Loss of coverage, Hospitals will lose funds, Insurers will lose big business, State budgets will tighten

After the House narrowly passed President Trump’s tax-and-spending-cuts bill, he signed it into law on Friday.

The passage of President Trump’s “one big, beautiful bill” has left some hospitals, doctors and patient-advocacy groups reeling. Millions of people will lose health-insurance coverage, and struggling hospitals across the country may have to close, lay off staff or shut down some services, they say. States will also face difficult budget choices as federal funds are reduced.

“The magnitude of these reductions—and the number of individuals who will lose health coverage—cannot be simply dismissed as waste, fraud, and abuse,” Rick Pollack, president of the American Hospital Association, said after the House narrowly passed the bill. Trump signed the bill into law on Friday, Independence Day.

The act slashes over $1 trillion in healthcare spending over the next decade, mostly from Medicaid, the joint federal and state program that provides health insurance to poor Americans. It is the biggest cut to federal healthcare spending—and to Medicaid—in history.

The legislation’s health provisions, including work requirements for Medicaid recipients, represent a fundamental shift in the federal government’s approach to healthcare for its poorest citizens, both Republicans and Democrats have said.

“This is a much more conservative approach to healthcare,” said David Mansdoerfer, a former health official in the first Trump administration. “The big beautiful bill would represent a significant mindset change for federal safety-net programs.”

Loss of coverage

There will be nearly 8.7 million fewer people covered by Medicaid over the next decade because of the bill, according to an analysis by Manatt Health, a consulting firm that advises states and healthcare providers on Medicaid policy.

Other provisions in the bill, including more-stringent requirements for people to enroll and retain health-insurance plans under the Affordable Care Act, also known as Obamacare, are projected to drive up the number of uninsured, healthcare experts said.

Many who study healthcare policy say that people who lose insurance, or people who live in rural areas where doctors and hospitals are closing up shop, often delay preventive care, sometimes costing the system more later.

Many of the Medicaid policy changes target the 40 states that expanded eligibility for Medicaid to low-income able-bodied adults. Those enrollees will now have to prove their incomes are below a certain threshold every six months to remain on Medicaid, instead of annually, as well as show that they have spent 80 hours a month working, volunteering or attending school.

People in the lowest 10% of income distribution in the U.S. stand to lose noncash government benefits such as Medicaid coverage and food stamps worth nearly $1,600 annually on average, according to an analysis of an earlier version of the bill by the Congressional Budget Office.

Hospitals will lose funds

Hospitals say they are big losers under the new legislation. More uninsured people will mean more uncompensated healthcare costs, they say. And many hospitals now face reductions in some supplemental payments that most states have come to rely on to augment low Medicaid payment rates.

Over the next decade, Medicaid payments to hospitals will be reduced by nearly $665 billion, an 18.2% reduction, according to analysis by Manatt. Meanwhile, hospitals’ uncompensated care costs are projected to increase by upward of $84 billion in 2034, according to an analysis of the bill by America’s Essential Hospitals, which represents some 350 hospitals nationwide. That number takes into account lower Medicaid payments and Medicaid payment shortfalls, as well as costs from caring for the uninsured.

“It is a double-whammy. We’re going to have many millions more uninsured individuals showing up needing care,” said Beth Feldpush, the group’s senior vice president of advocacy and policy. “But at the same time, hospitals won’t be able to backfill financial holes.”

Medicaid payment rates are notoriously low compared with other types of insurance. States have increasingly boosted these rates in recent years through so-called state-directed payments, which can raise Medicaid payment rates to levels comparable with Medicare or even average commercial insurance rates.

The bill clamps down on these payments. States that have expanded their Medicaid programs under Obamacare to include more low-income adults would have state-directed payment rates capped at 100% of Medicare rates; states that haven’t adopted expansion would be capped at 110% of Medicare rates. The change will reduce federal spending by $149.4 billion over a decade, according to a CBO analysis.

Hospitals in about 30 states will likely see reductions in the state-directed payments they receive once cuts go into effect, according to an analysis by KFF, a health-policy nonprofit.

State hospital associations said these payments are lifelines for hospitals, many of which operate at or near a loss. Even before the bill’s passage, several hospitals across the country laid off employees, froze hiring and tightened spending, citing the impending cuts to Medicaid as a factor. Providence, one of the country’s largest health systems, said last month that it had implemented a restructuring plan that would lead to 600 employees losing their jobs.

