Just before our nation’s birthday, the House passed the Senate version of the budget reconciliation bill and it headed to the President’s desk. Congressional leaders cheered and clapped as President Trump gleefully signed the law. But what’s to cheer about a law that promises to take health insurance through Medicaid and CHIP away from 11.8 million Americans?
While the House-passed budget reconciliation bill included more than $860 billion in gross cuts to Medicaid, hopes for the Senate to remove the most egregious provisions quickly faded as word spread that the Senate version was worse, increasing Medicaid cuts to about $1 trillion. When you take the Medicaid and Marketplace provisions together, it becomes clear that this legislation was intended to dramatically undermine the Affordable Care Act, although proponents never publicly admitted to the real intent and still falsely insist that the law does not cut Medicaid. The biggest impacts will be on states that have expanded Medicaid to low-income adults, which includes many parents, people with disabilities, and older adults, but all states will feel the pain.
How does the law target Medicaid Expansion?
Expansion states will have to implement mandatory work reporting requirements, semi-annual renewals, and mandatory cost-sharing up to $35 per visit on many services for those enrolled through the expansion. These provisions are known barriers to Medicaid enrollment and access to care. In addition to directly targeting the Medicaid expansion population, the new law severely restricts the ability of states to raise revenue by barring any new or increased provider taxes. But only expansion states will be required to phase down existing provider taxes (except those in place for nursing homes and intermediary facilities service individuals with intellectual disabilities) by a half a percentage point (.5%) annually to 3.5% starting October 2027. Non-expansion states get to keep their current levels in place. According to KFF, two-thirds of the 40 expansion states and DC have provider taxes over 3.5% subject to the phasedown. And some expansion states with “uniformity waivers,” allowing taxes that are not uniform as required by statute, would see other existing provider tax revenues immediately impacted.
Another way it’s clear that Congress targeted Medicaid expansion is related to state directed payments (SDP) which states use to direct managed care plans (MCOs) to raise provider reimbursement rates and take other steps to improve access. SDPs are frozen in all states beginning with the next rating period and must be phased down by 10 percent points annually starting in 2028. While non-expansion states will be allowed to reimburse up to 110% of Medicare rates, expansion states are restricted to 100% of Medicare.
The law discourages additional states from expanding Medicaid by eliminating the 2-year extra 5 percentage point federal matching rate incentive. The law also reduces federal reimbursement to hospitals and other providers from 90% to the state’s regular Medicaid match for Emergency Medicaid services furnished to undocumented immigrants with income in the state’s expansion range. This change will also apply to legally present immigrants who are no longer eligible for Medicaid due to the new law.
How does the law impact Medicaid in all states?
The law places a decade-long moratorium on implementation of most provisions of the Eligibility and Enrollment rules (the E&E rule) passed in two parts in 2023 and 2024. Part 1 of the rule would have dramatically increased enrollment in financial assistance for Medicare premiums and cost-sharing among low-income seniors and people with disabilities. Part 2 of the rules were designed to streamline eligibility and enrollment, largely for people with disabilities, seniors, and children. In particular, the rule would have aligned renewal processes and increased time for enrollees to submit information for seniors and people with disabilities with those in place for children, parents, pregnant women, and adults. The rule would also have established beneficiary protections related to returned mail, created state timeliness standards for redeterminations of eligibility, and addressed other outdated barriers to coverage.
Thankfully, the Byrd Rule required budget writers to exclude important CHIP provisions in the E&E rule that were intended to eliminate gaps in children’s coverage, leading to unmet health needs. This means that, as of June 3, 2025, states are no longer allowed to impose waiting periods requiring children to be uninsured for a period prior to enrollment. Nor can they lock children out a coverage if a premium payment is missed. Additionally, lifetime or annual dollar benefit limits in CHIP are no longer permitted, impacting more than a dozen states. Moreover, states must ensure seamless transitions between Medicaid and CHIP. Several states have dragged their feet in implementing the new provisions, possibly in anticipation that they would be included in the moratorium. So, it’s up to the Trump administration to make good on their promise to protect children’s coverage by ensuring that states comply with the rules.
Also excluded was the first update to recordkeeping requirements since 1986, although the provisions are not slated to take effect until June 2026. The is perhaps one of the smarter changes since it would help states reduce eligibility errors due to insufficient documentation (74% of eligibility errors). And that’s important because starting in October 2029, all states with eligibility error rates over 3% are at risk of financial penalties.
Many lawfully present immigrants will no longer be eligible for Medicaid and CHIP as of October 2026, including asylees, refugees, and victims of domestic violence and human trafficking. Eligibility will be restricted to lawfully residing children and pregnant people in the 38 states that have opted to cover these groups as authorized by the 2009 CHIP Reauthorization Act, legal permanent residents (green card holders) after 5 years of permanent residency, certain Cuban and Haitian entrants, and citizens of certain Pacific Islands under the Compact of Free Association (COFA).
