NEW 50-State Medicaid Expenditure Impacts of Senate Budget Reconciliation Language

Author: Jocelyn Guyer and Patti Boozang
Editor: Amanda Eisenberg

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tl;dr

• The Senate continues to advance its version of the One Big Beautiful Bill Act (OBBBA) aiming for passage by its self-imposed July 4 deadline, including by seeking to repackage its more restrictive provider tax policy that originally failed to clear the Byrd Bath. 

• New, updated state-by-state modeling of key Medicaid provisions in the House and Senate bills prepared by Manatt Health shows that the Senate bill increases the size of the already-astronomical Medicaid cuts in the House bill to $1.35 trillion from $1.14 trillion over the next 10 years among the 50 states (including D.C., but excluding Tennessee due to data gaps) that we were able to model, a 17% jump.  

• The 40 states (plus Washington, D.C.) that have expanded Medicaid would bear 94% of the added reductions, highlighting that the White House and Congressional Republicans are hitting Medicaid expansion states especially hard. These states account for 84% of all Medicaid spending nationwide. 

• But what truly caught many off-guard last week is that the new Senate proposals aimed at provider taxes and state directed payments cut surprisingly quickly and deeply a number of “red” states, where Republican senators and/or a Republican governor will need to deal with the fall out. 

• The new 50-state analysis shows that 33 states are expected to experience an additional reduction in total Medicaid expenditures of 10% or higher under the Senate legislative language compared to H.R.1 and 8 of those states would see additional Medicaid expenditure reductions of 30% or more. 

The 80 Million Impact 

On June 16, the Senate Finance Committee (SFC) released its reconciliation legislation. The Senate Finance Committee has jurisdiction over tax policies and health programs under the Social Security Act, including Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP). Overall, the Senate bill’s health policy provisions hew closely to and build on the policies included the House-passed reconciliation bill — H.R. 1, the One Big Beautiful Bill Act — but, as we describe in our June 23 blog Perplexing Politics, Same Plotline, will adopt changes that make even deeper Medicaid cuts. 

Using its Medicaid Financing model, Manatt Health (Manatt) has prepared new 50-state estimates (including D.C., but excluding Tennessee due to data gaps) on the impact of the Medicaid provisions included in SFC budget reconciliation legislative language. To facilitate a comparison of the impact of the Medicaid provisions in the House versus the Senate bills, Manatt also provides revised estimates of H.R.1 to more precisely reflect how hospital taxes in these states will be treated under the “grandfathering” provision pursuant to each bill.¹ 

Provisions Modeled in the SFC Language 

As in prior estimates, Manatt’s Medicaid Financing model estimates shown in Table 1 reflect most of the key Medicaid provisions included in budget reconciliation language, including the impact of work requirements, six-month renewals, new restrictions on provider taxes and state-directed payments (SDPs) for hospitals, and repeal of certain Medicaid eligibility simplifications. Notably, Manatt’s estimates only reflect the impact of changes to provider taxes and SDPs for hospitals (not other providers, which will also be impacted). Additionally, our model does not address changes to standards designed to ensure that provider taxes are “generally redistributive.” In the past, Manatt has shown the expected impact of the modeled provisions as a range, based on potential variation in how work requirements are implemented. For the SFC budget reconciliation language estimates reflected in Table 1, Manatt has assumed the mid-point of this range. 

Changes from H.R.1 in the SFC Language 

The key differences between H.R.1 and SFC shown in Table 1 reflect changes in the proposed SFC language. First, is the treatment of provider taxes. H.R.1 establishes a moratorium on new or increased provider taxes, specifically prohibiting states from establishing new or increased provider taxes to help finance their share of Medicaid expenditures. The Senate language also imposes a moratorium but additionally lowers the 6% cap on grandfathered provider taxes by 0.5 percentage points per year beginning in federal fiscal year (FFY) 2027 down to 3.5% for expansion states. (Skilled nursing facilities and intermediate care facilities are exempt from this cap ramp down.)  

As we wrote about earlier today, the Senate provision to establish the moratorium on future new or increased taxes did not satisfy the Byrd Rule and can’t be enacted via the Senate’s privileged reconciliation process as originally drafted. We understand that Senate Republicans have amended this proposal to “cure” them of Byrd rule issues and resubmitted it to Parliamentarian for another review. As of this publication, we await specifics on the changes to the proposal and the Parliamentarian's decision as to whether the new language passes muster. CBO estimated federal savings of $89 billion over ten years based on the H.R.1 provider tax moratorium alone; this savings estimate does not take into account the additional Senate cuts to provider taxes. 

H.R.1 also grandfathered current SDPs. The Senate language imposes additional cuts to SDPs by requiring that states also reduce grandfathered SDPs by 10 percentage points per year beginning in 2027 until the SDPs are no greater than 100% of Medicare for expansion states or 110% of Medicare for non-expansion states. CBO estimated federal savings of $71.8 billion over ten years based on the H.R.1 SDP provisions; this savings estimate does not take into account the additional Senate cuts to SDPs. 

50-State Estimates of Senate Bill Language Impacts 

Table 1 provides 50-state estimates (including D.C. but excluding Tennessee due to gaps in data) of the Medicaid expenditure impacts of the SFC language compared to H.R. 1. For states with no or very low hospital taxes or without SDPs (or SDPs below Medicare), Manatt’s model estimates little to no additional impact of the Senate language. However, expansion states with higher hospital taxes (i.e., over 3.5% of net patient revenues) and states with SDPs in excess of Medicare (or 110% of Medicare for non-expansion states) will be most impacted, as those states would be required to ratchet down their grandfathered taxes and SDPs to comply with new limits in the SFC bill. Across both proposals, the basic structure of the tax — specifically whether the tax is structured as a fixed dollar amount (e.g., $100 per inpatient bed day; Manatt refers to this as a “fixed” tax structure) versus a percentage of a tax basis that will increase annually with inflation (e.g., 5% of net patient revenues from the latest hospital cost report; referred to as a “floating” tax structure) — significantly influences the impact states would experience. Specifically, states with a fixed tax structure will be far more impacted than those with a floating structure since those taxes will not be permitted to grow annually with inflation. 

Based on these estimates, 33 states are expected to experience an additional reduction in total Medicaid expenditures of 10% or higher under the Senate legislative language compared to H.R.1. Eight of those states would see additional Medicaid expenditure reductions of 30% or more. 

Table 1. Estimated Total Medicaid Spending Impact of Key Medicaid Provisions Included in the H.R.1 and SFC Legislative Language ($ Millions), FFY 2025 to 2034

The Bottom Line 

As we have covered extensively in recent weeks, H.R. 1 — the One Big Beautiful Bill Act — laid down a web of structural changes to Medicaid that would drive deep cuts to Medicaid program funding and coverage over the next 10 years, unprecedented in the program’s history. The Senate version of the bill goes even further and while final Senate bill language is not available, and CBO has not scored the more stringent Senate approach, the coverage and funding losses can be expected to climb.  

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