Medicaid and CHIP Cuts in the House-Passed Reconciliation Bill Explained

In the early morning of Thursday, May 22nd, on a 215-214 vote, House Republicans passed their budget reconciliation bill (H.R. 1). The bill includes numerous provisions related to Medicaid and the Children’s Health Insurance Program (CHIP), the overwhelming majority of which institute deep, damaging cuts.

Final comprehensive Congressional Budget Office (CBO) estimates of the House-passed bill are not yet available as House Republicans made numerous, significant changes to the Medicaid and CHIP provisions reported by the House Energy and Commerce Committee on May 14th, several days before the House voted on the final bill. Nevertheless, based on preliminary CBO estimates from before and after the House Energy and Commerce Committee markup, it is likely that the bill’s Medicaid and CHIP provisions would cut gross Medicaid and CHIP spending by well over $800 billion over the next ten years, reduce Medicaid enrollment by at least 10.3 million by 2034,¹ and increase the number of uninsured individuals by at least 7.6 million by 2034. This does not include the impact of the cuts (here and here) affecting the Affordable Care Act’s marketplaces and marketplace subsidies, which would reduce marketplace enrollment by millions and likely further increase the number of uninsured people by three million or more. As a result, under the bill, the number of uninsured individuals would likely increase by 10 million or more in 2034, relative to current law. (This does not include the impact of the bill failing to extend the enhanced marketplace subsidies which are scheduled to expire at the end of this year. While expiration of the enhanced subsidies is already assumed in the CBO baseline, extension of the enhanced subsidies would prevent 4.3 million people from becoming uninsured by 2034).

To help federal and state policymakers and stakeholders better understand the reconciliation bill’s provisions cutting Medicaid and CHIP and their likely very harmful effects, this explainer briefly summarizes and analyzes each of the provisions, grouped into several categories. Preliminary CBO estimates are provided if available. (These CBO estimates represent gross spending effects for each provision, without revenue effects and without interactions with other Medicaid, CHIP, and marketplace provisions and across different Committee bill sections. If applicable, the cited estimates will note where final estimates are likely to differ substantially due to changes to the final bill language made prior to the House vote which were not accounted for in the preliminary CBO estimates).

Cuts Targeting the Affordable Care Act’s Medicaid Expansion

The House-passed Republican reconciliation bill does not include the most severe threats to the Medicaid expansion, which covers nearly 21 million low-income parents, people with disabilities and chronic conditions, and other adults in 40 states and the District of Columbia. For example, the bill does not include eliminating the permanent 90 percent expansion matching rate or imposing a per capita cap on federal expansion funding, both of which would shift massive costs to states and force most or all states to likely drop the expansion over time. The bill, however, includes multiple provisions intended to seriously undermine the Medicaid expansion by sharply cutting Medicaid enrollment among individuals eligible for the expansion or making it harder for expansion enrollees to access needed care. It would also diminish the likelihood that the 10 remaining non-expansion states newly adopt the expansion.

Requiring all states to institute onerous work reporting requirements for expansion individuals. Starting December 31, 2026, section 44141 of the bill would institute mandatory Medicaid work reporting requirements in all states for most expansion adults ages 19 through 64.² (It would also likely apply to individuals in a non-expansion state like Wisconsin covered under a waiver who are non-elderly adults, not pregnant, not enrolled in Medicare, and would not otherwise be eligible without the waiver.) These work reporting requirements would need to be satisfied for at least 1 month before application (in order to enroll) and during enrollment for at least 1 month (between eligibility redeterminations every six months, as discussed below). Notably, while states would be required to automate the work reporting process “where possible,” there is no requirement that states provide automatic exemptions for many individuals the bill states should be exempt including parents, guardians and caretaker relatives of dependent children and disabled family members; some people with disabilities; people with substance use disorders and serious and complex medical conditions; veterans with disabilities; and former foster youth. Many people who are unable to complete or understand the reporting requirements or do not obtain exemptions for which they would otherwise qualify would be either unable to enroll when applying or be disenrolled, as state waiver experience with work reporting requirements clearly demonstrates.

States would also be given the option to make the work reporting requirements even harsher (while given no flexibility to ease the requirements). For example, states could implement these work requirements earlier than December 31, 2026. They could also require people to satisfy the work requirements for each of an unlimited number of consecutive months prior to application in order to enroll. They could require individuals to satisfy the work reporting requirements as frequently as in every month between every mandatory six-month redetermination. States could also require more frequent verification and checks (rather than just during each redetermination) that individuals are satisfying the work reporting requirements and which could trigger disenrollment. At the same time, states would not be able to waive any provisions of the work reporting requirement to provide additional exemptions or broaden existing exemptions. For example, states may provide optional short-term hardship exemptions when the state’s unemployment rate exceeds 8 percent or 1.5 times the national unemployment rate, but states could not provide such exemptions at lower but still elevated unemployment rates. The Secretary of Health and Human Services (HHS) would also have no authority to allow additional exemptions beyond those described in this section of the bill.

The Urban Institute has examined the impact of a harsh but less restrictive 2023 work requirement proposal (which was modeled on Arkansas’s work reporting requirement waiver and only would have applied to existing enrollees not upon initial application) finding that 5.5 million to 6.3 million expansion individuals ages 19-64 would be disenrolled because they could not successfully navigate burdensome processes and systems to report their work activities or obtain exemptions. That constitutes about 36 percent to 42 percent of all expansion enrollees ages 19-64. Many parents would be at risk of losing their Medicaid coverage, which could adversely affect their children.