The law also defunds community clinics that provide abortions (targeting Planned Parenthood) for one year until July 3, 2026. Retroactive eligibility, currently at 90 days, will decline to 30 days for expansion enrollees, and 60 days for all other enrollees starting in 2027. And home equity assets limits for long-term services and supports will be permanently frozen at $1 million with states only able to set lower, not higher, limits.
Other Medicaid related changes include blocking implementation of a nursing home staffing rule designed to ensure adequate staffing in long-term care facilities, and codifying budget neutrality requirements for Section 1115 waivers. There is also a new 1915(c) waiver option intended to increase access to home- and community-based services, although with so many other changes, it is highly unlikely that states will have the bandwidth and financing to do so. And while the law offers a fig leaf to rural hospitals and other providers with a new fund that seems like a lot of money – $50 billion over 5 years – it is insufficient to make up the difference for anticipated cuts to Medicaid. KFF estimates that rural areas will lose $155 billion in Medicaid spending reductions, more than 3 times higher than the fund. Moreover, it’s temporary, and much of the funding may not even go to rural hospitals who will be hit hard by uncompensated care costs as people lose their Medicaid coverage.
What new administrative requirements will states face?
Expansion states, once again, will see the biggest impact with the implementation and administration of work reporting requirements and cost-sharing mandates. All states are required to have new processes in place for collecting updated addresses from reliable sources, including returned mail with a forwarding order, the USPS National Change of Address database, and managed care organizations, but most states made these changes during the unwinding. However, states are not required, as the E&E rule would, to act on such information without further verification or to make good faith efforts to connect enrollees through more than one communication mode. Rather than improve the renewal process, the intent is to avoid duplicate enrollment in multiple states.
States must also continue to collect verification of identity in addition to citizenship or qualified immigrant status. The E&E rule would have established that no further documentation is needed if citizenship or qualified immigrant eligibility can be confirmed through state vital statistics or the Department of Homeland Security. All states will also have to submit monthly enrollment data to a new to-be-designed federal system to check for duplicate enrollment in another state, and to crossmatch enrollee and provider information with the SSA’s Death Master File quarterly to identify individuals who are deceased.
How does the law affect access to affordable Marketplace insurance?
The biggest impact is that the budget reconciliation law failed to extend the enhanced premium taxes credits (PTCs) enacted through the American Rescue Plan Act that boosted Marketplace enrollment by making plans more affordable. The enhanced credits expire at the end of this year. Immigrant eligibility for PTCs is also restricted to the same groups as Medicaid, and the law eliminates PTC eligibility for lawfully present immigrants with income below 100% FPL who did not yet qualify for Medicaid due to the 5-year bar.
New Marketplace applicants will be required to provide proof of eligibility as Marketplaces will not be able to rely solely on third party data. And no longer will there be automatic reenrollment in the Marketplace (54% of all enrollees were auto-renewed last year). Any enrollee or applicant encountering a data matching issue (DMI) between self-reported and third-party data will have to resolve the discrepancy prior to receiving benefits. Individuals who are late filing taxes and reconciling their PTCs will be denied PTCs for the next year and the cap on repayment of PTCs is removed.
The current special enrollment period for people with incomes below 150% FPL is also eliminated by the law. Lastly, the open enrollment period is being shortened on top of the administration already cutting navigator funding by 90%. Those who are unable to navigate the new mandatory work reporting requirements will not just lose Medicaid coverage; they will be further penalized by being blocked from Marketplace PTCs.
What impacts can be expected?
We already know that researchers and the Congressional Budget Office have predicted that upwards of 17 million Americans will lose access to affordable coverage and become uninsured. But shifting massive costs to states and taking about $1 trillion dollars out of Medicaid, CHIP and the Marketplaces will bring their own challenges. In the coming months, we can expect states to face budget deficits that they need to close. Medicaid managed care organization’s earnings projections will be lowered, and hospital margins will slip, leading to job losses in health care, reduction of services in rural areas, and its ripple effect on the economy. It may take a little longer for the significant impacts on the health and well-being of low-income people to become obvious since many of the direct impacts are delayed intentionally until after the midterm elections. And children and pregnant women won’t be spared. If we truly want to make America healthy again, we should not be taking access to health care away from children, families, seniors, people with disabilities, and other low-income adults, or making it harder for them to get and keep health insurance.
[Editor’s Note: CCF and CHIR researchers will continue to unpack the Budget Reconciliation Law and will publish a brief covering all provisions impacting Medicaid, CHIP, and Marketplace health coverage once the final CBO estimates have been released. Over the coming weeks, we’ll dive in deeper with blogs on specific provisions in the bill. We are also planning a joint webinar with experts from CCF and CHIR explaining the major provisions of the law. The webinar is scheduled on July 28, 2025, at 1:30pm EST, and is open to the public. Register here.]