The Congressional Budget Office estimates that the budget reconciliation law signed into law by President Trump (HR1) will result in a gross reduction of $990 billion in federal Medicaid/CHIP spending over 10 years and an increase in the number of uninsured Americans by 10 million.
This is the largest cut to Medicaid in the history of the program and the largest expected rollback in health coverage ever. Quantifying the cuts to each state, the Kaiser Family Foundation has taken the CBO’s overall estimates and estimated the federal funding reductions for each state in this analysis. Focusing just on the federal funding reductions in rural areas, estimates are that HR1 will reduce federal Medicaid spending in rural areas across all states by $137 billion over 10 years.
In an attempt to respond to criticism about the nearly $1 trillion in Medicaid cuts in HR1 over the next decade, Congress also established in the legislation a $50 billion “Rural Health Transformation Program” that will provide $10 billion per year for the next five years to states. Even assuming all of this fund went to rural areas – an outcome that is not required by the statute – this would only partially offset the $137 billion cut to rural areas over the next 10 years. A close look at the legislation creating this program reveals limitations that make clear it will not be able to offset the funding reductions in HR1. As researchers Anne Morris Reid and Sara Rosenbaum noted recently about the “Rural Health Transformation Program”:
Nothing in the statute requires states to direct funding to rural health care providers; instead, states could use very little, if any, of their allotments to ensure access to services in rural communities….Half of the available funding is to be equally distributed to states, with discretion provided to the CMS Administrator on distribution of the remaining half. The CMS Administrator is directed to “consider” criteria that speak to rural health considerations for states, yet nothing compels CMS to fully distribute program funds commensurate with greatest need.
In practice this means that each of the 50 states (Washington, D.C., is not defined as a state in the statute and is thus excluded) will receive $100 million per year for five years provided they apply for funding and receive federal approval, which is not guaranteed. The other half of the funding will be distributed to states with approved applications at the discretion of the CMS administrator under very broad criteria, with that portion only having to be distributed, at minimum, to one-quarter of states with approved applications.
The half of the funding equally distributed to states will also mean states with larger populations – and thus larger cuts in federal funding from HR1 – will get the same amount from the rural health fund as states with smaller populations and smaller cuts in federal funding, regardless of number of rural hospitals, rural health providers or rural areas in the state. For example, Idaho (population of 2 million) will get the same $100 million a year for five years as California (population of 39 million) or Texas (population of 31 million).
Both these issues raise questions about the direction of the Rural Health Transformation Program: the mismatch between the impact of Medicaid cuts in HR1 v. the size of Program funding and the lack of requirements in the law that funding actually go to rural hospitals, rural providers, or rural health care. Indeed, indications from the federal government do not point to rural hospitals or rural health as a focus of any funding. And the Program funds run only for five years while the cuts to federal funding of Medicaid in HR1 are permanent.
The current CMS administrator has indicated that despite its name, the “Rural Health Transformation Program” is designed to help with “workforce development, right-sizing the system and using technology to provide things like telehealth that can change the world.” And during the passage of the bill, the CMS administrator in meetings with Congressional members assured them that districts that “were not specifically rural” could obtain money from the fund. However, how the CMS administrator allocates the funding is not subject to judicial or administrative review. Finally, some permitted uses of the fund like prevention and chronic disease management, while laudable, have little to do with supporting rural hospitals from closure – an often-stated reason for the fund in political debates.
The plain language of the law and statements from the Administration contrast with how some members of Congress have characterized the Health Transformation Program. For example, Senator Mike Crapo (R-Idaho) characterized the funding as the “$50 billion rural hospital fund” [Emphasis added] and said it was “arguably the single largest investment in rural health care in more than 20 years.” Likewise Senator John Barrasso (R-WY) used similar language about the fund, calling it the “rural hospital fund” with “$50 billion designated for rural hospitals all across America.” And Senator Jerry Moran (R-Kansas) characterized HR1 as creating “a $50 billion fund to provide emergency assistance for rural hospitals at risk of closure…” while Representative Jule Fedorchak (R-North Dakota) also characterized the program as the “Rural Hospital Fund.”
The coming federal funding cuts for states in HR1 and the debate over the “Rural Health Transformation Program” are taking place in an already uncertain budget environment for state Medicaid programs. Some states are struggling with both higher than expected growth in Medicaid, state budget issues, and now the prospect of coming major federal Medicaid funding reductions. North Carolina recently announced Medicaid rate cuts for all providers for a total of $320 million in program cuts (although NC legislative leaders disagreed as state budget debates intensify). Also in NC, cuts in HR1 are already becoming a focus of political wrangling around next year’s contentious Senate race. Idaho is cutting Medicaid provider rates, too, in a uncertain budget environment for Medicaid. And while many states are currently in strong fiscal positions, many are warily trying to figure out the reality for their budgets of the major changes to their funding mandated by Congress.