The bill further ensures that those losing Medicaid coverage due to these work reporting requirements end up uninsured by making them ineligible for premium tax credits to purchase coverage through the Affordable Care Act’s marketplaces. Finally, as CBO (here and here), Harvard University researchers and the Urban Institute find, such work requirements would have little or no effect on employment or hours worked. In other words, work requirements do not produce savings because people increase employment and hours worked, thereby becoming ineligible for Medicaid as their income rises. Rather, they produce such large savings because millions of expansion individuals who are otherwise eligible and meet the work reporting requirements or qualify for an exemption are instead disenrolled from Medicaid due to red tape.

Preliminary CBO estimates find that this provision would reduce federal spending by $280 billion over ten years (but the CBO estimates do not take into account changes moving up the effective date from January 1, 2029 to December 31, 2026 — which would likely add roughly $60 billion to $80 billion in additional spending cuts to the estimate — and eliminating the authority of the Secretary to establish additional exemptions for short-term hardships, medical conditions, and enrollment in other educational programs).

Making it harder for expansion individuals to retain and renew their Medicaid coverage. Redeterminations for expansion individuals are conducted every twelve months. Starting on December 31, 2026, Section 44108 of the bill would require all states to conduct eligibility redeterminations for expansion individuals, including many parents and people with disabilities and chronic conditions, every six months. More frequent redeterminations would significantly elevate the risk of procedural disenrollments despite enrollees remaining eligible and increase the rate of churn, which would interrupt continuity of care and increase administrative burdens for states, providers and managed care plans and limit the ability to accurately measure quality of care. As a result, more frequent redeterminations and income checks would likely cut federal Medicaid spending because it would create additional barriers to retaining Medicaid coverage among expansion adults and result in higher rates of disenrollment, not because it would identify substantial numbers of ineligible people who are enrolled. Preliminary CBO estimates find that this provision would reduce federal spending by $53.2 billion over ten years (but the CBO estimates do not take into account changes advancing the effective date from October 1, 2027 to December 31, 2026).

Requiring states to impose mandatory cost-sharing of up to $35 per service for certain expansion individuals. Medicaid beneficiaries generally do not face premiums and are subject to only nominal co-payments. (Some people such as children, pregnant women, nursing home residents and American Indians receiving care at an Indian Health Service provider are entirely exempt from premiums and cost-sharing. Some services such as emergency services, pediatric services, pregnancy-related care and family planning are exempt from cost-sharing.) In addition, states currently have some flexibility to charge premiums and higher cost-sharing to individuals with incomes above 150 percent of the federal poverty line since enactment of the Deficit Reduction Act of 2005 but states have generally not adopted that option. Total out-of-pocket costs — premiums and cost-sharing — may not exceed 5 percent of household income.

Section 44142 of the bill would mandate that as of October 1, 2028, all states must charge some cost-sharing for every non-exempt service provided to any individuals enrolled through the Medicaid expansion who have incomes above the federal poverty line. (No premiums would be permitted.) The cost-sharing could be as high as $35 per service (with currently exempt services continuing to be exempt; primary care services, mental health care services and substance use disorder services would be made newly exempt; and current nominal co-payment rules would apply to prescription drugs). In addition, providers would be newly permitted to deny services to any individual who cannot pay the required co-payment.

Most expansion states charge no cost-sharing or only nominal co-payments. The research literature on cost-sharing in Medicaid, however, is clear: even modest increases in co-payments lead to reduced usage of needed care. The ability of states to deny care if expansion enrollees cannot afford the up to $35 co-payment would further exacerbate this negative effect on utilization. As a result, this provision of the bill would likely lead to low-income people enrolled in the expansion foregoing needed services due to cost which, in turn, would likely lead to poorer health outcomes. Preliminary CBO estimates find that this provision would reduce federal spending by $13 billion over ten years (but the CBO estimates do not take into account changes exempting primary care, mental health care and substance use disorder services from the increased cost-sharing).

Eliminating the additional incentive for states to take up the Medicaid expansion. Under current law, since enactment of the American Rescue Plan Act in 2021, if remaining non-expansion states newly adopt the Medicaid expansion, they will receive an additional five percentage point increase in their regular FMAP for two years, no matter when they newly expand. (The increase does not apply to the Medicaid expansion itself or other Medicaid spending that is not subject to the regular FMAP.) This incentive, for example, was a key factor in North Carolina’s adoption of the Medicaid expansion, which was first implemented in December 2023. Section 44131 of the bill would remove this incentive starting January 1, 2026, making it less likely that the remaining 10 non-expansion states eventually take up the expansion and leaving the nearly 2.9 million low-income adults who could newly gain eligibility uninsured, including 1.5 million people in the “coverage gap.” This is one of several provisions intended to discourage states from newly adopting the expansion, including provisions related to provider taxes and state-directed payments, as discussed below. Preliminary CBO estimates find that this provision would reduce federal spending by $12.7 billion over ten years.

Restrictions on the Ability of States to Finance Medicaid through Provider Taxes

The House-passed Republican reconciliation bill includes two provisions restricting the ability of states to use provider taxes, which are used to help finance the state share of the cost of Medicaid as permitted under federal rules established in the early 1990s. These provisions would make it considerably more difficult for states to generate needed revenues to not only make future improvements to their Medicaid programs but also to sustain their existing Medicaid programs both in the short- and long-term.

