosted a virtual Ask Manatt Anything webinar, in which we fielded live questions about the law and how implementation is likely to roll-out in the coming weeks and months. Today’s 80 Million summarizes that discussion with our readers.
Work requirements
80 Million readers wanted to know how we think states will approach the new work requirement mandate. Will most states seek approval to delay implementation? Or, conversely, to accelerate implementation?
We think we will see states across the implementation spectrum: some seeking to accelerate, some who want to delay to December 2028, and still others will drive to “on schedule” implementation in December 2026. In truth, we have been a bit surprised by states seeking to accelerate implementation. The operational and information tech system lift to implement can’t be overstated. And despite implementation funding and enthusiasm about the promise of AI and IT to standardize and speed implementation, we remain skeptical that these solutions can be deployed quickly — keeping in mind the old adage “if you’ve seen one Medicaid eligibility system, you’ve seen one Medicaid eligibility system.”
One thing is clear, whatever implementation lane they are in, states will need to take action to implement starting now. All states need to assess eligibility system and operational readiness to implement, including data sharing and automation capacity and existing infrastructure for state-level workforce program capacity and linkages — including to determine whether they need to seek Secretary approval for implementation delay. Those states that need to delay implementation will need to develop a plan and begin implementation work to show they’re operating in good faith to obtain an implementation extension.
Most, if not all, states will need to pursue state legislative appropriations for implementation funding, and some will need other state statutory changes. With a December 2026 implementation, states seeking faster implementation need to develop and submit an 1115 waiver demonstration and simultaneously engage in fast-paced policy design and operational and IT system requirements development. Waiver approvals may take more or less time for the Centers for Medicare and Medicaid Services (CMS) to process depending on the volume of waivers they receive and how straightforward or complex they are. Montana, for instance, recently submitted a waiver that asks for approval to not only move up the implementation timeline but also to implement additional exemptions to the work requirement eligibility condition.
Provider Taxes and State Directed Payments
Readers participating in the Ask Manatt Anything session had a slew of questions about the state financing and payment provisions of the law. That’s likely because these policy provisions were among the most dynamic in the days leading up to passage, the most complex in terms of their implementation, and the areas of statute that leave many open questions about practical application of the new policy to the range of state tax and payment constructs across the country.
The law includes a moratorium on new or increased provider taxes for all states. For expansion states, the law also reduces the existing 6% cap on provider taxes by 0.5 percentage points per year beginning in fiscal year (FY) 2028, until the cap reaches 3.5% in FY 2032. All states — expansion and non-expansion states — will see impacts to their ability to general state share of Medicaid funding through provider taxes because of the moratorium. Expansion states with a current provider tax rate above 3.5% will need to reduce its tax to comply with the new cap, bearing an additional financial hit due to the law.
Webinar participants expressed a lot of uncertainty about state-directed payments (SDPs), especially related to the definition of “grandfathered” SDPs (i.e., “grandfathered” above Medicare rates but still subject to reductions.) The law states that grandfathered payments are those approved by CMS prior to May 1, 2025 (or the Secretary determines the state made a good faith effort to secure approval); for rural hospitals, approved by CMS (or a good faith effort to secure approval) prior to the date of enactment of the bill; or submitted to CMS prior to the date of enactment. How permissible renewals of existing taxes relate to the ramp down to the 3.5% cap remains unclear. Another open question: the final law states that SDPs must fall by “ten percentage points” per year, without specifying 10 percentage points of what. Given the overall context, we assume that the SDPs need to decline 10 percentage points relative to Medicare.
The Rural Health Transformation Fund
The Rural Health Transformation Fund was one of the latest breaking provisions in the budget reconciliation process, added by the Senate after the House passed its version of the bill, and doubled from $25 billion to become a $50 billion fund in the final statute. This is one of the provisions for which implementation is imminent, with a deadline to submit a detailed state transformation plan for the first tranche of funding ($25 billion) to be issued by CMS no later than Dec. 31, 2025. Our Ask Manatt participants were thus understandably focused on this fund and asked us to opine on whether the dollars will fill the $70 billion funding chasm for rural hospitals created by H.R.1. The succinct answer is no. First, the funding isn’t permanent — it sunsets by Oct. 1, 2032, creating a funding cliff for rural providers on the horizon. Second, at the national level, the size of Medicaid cuts to rural hospitals alone dwarfs the $50 billion. Finally, there is no guarantee in the statute that states must send their share of the $50 billion to rural hospitals. They can send money to a broad array of rural providers or urban providers that serve rural patients or simply use the money for broader IT investments and other changes aimed at improving care. H.R.1 enshrines a broad list of providers in the definition of “rural health entity” and doesn’t explicitly define the providers eligible for funding — which would appear to leave much to the discretion of states.
Repeal of Biden-Era Eligibility and Enrollment Rules
80 Million subscriber participants wanted to know — The Biden-era eligibility rules: What stays? What goes? People are asking because this provision was one of the moving targets in the negotiations leading up to enactment. The House included a 10-year delay, the Senate made it a full repeal, and the Parliamentarian struck repeal of provisions of those rules that were already in effect, and the final law reverted to delay of some provisions. Our summary of “what stays and what goes” is provided as an Appendix below, a table of enacted and delayed provisions, as well as a flag for delayed provisions that we think states can still implement.
Non-Citizen Coverage
These were some of the toughest questions we fielded during the Ask Manatt session, and we couldn’t answer all of them. Participants asked for clarification of refugees who remain eligible for Medicaid and those who become newly ineligible under the law, and whether the law makes people ineligible for Medicaid expansion or all Medicaid eligibility pathways.
The law ends eligibility for full Medicaid coverage (for all eligibility groups, not just expansion) for some lawfully residing noncitizens including refugees, asylees, and victims of human trafficking — people who have been eligible for Medicaid coverage for decades. States can continue to receive federal Medicaid funding for covering lawfully residing children and pregnant women, as well as lawful permanent residents (LPRs) (subject to a five-year waiting period) and certain other groups of immigrants. In a separate provision, states will receive a reduced FMAP for emergency services provided to noncitizens ineligible for full Medicaid coverage who would otherwise qualify for the enhanced federal match (i.e., the Medicaid expansion group).
The Bottom Line
Our takeaway from the Ask Manatt Anything session is that Medicaid stakeholders across the spectrum (providers, state officials, plans and more) have myriad questions about the new law. Despite the lack of clarity among those who will have to implement and be most impacted by the law, a lot is already moving quickly. Stakeholders should not expect CMS to delay implementation of key provisions like the rural transformation fund, work requirements, or provider tax and SDP changes — even despite challenges in meeting aggressive implementation timelines for complex policy that statute only vaguely defines in some cases. That likely won’t bode well for implementation success and will result in coverage losses for Medicaid eligible people. These changes are not just policy but political priorities for the Trump administration and Republican leaders. And as a result, the implementation of the H.R.1 budget reconciliation law is full steam ahead.
Help shape The 80 Million: What should we write about next?