On June 17, the Congressional Budget Office (CBO) and the Joint Committee on Taxation released updated estimates of the spending cuts and tax breaks in the House version of Trump’s One Big Beautiful Bill. While these findings give a broad sense of the scale of the cuts to healthcare spending, some of the proposed cuts deserve additional scrutiny.

The new CBO estimates include the effects of tax cuts on economic growth and on interest rates, as well as other indirect effects on the economy. The results of this analysis are reported in the table below. The tax cuts predominantly for the wealthy and corporations reduce revenues by more than $3.5 trillion over 10 years ending in 2034. Cuts in spending amount to about $1.2 trillion over the same period. This increases the deficit by more than $2.3 trillion, not counting the resulting increase in interest payments on the debt. Including $441 billion in those payments leads to the estimated increase in the deficit of almost $2.8 trillion.

This is a huge increase in the deficit over the next 10 years, driven by tax cuts thatraise the incomes of the wealthiest 10 percent of American households by an average of $12,000 a year by while the poorest 10 percent would lose $1,600 a year from reductions in Medicaid and the Supplemental Nutrition Assistance Program.

Shockingly, a trillion dollars in spending cuts out of the total of $1.2 trillion that will offset about a third of the tax cuts come from cuts in healthcare spending. These are not abstract numbers. Healthcare spending cuts result in millions of individuals and families losing their health insurance.

The bulk of health spending cuts come from cuts in Medicaid. This program, which insures poor and disabled people and provides long-term care benefits that help many middle-income families, is slated to be cut by about $700 billion. The remaining $300 billion reduction in healthcare spending comes from the elimination of subsidies to help individuals and families afford health insurance premiums and other cuts to programs.

Medicaid Cuts

The Senate version of Trump’s One Big Beautiful Bill is even more draconian andincludes deeper cuts to Medicaid than the House bill, but CBO has not yet evaluated its cost savings. It looks like cuts to Medicaid will only get worse as the House and Senate work to reconcile their two bills.

The House bill includes the following provisions that cut federal spending on Medicaid:

+ Establishes work requirements for adult enrollees who don’t have disabilities or dependents.

+ Bans new or increased state provider taxes and tightens standards for what is legally permissible.

+ Orders states to verify addresses and maintain updated information on Medicaid enrollees.

+ Suspends a regulation designed to ease enrollment in Medicaid, the Children’s Health Insurance Program and the Basic Health Program.

+ Requires eligibility redeterminations every six months for adults covered under the Medicaid expansion.

+ Mandates cost-sharing up to $35 for services provided to Medicaid expansion enrollees with incomes above $15,650 for a single person.

+ Reduces federal Medicaid funding to states that use their own money to cover undocumented immigrants through Medicaid.

+ Cancels a regulation setting staffing minimums for nursing homes.

+ Eliminates extra federal Medicaid funding intended to encourage states to expand Medicaid coverage to the near-poor.

Many of these provisions save money by increasing the red tape burden and making it too difficult or time consuming for individuals and families who are eligible for Medicaid to get through the application process. This is especially true of the phony work requirement. It is widely known that nearly everyone on Medicaid  already works or has young children, is in school, or is too disabled to work. This is not about forcing lazy people to get a job; it’s about taking health insurance away from hard-working people by making it difficult for them to handle the paperwork requirements.

But two provisions of the House bill that cut federal spending on Medicaid have received much less attention and are little known to the public: the one regarding state provider taxes and the one curtailing funding to states that use their own money to cover immigrants. We will examine them next.

 State Provider Taxes

Medicaid health insurance is a program designed and administered by the states within federal parameters, with funding provided jointly by states and the federal government. States typically cover 30 percent of the cost of the program, while the federal government matches state payments and typically picks up 70 percent of the tab. Medicaid rates are generally much lower than those paid by Medicare or commercial plans. As a result, many doctors don’t accept the insurance. Hospitals and clinics that treat large numbers of Medicaid patients in rural areas or inner-city communities face financial shortfalls that put them in danger of failing. Since 2016, states have been allowed to address this problem by taxing hospitals, clinics and other institutions that treat Medicaid patients and to use the proceeds to fund state directed payments to these health facilities and providers. Like other state payments for care of Medicaid beneficiaries, these are matched by the federal government which, as noted, covers 50 to 70 percent of the cost. Cutting state directed payments will reduce federal spending on its match of these payments.