Prohibiting states from raising revenues to finance Medicaid through new or increased provider taxes. Provider taxes play an essential role in state Medicaid financing. Under longstanding federal rules in place since 1991-1992, states may institute taxes and assessments on hospitals, nursing homes, Medicaid managed care plans and other providers to raise revenues that finance a portion of their share of Medicaid costs. Such taxes must comply with three federal requirements: they must be uniform and broad-based and cannot hold taxpayers harmless. The “hold harmless” requirement can be satisfied under a safe harbor if the tax does not exceed six percent of net patient revenues. As KFF has documented, all states but Alaska rely on such taxes, with 39 states including the District of Columbia having at least three such taxes.

Under section 44132 of the bill, as of the date of enactment, states would be prohibited from establishing any new provider taxes or increasing existing taxes (by increasing the tax rate or increasing the base of the tax). This means that states would no longer be able to use new or increased provider taxes to raise additional revenues to finance their share of Medicaid costs. States would be locked into their existing taxes, even if they have applied taxes only to certain providers — hospitals and nursing homes but not intermediate care facilities, ambulances and managed care plans — or the size of some or most of their taxes even if they are considerably below the safe harbor maximum of six percent.

As a result, states would have zero flexibility on provider taxes moving forward which is likely to be highly problematic, especially in light of the other Medicaid, SNAP and other cuts in the bill that shift costs to states. For example, in the face of a recession that leads to declining income and sales tax revenues and growing budget deficits, without the option of additional provider taxes, states would either have to cut other parts of their budget like education or most likely, deeply cut their Medicaid programs even as people are losing their jobs and health insurance. States would also be far less able to identify the state financing needed to expand Medicaid eligibility and benefits — such as expanded access to home- and community-based services — or increase provider payment rates to induce greater provider participation and improve access to care especially in underserved areas and rural communities. Notably, without new or increased provider taxes as a financing source, it would also make it considerably more difficult for the 10 remaining non-expansion states to adopt the expansion in the future. Preliminary CBO estimates find that this provision would reduce federal spending by $89.3 billion over ten years.

Prohibiting certain existing provider taxes with “unformity waivers” and forcing states to cut their Medicaid programs. Under section 44134 of the bill, as of the date of enactment, states would also be prohibited from using certain existing provider taxes to finance Medicaid. As noted above, provider taxes must be applied in a uniform manner but under longstanding federal regulations, states may comply with this uniformity requirement by obtaining a waiver. To receive federal approval for a waiver related to a tax, the tax must still be “generally redistributive” which can be demonstrated by satisfying a mathematical test. While leaving that mathematical test in place, the bill would prohibit any tax from being considered redistributive and thus permissible if it fails to meet three new technical requirements. The requirements are intended to capture currently allowed taxes which satisfy the test despite, for example, differing tax rates for Medicaid managed care plans and for non-Medicaid plans. However, these requirements would apply not just to taxes on managed care plans but also on any type of provider including hospitals.

The provision is similar but not identical to the requirements of a new proposed rule from the Centers for Medicare and Medicaid Services (CMS) issued on May 12. According to the rule, there are at least 8 taxes (7 taxes on managed care plans and one on hospitals) in 7 states that would no longer be allowed. (It is our understanding that these states are California, Illinois, Massachusetts, Michigan, New York, Ohio and West Virginia.)

The legislative provision, however, is much more far reaching. Unlike the rule, it does not clarify that some existing taxes continue to be permissible such as those excluding or instituting differential tax treatment for sole community hospitals or rural hospitals because of the vital roles they play in their communities. In addition, while the provision allows the Secretary of HHS to provide a transition period for affected states for up to three years, there is no requirement that any transition be actually provided. Finally, in the preamble to the rule, CMS argues that states should be able to maintain the same level of revenues raised by any newly prohibited taxes because states can modify the prohibited taxes to come into compliance with the new rules or institute other provider taxes. But with section 44132 (the moratorium on new or increased provider taxes as discussed above), states would not be able to substitute a different provider tax, increase a different provider tax, or modify the non-compliant tax in ways that increase the rate or expand the base of the tax even if those changes are needed to satisfy these new requirements.

As a result, for a number of states, this provision would result in substantially less state funding available to finance Medicaid. In order to close budget shortfalls, states would either have to raise other taxes, cut other parts of their budget, or most likely, sharply cut their Medicaid programs. Preliminary CBO estimates find that this provision would reduce federal spending by $34.6 billion over ten years. (The estimated federal Medicaid spending reduction would actually be double this amount because CBO assumes this provision would only “score” half of the expected savings due to probabilistic assumptions that the CMS proposed rule would be finalized irrespective of this provision.)

More Red Tape to Reduce Enrollment Among All Medicaid Beneficiaries

While some of the bill’s provisions adding red tape specifically target the Medicaid expansion — such as mandatory work reporting requirements and mandatory six-month eligibility redeterminations — other provisions would explicitly add, or would use the threat of severe financial penalties to force states to add, onerous red tape for all Medicaid beneficiaries including children, seniors and people with disabilities in order to reduce enrollment among eligible individuals.