Other hospitals say they are bracing for the changes to come. Our Lady of the Angels Hospital, a safety-net hospital in Bogalusa, La., said it would have to consider closing its doors, and the University of Kentucky said it might have to pause construction on a new building dedicated to caring for cancer patients if state-directed payment cuts go into effect.

The cuts may also eat into the earnings of for-profit hospitals like HCA Healthcare and Tenet Healthcare that have enjoyed lucrative boosts to their bottom lines from state-directed payments.

The National Rural Health Association said it was worried that the bill’s provisions would significantly hamper healthcare access in rural areas. Senate Republicans added a $50 billion relief fund to the bill at the last minute for rural hospitals, but Sen. Susan Collins (R., Maine), who voted against the bill, said it wouldn’t be enough to offset the other changes.

Insurers will lose big business

For insurers, the biggest impact of the legislation is clear: fewer customers. Though Medicaid is a government program, most enrollees get their benefits through insurers that are paid with state and federal money.

“From a health insurer’s perspective, that’s a lot of business to lose,” says Cynthia Cox, a vice president at KFF, a health-research nonprofit.

The industry impact will be heaviest among companies with a focus on Medicaid. Among the largest are Centene, which has nearly 13 million Medicaid enrollees, Elevance Health, UnitedHealth Group, Molina Healthcare and CVS Health’s Aetna. “Revenue and profits will be pressured,” said Sarah James, an analyst with Cantor Fitzgerald.

A Wellcare location in New York City, part of Centene Corp., one of the largest Medicaid insurers.

The cutbacks to Medicaid will come on top of blows to another key insurance market—Obamacare marketplace plans. Federal subsidies that help people pay for Obamacare plans are set to shrink next year, and the new legislation doesn’t fill the gap. Along with other Trump administration changes to the rules for Obamacare plans, the reduction in subsidies is projected to reduce the number of people with coverage by another 5.1 million if Congress doesn’t extend them.

In Obamacare and Medicaid, the shrinking rolls are likely to create another headache for insurers. When people drop out of insurance markets, the healthier ones are often the first to go. That leaves a sicker, more costly pool of customers for insurers, which then seek to get paid more to cover those expenses. They demand higher premiums, either from state Medicaid agencies or from Obamacare customers.

State budgets will tighten

Nationally, states will have roughly $1.3 trillion dollars less in federal and state funds to spend on Medicaid over the next decade, according to Manatt. Most of the reductions—93%—will be in states that have expanded Medicaid to cover able-bodied adults.

One of the biggest impacts will come from the bill’s crackdown on so-called provider taxes, which states levy on hospitals and other healthcare providers to trigger federal matching funds. Most hospitals receive back more than they pay in taxes through higher payment rates via state-directed payments and other mechanisms.

Currently, the taxes are capped at 6% of healthcare providers’ net patient revenue, but will be reduced to 3.5% in expansion states. In non-expansion states such as Florida and Texas, tax rates will be frozen in place up to the 6% maximum on the date the bill is signed into law.

Healthcare workers last month protested the Medicaid cuts proposed in the bill that President Trump signed Friday.

The taxes have been criticized as a gimmick that exploits federal taxpayers without requiring states to put any skin in the game. President Obama twice proposed clamping down on provider taxes, including in his 2013 budget, which would have reduced the maximum rate to 3.5%.

States use provider taxes to fund state-directed payments to hospitals and other providers. Some, such as North Carolina, have also designed the taxes to fund their Medicaid expansions.

On a percentage basis, red and purple expansion states will be hit hardest since many of them tend to rely heavily on provider taxes, says Avi Herring, a Manatt managing director. Montana faces a 21% reduction in state and federal funds; Arizona, Kentucky and Virginia are each looking at reductions of about 18%.

The largest blue states, which tend to have more generous Medicaid programs, face far bigger dollar cuts, though they are somewhat smaller proportionally. California is expected to see a 13% reduction. New York’s spending will be reduced by nearly 9%.

Write to Dominique Mosbergen at [email protected], Joseph Walker at [email protected], Liz Essley Whyte at [email protected] and Josh Ulick at [email protected]