On May 22, the House of Representatives passed a reconciliation bill, the One Big Beautiful Bill Act, that, if enacted, will reduce federal Medicaid spending by $800 billion through 2034. The bill now moves to the Senate, where changes to the bill, including its Medicaid provisions, may be made. The House-passed bill will significantly impact states’ ability to finance their Medicaid programs and will limit states’ ability to make State Directed Payments (SDPs). It will also reduce coverage and increase cost-sharing for certain beneficiaries and reduce federal payments to states that use their own funds to cover certain immigrants. These provisions are summarized below.
- Moratorium on Provider Taxes.
- States and localities will be prohibited from establishing new or increasing existing provider taxes. Although the bill provides some protection for existing taxes, it prohibits states and localities from increasing the amount or rate of the tax and the base of the tax.
- The moratorium would begin on the date the law is enacted.
- New requirement for provider tax waivers.
- States with waivers of the requirement that a provider tax be “broad-based” and “uniform” will need to continue to meet existing statistical texts but will also be required to demonstrate that the provider tax is “generally redistributive.” A tax that imposes a lower tax rate on providers or services with low Medicaid utilization or a higher tax rate on providers or services with high Medicaid utilization or services would not qualify as “generally redistributive.” The Centers for Medicare & Medicaid Services (CMS) has also proposed these changes in a notice of proposed rulemaking issued on May 12th.
- The bill provides for up to a three-year transition period for such taxes to come into compliance with the “generally redistributive” requirement.
- Moratorium on SDPs.
- The bill requires CMS to amend its May 2024 regulation allowing states to make SDPs up to the average commercial rate (ACR) for inpatient and outpatient hospital services, nursing facility services, and qualified practitioner services at an academic medical center. Instead, the bill requires CMS to establish a new limit of 100% of the published Medicare payment rate for states that have expanded their Medicaid programs to childless adults; in non-expansion states, the limit would be slightly higher at 110% of the published Medicare payment rate.
- Limiting payment to the published Medicare rate will result in a lower payment limit for SDPs than for Medicaid upper payment limit (UPL) payments in the fee-for-program. Under CMS’s UPL regulations, states are permitted to pay professionals, including teaching hospital physicians, up to the ACR and to make supplemental payments to hospitals using Medicare cost-based or prospective payment principles.
- Importantly, the bill exempts from the new limit any SDP that CMS approved or that a state submitted to CMS prior to enactment of the bill, provided the state does not increase the amount of payment under the SDP. This exemption applies only to approved or submitted preprints for the rating period in effect at the time of enactment.
- FMAP Reduction for States Covering Certain Immigrants.
- The bill would reduce the federal medical assistance percentage (FMAP) for expansion states that use state-only funds to provide coverage for undocumented and certain lawfully present immigrants. In a change to the bill that was made just prior to passage by the full House, the bill does not penalize states that cover lawfully present pregnant women and children.
The FMAP reduction would begin on October 1, 2027.
- The bill would reduce the federal medical assistance percentage (FMAP) for expansion states that use state-only funds to provide coverage for undocumented and certain lawfully present immigrants. In a change to the bill that was made just prior to passage by the full House, the bill does not penalize states that cover lawfully present pregnant women and children.
- Requiring Beneficiaries to Meet Work Requirements.
- The expansion population would need to meet a monthly community engagement requirement (80 hours) in order to receive Medicaid coverage, effective December 31, 2026. Certain groups, such as the medically needy and pregnant individuals, will be exempt from the community engagement requirement.
- Requiring States to Impose Cost-Sharing.
- States would be required to impose cost-sharing on the expansion population for a broad range of services. Such cost-sharing would begin on October 1, 2028.
- Prohibiting Federal Funding for Gender Transition Services.
- The bill would prohibit states from claiming federal matching funds for specific gender transition services for all Medicaid beneficiaries beginning on January 1, 2027.
Eyman Partners will continue to monitor the bill language as it moves through the Senate. If you are uncertain as to how these provisions could affect you, reach out to any Eyman Partners attorney to discuss.