Blocking implementation of an essential rule to simplify eligibility and enrollment and increase participation in Medicaid and CHIP among children, seniors and people with disabilities. CMS finalized an important two-part Medicaid and CHIP eligibility and enrollment rule in September 2023 and April 2024 by CMS. The rule significantly improves Medicaid and CHIP eligibility and enrollment systems and procedures by making it easier to apply for, enroll in and renew Medicaid and CHIP coverage. The rule would also strengthen program integrity efforts and make Medicaid administration more efficient. For example, the rule no longer allows waiting periods and lockouts for children applying to or enrolled in separate state CHIP programs, bans arbitrary annual and lifetime dollar limits on CHIP coverage, and improves transitions for children moving from Medicaid to separate state CHIP programs. The rule also requires states to conduct redeterminations every 12 months for seniors and people with disabilities rather than allowing states to require redeterminations every six months. It also bars states from requiring face-to-face interviews for seniors and people with disabilities. The rule also increases enrollment in the Medicare Savings Programs (MSPs) among low-income Medicare beneficiaries by aligning income and asset methodologies with the Medicare drug benefit’s Low Income Subsidy (LIS) and requiring states to automatically enroll those with SSI into MSPs.

Sections 44101 and 44102 of the bill would block implementation through January 1, 2035 of both parts of the rule. Without this rule, fewer children, seniors and people with disabilities would be enrolled in Medicaid and CHIP. This includes fewer seniors and people with disabilities who would be enrolled in MSPs and therefore the LIS, even though recent research shows that loss of MSP and other Medicaid coverage reduces enrollment in the LIS (as such Medicaid coverage results in LIS enrollment) and, in turn, leads to higher mortality among low-income Medicare beneficiaries. CBO has previously estimated that by itself, rescinding the rule would cut Medicaid enrollment by 2.3 million people in 2034. Based on CMS’ regulatory impact analysis, most of those losing Medicaid coverage would likely be seniors and people with disabilities also enrolled in Medicare. Preliminary CBO estimates indicate that 1.3 million people who are dually eligible for Medicare and Medicaid would lose their Medicaid coverage under the bill and it is likely that blocking this eligibility and enrollment rule is one major contributor. Preliminary CBO estimates find that these two provisions together would reduce federal spending by $167.1 billion over ten years.

Imposing mandatory federal funding penalties on states related to eligibility errors. Under the longstanding Medicaid Eligibility Quality Control (MEQC) program, if a state’s erroneous payments related to eligibility exceed 3 percent, the state could be subject to a penalty of all federal spending related to such errors that exceed 3 percent of total Medicaid expenditures. Erroneous excess payments involve payments with respect to ineligible individuals and overpayments related to errors in determining the amount of “spenddown” medical or long-term care costs required to be eligible. But the Secretary has the authority to provide “good faith” waivers for such penalties and it appears that the Secretary has never penalized states in this manner under the MEQC program. Moreover, the MEQC program has been now converted to targeted pilot programs focusing on certain eligibility issues with the separate establishment by CMS of the Payment Error Rate Measurement (PERM) program for Medicaid and CHIP.

Starting in 2030, section 44107 of the bill would effectively eliminate this good faith waiver; require penalties to be assessed; extend the definition of erroneous payments to include payments for items and services that should not be covered for eligible individuals; and broadly expand the determination of erroneous payments to include not just payments identified by MEQC pilots but also any eligibility-related payments identified under PERM, audits conducted by the HHS Office of Inspector General and any other independent audit. Notably, such erroneous payments could include payments related to individuals who are subject to work reporting requirements. To reduce their erroneous payment amounts (especially for those who are later determined to be ineligible) and avoid the risk of potentially very large federal funding penalties, it is likely that states would add greater red tape, drop existing eligibility and enrollment simplifications, and strongly prioritize denials and disenrollments over enrollment and renewals. All of those actions would slash participation among eligible individuals. Preliminary CBO estimates find that this provision would cut federal spending by $7.4 billion over ten years.

Delaying Medicaid and CHIP coverage and access where real-time verification of citizenship or immigration status is not initially available. Under current law, as KFF explains, states must verify citizenship or immigration status upon an individual’s initial application for Medicaid and CHIP. This is done through automated real-time systems operated by the Social Security Administration (SSA) and the Department of Homeland Security (DHS). In a limited number of cases, the systems may be unable to provide immediate verification and individuals must submit documentation for additional review. To ensure that individuals have access to care while this extended process is completed, Medicaid and CHIP coverage is available during a temporary “reasonable opportunity” period of 90 days. This is especially important for hospitals and other providers that are furnishing needed services while the application is pending and verification issues are being resolved.

Starting on October 1, 2026, section 44110 of the bill would no longer require states to provide Medicaid and CHIP coverage during the reasonable opportunity period. If states opt to continue to provide such coverage, federal Medicaid and CHIP matching funds would no longer be available, unless the individual’s citizenship or immigration status is eventually confirmed within the 90 days. To avoid the risk of being potentially responsible for all Medicaid and CHIP coverage costs during a reasonable opportunity period and to reduce costs generally, many states would likely no longer provide such coverage. That means that individuals who face a delay because SSA and DHS systems are unable to immediately provide verification will go without Medicaid and CHIP coverage for several months or more. They would forego care or incur higher out-of-pocket costs and health care providers would see their uncompensated care costs rise. Older U.S. citizens born abroad may be especially at risk. Preliminary CBO estimates find that this provision would reduce federal spending by $844 million over ten years.

Replacing address updating requirements in the eligibility and enrollment rule intended to simplify enrollment processes with different address verification requirements focused on reducing managed care plan enrollment in multiple states. Under the second part of the Medicaid and CHIP eligibility and enrollment rule that would be blocked for ten years under the bill (discussed above), states are required to implement processes to obtain updated address information and act on address changes without additional verification if the sources are considered reliable including returned mail with a forwarding address, the U.S. Postal Service National Change of Address database, Medicaid managed care plans, and other sources determined by the Secretary. If receiving information from a different source that cannot be confirmed with reliable sources, states must make a good-faith effort to contact the beneficiary (at least two attempts using two different methods and giving at least 30 days to respond) but the state may not update the address or terminate that coverage if there is no response. In the case of an update for an out-of-state address from a reliable source, states must first contact the beneficiary and provide advance notice of termination and fair hearing rights before disenrolling the individual. These requirements are intended to improve the renewal process for beneficiaries but would instead be blocked under the bill.

In contrast, section 44103 of the bill would involve updated address information with the primary goal of preventing enrollment in managed care plans in multiple states. As of January 1, 2027, states would be required to regularly obtain address information from reliable sources but there would be no requirement that states rely on such information for renewals. There would also be no protections for beneficiaries such as requiring good faith efforts to contact individuals or to ensure good faith efforts, as well as notice and a right to fair hearing, for individuals who appear to be now residing in a different state. In addition, as of October 1, 2029, states would have to submit monthly Social Security Numbers and other information to a new system established by the Secretary which is intended to identify on a monthly basis any individuals who may be enrolled in managed care plans in multiple states. If the system identifies such individuals, states are required to take actions (as determined by the Secretary) including disenrolling such individuals. The provision does not identify any protections for beneficiaries — such as specifying how states will confirm that a beneficiary is in fact no longer a resident of their state or requiring states to make good-faith efforts to contact the individual — or what exceptions to disenrollment would be provided. The Secretary may specify exceptions but is not required to do so. Preliminary CBO estimates find that this provision would reduce federal spending by $17.4 billion over ten years.

Increased Medical Debt for Medicaid Beneficiaries

One of the bill’s provisions would be certain to increase medical debt for individuals and their families and uncompensated care costs for health care providers.

Limiting retroactive eligibility from 90 days to 30 days, which protects families from medical debt and ensures that providers are reimbursed for providing timely necessary care. Medicaid coverage of medical and long-term care expenses is available for up to three months before application, assuming that the individual would have been eligible at the time the services were received. As we have explained, retroactive eligibility, which has been in place since 1973, is critical “because many uninsured individuals apply for Medicaid just after a major health event – for example, after a stroke. An individual might be hospitalized and incapacitated for weeks before they can start gathering materials and then file a Medicaid application. Without retroactive coverage, such an individual would have no coverage for their hospitalization, surgeries, and other care. They would face insurmountable bills and medical providers wouldn’t be paid for all of the vital care provided.” This would also be the case for people who suddenly see a deterioration in health that requires long-term services and supports in a nursing home. Their families may need significant time to gather needed supporting documentation related to disability, need for institutional care and income/assets information before they are ready to apply, even though nursing home care is needed immediately.

Some states have previously received approval for waivers to limit retroactive eligibility on the speculative theory that this would encourage individuals and families to apply more quickly for their Medicaid coverage. But the Urban Institute found that beneficiaries were wholly unaware of the change in retroactive eligibility and therefore it had no effect on when they applied and enrolled. Under such waivers, beneficiaries faced greater medical debt and hospitals and other health care providers incurred higher uncompensated care costs. Section 44122 of the bill would curtail retroactive eligibility from 90 days to 30 days for all beneficiaries on or after December 31, 2026. That would likely result in people and their families foregoing needed health care and long-term services and supports or incurring significant out-of-pocket costs and medical debt. Preliminary CBO estimates find that this provision would reduce federal spending by $6.4 billion over ten years (but the CBO estimates do not take into account changes pushing back the effective date slightly from October 1, 2026 to December 31, 2026).

Cuts to Federal Medicaid Expansion Funding, Leading to Elimination of Health Coverage for Children and Other Immigrants

Other sections of the House-passed reconciliation bill explicitly eliminate eligibility of certain lawfully residing immigrants for marketplace subsidies and Medicare. In the case of Medicaid and CHIP, the bill would substantially cut federal Medicaid expansion funding for states unless they drop health coverage for immigrants, including undocumented children and in a limited number of states, pregnant women and other adults, that states are covering with their own funds. It would also substantially cut federal expansion funding for states unless they drop federally funded Medicaid and CHIP coverage for lawfully residing immigrants such as children in separate state CHIP programs.

Cutting the Medicaid expansion matching rate to force states that cover undocumented and certain lawfully residing children and other immigrants to drop such coverage. Under current law, states cannot provide federally funded Medicaid coverage to individuals who are undocumented immigrants. Fourteen states and the District of Columbia, however, use their own state funds to provide coverage to undocumented children, as well as some pregnant women and other adults, who are otherwise income-eligible. In addition, under current law, lawfully residing immigrants are generally not eligible for Medicaid for the first five years they have eligible immigration status in the United States (with some exceptions such as for refugees and asylees). Under the so-called “ICHIA” option enacted in 2009, states can also provide Medicaid and CHIP coverage in the first five years to lawfully residing children and pregnant women, with a large majority of states currently doing so. Starting on October 1, 2027, section 44111 of the bill would cut the current federal matching rate for the Medicaid expansion from 90 percent to 80 percent for any expansion states that provide comprehensive health coverage or financial assistance to purchase health insurance to undocumented immigrants (even though the coverage is financed solely by state funds) or to certain lawfully residing immigrants. For example, in addition to the 14 states using their own funds to provide coverage to undocumented children, this financial penalty would apply to another 10 states using the option to cover lawfully residing children and pregnant women in separate state CHIP programs. The penalty would also apply to the many states now providing federally funded Medicaid coverage to certain lawfully residing immigrants after five years (including so-called “parolees” who have been lawfully admitted for humanitarian reasons including most recently people from Ukraine and Afghanistan). It would also apply to some states providing coverage using their own funds to lawfully residing immigrants for the first five years they are in the U.S.

This provision would double the cost of expansion coverage for numerous expansion states. As a result, many states would likely have no choice but to eliminate state-only coverage for low-income undocumented children. They would also have no choice but to drop federally funded CHIP coverage for lawfully residing children and pregnant women under the ICHIA option, as the penalty would clearly apply to children and pregnant women in separate state CHIP programs. States would also have no choice but to drop other federally funded and state-funded only Medicaid coverage for additional lawfully residing immigrants. (This would particularly be the case in states with “triggers” where cuts to the federal expansion matching rate would automatically terminate the state’s Medicaid expansion.) Preliminary CBO estimates find that this provision would reduce federal spending by $11 billion over ten years (but the CBO estimates do not take into account changes extending the penalty to certain lawfully residing immigrants including children in separate state CHIP programs).

Restrictions on Access to Needed Care

The bill includes several provisions that would limit access to needed care by prohibiting Medicaid and CHIP coverage of gender affirming care, barring Planned Parenthood from serving as a participating Medicaid provider, and preventing states from instituting new supplemental provider rate increases through managed care.

Prohibiting Medicaid coverage of gender affirming care. Section 44125 of the bill would prohibit federal Medicaid and CHIP matching funds for gender affirming care for all transgender beneficiaries. (As reported by the House Energy and Commerce Committee, this prohibition previously applied to children under age 18 but was then extended to all Medicaid and CHIP beneficiaries under the bill reported by the House Rules Committee before the floor vote.) According to KFF, most state Medicaid programs cover some gender affirming services for adults but there is significant variation among the types of services they cover like hormone therapy, surgery, voice and communication therapy, fertility services and mental health care. In addition, under the comprehensive Early Periodic Screening Diagnostic and Treatment (EPSDT) benefit, states must provide all medically necessary services to children and youth under age 21, even if they are not otherwise covered by the state’s Medicaid program. States would either have to cover gender affirming care with only their own funds or no longer cover such services, taking away access to needed care from transgender people who already face stark health disparities. There is no specific effective date so this assumedly takes effect upon the date of enactment. Preliminary CBO estimates find that this provision would reduce federal spending by $830 million over ten years (but the CBO estimates do not account for the changes expanding this provision from children under age 18 to all Medicaid and CHIP beneficiaries).

Excluding Planned Parenthood from being a Medicaid participating provider. Under current law, Medicaid beneficiaries have “free choice” to receive Medicaid-covered services from any qualified provider willing to participate in the Medicaid program. This includes Planned Parenthood and other reproductive health clinics, just like any other participating provider. However, as part of a longstanding anti-abortion campaign, federal and state policymakers have tried to ban Planned Parenthood from being a Medicaid provider, even though federal law already prohibits Medicaid from covering abortion services under the Hyde Amendment except in the case of rape, incest, or when the woman’s life is in danger. (There is litigation again before the Supreme Court related to excluding Planned Parenthood from being a Medicaid participating provider in South Carolina). Section 44126 of the bill would effectively bypass the free choice requirement by prohibiting federal Medicaid funding for payments to any non-profit essential community provider that provides abortions and receives federal and state Medicaid reimbursements which exceeded $1 million in 2024. This would essentially prohibit Planned Parenthood (and potentially other providers, although this is unclear) from participating in the Medicaid program and providing covered services to beneficiaries. This would reduce access to critical Medicaid-covered reproductive health services including preventive screenings, family planning, contraceptives as well as other primary care services Planned Parenthood offers. The provision would be in effect for ten years starting with the date of enactment. Preliminary CBO estimates find that this provision would increase federal spending by $261 million over ten years.

Restricting state-directed payments in managed care. A rule related to Medicaid managed care finalized in May 2024 by CMS includes provisions related to state-directed payments (SDPs). Under SDPs, states can require Medicaid managed care plans to increase provider rates or set minimum rates for that type of provider in order to improve access. The rule requires greater state reporting of SDP arrangements (including provider-specific data) and state submission of evaluation reports. To increase access in four key service areas — inpatient hospital services, outpatient hospital services, nursing facility services, and qualified practitioner services at an academic medical center — states are permitted to require rates up to the Average Commercial Rate. According to America’s Essential Hospitals, 34 states and the District of Columbia have SDPs based on the Average Commercial Rate, which are often tied to quality measures, delivery system reforms and other access improvements.

As of the date of enactment, section 44133 of the bill would prohibit expansion states from instituting new SDPs that exceed Medicare rates and non-expansion states from new SDPs that exceed 110 percent of Medicare rates. Existing SDPs (and new SDPs for which states are currently seeking federal approval) that go as high as the Average Commercial Rate would be grandfathered. (SDPs, however, are approved and renewed by CMS on an annual basis. The grandfathering element would not appear to preclude CMS from deciding against renewing existing SDPs.) Barring new SDPs that exceed the Medicare rate would prevent states from newly increasing payments to providers in order to induce greater provider participation and beneficiary access as well as to support vulnerable rural hospitals with thin or negative operating margins. In addition, the provision would create yet another disincentive to adopt the Medicaid expansion among the 10 remaining non-expansion states. If a non-expansion state institutes a new SDP at 110 percent of Medicare rates, it would be forced to cut it to 100 percent of Medicare rates if it expands in the future. Preliminary CBO estimates find that this provision would reduce federal spending by $72.5 billion over ten years (but the CBO estimates do not take into account changes providing for differential treatment between expansion and non-expansion states).

Restrictions on Long-Term Services and Supports

The House-passed reconciliation bill includes two provisions restricting eligibility for nursing homes and other long-term services and supports among seniors and people with disabilities and affecting quality of care in nursing homes.

Restricting eligibility for long-term services and supports including nursing home care by capping home equity limits. Under current law,in determining eligibility for nursing home care and other long-term services and supports, home equity may not exceed certain limits — generally either $730,000 or $1,097,000 in 2025 — in the case where the individual, spouse, or dependent child under age 21 with disabilities no longer lives in the primary home. These limits are adjusted annually for inflation. Under section 44109 of the bill, the home equity would be frozen at $1 million on a permanent basis. Moreover, states would no longer be permitted to use their current authority to apply disregards to effectively raise that limit. California, for example, fully exempts the value of the primary home for an individual no longer living in the primary home as it does when individuals, spouses and dependent children with disabilities are living in the primary home. This provision would effectively restrict eligibility for nursing home and other long-term services and supports in the 12 states that currently have limits that exceed the new cap amount. The cap would also become more restrictive over time, relative to current law, and affect an increasing number of states as it would no longer be adjusted to keep up with inflation. Preliminary CBO estimates find that this provision would reduce federal spending by $195 million over ten years

Blocking implementation of a rule to improve nursing home staffing. Section 44121 of the bill would block implementation through January 1, 2035 of a rule finalized in May 2024 by CMS which increases staff level requirements for nursing homes under both Medicaid and Medicare and requires greater reporting of compensation for direct care and support staff, among other provisions. As KFF has noted, “the adequacy of staffing in nursing homes has been a longstanding issue, and the high mortality rate in nursing facilities during the COVID-19 pandemic highlighted and intensified the consequences of inadequate staffing levels.” The rule is intended to address some of these serious issues that have affected quality of care for nursing home residents, 63 percent of whom are covered by Medicaid. Preliminary CBO estimates find that this provision would reduce federal spending by $23.1 billion over ten years.

Other Medicaid and CHIP Provisions

Provisions With No or Nominal Budgetary Effects

The House-passed reconciliation bill includes some other Medicaid and CHIP provisions that are expected to have no budgetary effect or de minimis effects according to preliminary CBO estimates.

Codifying budget neutrality requirement for section 1115 Medicaid waivers. It has been longstanding policy (but not an explicit statutory requirement) that section 1115 waivers must satisfy a budget neutrality requirement: federal spending under the waiver may not exceed the federal spending that would have otherwise occurred in the absence of the waiver. Section 44135 would add a Medicaid budget neutrality requirement to section 1115 of the Social Security Act. But instead of only requiring budget neutrality related to federal spending under a Medicaid section 1115 waiver, it would require budget neutrality related to total federal and state spending. In other words, even if federal spending under the waiver is less than what otherwise would have been spent without the waiver, the waiver could not be approved (or renewed) if total spending exceeded expected non-waiver spending due to higher state spending. This could limit approval or renewal of state waivers even if they produce federal savings but lead to some increased total spending. Preliminary CBO estimates find that this provision would have no effect on federal spending (though it is unclear whether CBO will adjust its estimate taking into account the change from extending budget neutrality from only federal spending to all expenditures which occurred very late in the process).

Increasing verification that Medicaid beneficiaries are not deceased. Under section 44104 of the bill, as of January 1, 2028, states will be required to check not less frequently than quarterly the “Death Master File” to determine whether any Medicaid beneficiaries are newly deceased and if found to be deceased, to disenroll such individual and discontinue any payments on their behalf. States are also required to immediately re-enroll a beneficiary in the event they are misidentified as deceased, with coverage retroactive to the date of disenrollment. Preliminary CBO estimates find that this provision would have only de minimis effects on spending.

Establishing additional screening requirements for health care providers and suppliers. Under section 441105 of the bill, as of January 1, 2028, states will be required to conduct monthly checks whether participation by a provider or supplier has been terminated under Medicare or by another state in Medicaid and CHIP. Under section 44106 of the bill, as of January 1, 2028, states will be required to check not less frequently than every quarter whether a participating provider or supplier is deceased through the “Death Master File.” Preliminary CBO estimates find that the first provision would have no effect on federal spending and the second provision would have only de minimis effects on spending.

Bipartisan, Sound Medicaid and CHIP Provisions

While constituting only a very small portion of the House-passed reconciliation bill’s Medicaid and CHIP provisions, there are several modest provisions that have previously received strong bipartisan support and are generally sound policy. They relate to lowering Medicaid prescription drug costs, improving access to out-of-state providers among children with complex medical conditions, and delaying scheduled cuts in supplemental Medicaid Disproportionate Share Hospital payments to hospitals.

Ensuring more accurate pharmacy reimbursement rates to lower prescription drug costs. Medicaid pharmacy reimbursement consists of two parts: the cost of the drug itself, known as the ingredient cost, and a professional dispensing fee. Federal regulations require that state Medicaid programs base their ingredient cost payment methodology on “actual acquisition cost,” which is the price a pharmacy pays to acquire a drug dispensed to a Medicaid beneficiary. State Medicaid programs can use federal pricing survey data — collected through the ongoing, nationwide National Average Drug Acquisition Cost (NADAC) survey of retail community pharmacies — as one source to determine this actual acquisition cost. Retail pharmacies, however, are not required to respond to the NADAC survey. This may skew the results of the survey if larger chain pharmacies, who likely obtain their drugs at lower prices, were less likely to respond to the NADAC survey than smaller independent pharmacies, who likely obtain their drugs at higher prices. That would likely have the effect of raising the NADAC price for a drug and lead to states setting higher reimbursement rates that benefit chain pharmacies and other large pharmacies.

Similar to bipartisan provisions reported out of the Senate Finance Committee and the House Energy and Commerce Committee in recent years, section 44123 would require all Medicaid-participating retail community pharmacies to respond to the NADAC survey, if such pharmacies are included in the monthly survey’s representative sample of retail community pharmacies. In addition, the survey would also require non-retail pharmacies, such as mail order and specialty pharmacies, to report pricing information in order to collect actual acquisition costs for drugs furnished through such pharmacies (though such cost information could not be used by states to set reimbursement rates for retail pharmacies). Pharmacy compliance would be enforced through civil monetary penalties. As a result of this provision, Medicaid pharmacy reimbursement would be more likely to be set at amounts that are more appropriately in line with pharmacies’ actual acquisition costs, especially for larger chain pharmacies and non-retail pharmacies. The provision would take effect 6 months after the date of enactment for retail pharmacies and 18 months after the date of enactment for non-retail pharmacies. Preliminary CBO estimates find that this provision would reduce federal spending by $2.6 billion over ten years.

Prohibiting Medicaid “spread pricing” to reduce prescription drug costs. Spread pricing remains an issue in Medicaid, under which pharmacy benefit managers (PBMs) contracting with Medicaid managed care plans may be charging plans for pharmacy claims costs well in excess of the actual costs of reimbursing pharmacies for drugs dispensed to beneficiaries, net of any supplemental rebates the PBMs obtain from drug manufacturers. The PBMs retain the difference, known as the “spread,” as profit. That, in turn, can artificially inflate the capitation payments that states must pay managed care plans, resulting in higher overall federal and state Medicaid costs. Under section 44124 of the bill (which is similar to bipartisan provisions reported out of the Senate Finance Committee and the House Energy and Commerce Committee in recent years), any contract between a managed care plan and a PBM (or between a state and a PBM for a fee-for-service pharmacy benefit) would have to ensure that payment for outpatient prescription drugs by a PBM would be limited to the cost of the drug itself, known as the ingredient cost, and a professional dispensing fee. Such payment would also have to be passed through in its entirety to the pharmacy or provider dispensing the drug. Reimbursement to the PBM would be limited to a fair market value fee for administering pharmacy benefits. The provision would take effect 18 months after the date of enactment. Preliminary CBO estimates find that this provision would reduce federal spending by $261 million over ten years.

Streamlining provider enrollment processes to increase access to out-of-state providers. Similar to a bill passed by the House in 2024 as the Accelerating Kids’ Access to Care Act, section 44302 would simplify the provider enrollment process for certain out-of-state providers who provide care to pediatric patients (under age 21) so that such providers would not have to go through separate screening and other enrollment requirements if they are already participating in their home state’s Medicaid and CHIP programs. These providers would be enrolled as out-of-state participating providers for a five-year period. This provision is intended to increase access to care among children with complex medical conditions who require specialized care from providers that are not available within their state. It would take effect four years from the date of enactment. Preliminary CBO estimates find that this provision would increase federal spending by $219 million over ten years.

Delaying scheduled cuts to Medicaid Disproportionate Share Hospital Payments. Under the Affordable Care Act, Disproportionate Share Hospital (DSH) payments — Medicaid supplemental payments to hospitals serving Medicaid and uninsured patients — were scheduled to be temporarily reduced. Bipartisan legislation, however, has repeatedly delayed and modified those payment reductions. Currently, $8 billion in DSH cuts are scheduled for each of the next three years (fiscal years 2026, 2027, and 2028). Section 44303 would delay these cuts until 2029. It would also extend a special provision setting DSH allotments for Tennessee (which also exempts the state’s DSH allotment from cuts) until 2029. Preliminary CBO estimates find that this provision would increase federal spending by $625 million over ten years.

Appendix – Effective Dates

Endnotes

Preliminary CBO estimates indicate that the estimated 10.3 million Medicaid enrollment loss by 2034 includes 1.6 million individuals who are disenrolled from simultaneous enrollment in two states but retain coverage in the state of their current residence. In addition, 1.3 million of the enrollment loss involve dually eligible individuals — low-income seniors and people with disabilities who are enrolled in both Medicare and Medicaid — who lose their Medicaid coverage. ↩︎
According to KFF, 92 percent of non-elderly adults on Medicaid already work or cannot work because they are caregivers, have disabilities or illnesses, or are in school. ↩︎

Acknowledgements: We would like to thank Joan Alker, Kelly Whitener, Anne Dwyer, Andy Schneider, Tricia Brooks, Leo Cuello and Adam Searing for their contributions to this report.