Treating Medicaid patients has long been a low-margin or even unprofitable situation. State directed payments are vital to health providers and provider organizations that would have difficulty surviving otherwise. They ensure that there is an adequate number of providers willing to care for Medicaid patients and hospitals and other facilities to care for them. However, a lack of oversight and transparency around who gets these payments, how much they receive, and what they are used for has led to the possibility that taxpayers are now being abused by large, profitable health systems that collect these payments for treating Medicaid patients.

An attempt by the Centers for Medicare and Medicaid Services (CMS) in April 2024 to regulate and increase the integrity of the provider tax and state directed payments program did not include a cap on payments to hospitals and other providers. Instead, it created a new problem. CMS’s April 2024 policy allows states to top off Medicaid payments to hospitals and other facilities so that they are as high as what commercial insurers pay. It further requires the federal government to match these state payments.

CMS’s rule does not distinguish between health facilities that are struggling to cover their costs and wealthy hospitals with high total operating margins. Suddenly, Medicaid patients are as profitable to treat as patients with commercial insurance, and more profitable than Medicare patients. Without state oversight and regulation of these payments, for-profit hospital giants – HCA, Universal Health Services, Tenet and others – could and did receive significantly higher Medicaid revenue. State directed payments are vital to assure access to health care in rural areas and low-income communities in cities and towns. But these payments need to be transparent and regulated to assure that profitable hospitals are not benefitting from inflated payments from the federal government.

Thoughtful regulation of state directed payments that would retain high payments for hospitals that need them while assuring that hospitals with high total margins do not abuse them is not what the changes in the One Big Beautiful Bill are designed to accomplish. Instead, across-the-board cuts threaten the financial viability of Medicaid-dependent clinics and hospitals with low total operating margins.

There is already a crisis in rural hospitals. A study by University of North Carolina researchers, in a letter to Congress, found that 133 rural hospitals experienced three consecutive years of negative total margins from 2020 to 2022. They found that hospitals most involved in caring for Medicaid patients face the highest risk of financial distress if Medicaid revenue is reduced. Many provisions in the One Big Beautiful bill will reduce the number of Medicaid beneficiaries and increase the amount of uncompensated care at these hospitals. Limiting the ability of states to offset some of this lost revenue via state directed payments may push these hospitals, already operating on a shoestring, over the edge and lead to cuts in services or hospital closings. According to the lead author of a study published in the Annals of Internal Medicine, as a result of cuts in Medicaid funding “hundreds of safety-net hospitals and clinics will be forced to close or limit their care, andmedically-preventable deaths will soar.”

This is especially the case in opioid overdose deaths, including deaths from fentanyl. A recent study from the Brookings Institution found that nearly 1.82 million people treated for opioid use in 2021 were covered by Medicaid. Cuts to Medicaid, including cuts to state directed payments, will threaten state addiction treatment programs that many drug policy experts believe played a role in the dramatic decline in drug overdose deaths from June 2023 to October 2024.

Cuts to Care for Undocumented Immigrants Will Affect All

The Trump administration claim that the One Big Beautiful Bill will eliminate Medicaid for 1.4 million illegal immigrants is simply not true: undocumented people are not able to enroll in Medicaid. Some states run separate, state financed programs to provide limited health coverage – mainly benefitting children – for these immigrants. This state-funded health care is not Medicaid and does not receive any federal funding. Cutting health benefits for undocumented immigrants will not in any way reduce federal or state spending on Medicaid or improve Medicaid services for American citizens.

Instead, the One Big Beautiful Bill penalizes states that run their own programs, using only state tax revenue, to provide health care to undocumented people. The bill will cut Medicaid funding to states that continue to run these programs and will reduce federal spending on American citizens that rely on Medicaid. States that maintain their own separate programs for immigrants will see huge cuts to federal funds that support the state’s actual Medicaid program. States that resist and continue to care for immigrant children and families will experience significant cuts to Medicaid. Reported savings from this provision of the bill come from these cuts in federal payments to Medicaid programs in states that resist this overreach by the administration.

Medicaid Cuts Can Still Be Stopped

All of the Medicaid cuts in the One Big Beautiful Bill are cruel and unconscionable. They will deprive eligible people of health insurance and will lead states to slim down covered health services for beneficiaries in response to shortfalls in funding. Medically preventable deaths are likely to soar as people lose access to health care. Medical help for families struggling with a family member needing care to deal with opioid use will be more difficult to obtain. Belatedly but still not too late, some Senators representing states with large rural populations have recognized the devastating effects the Medicaid cuts will have on many rural hospitals. Medicaid – especially in states that expanded eligibility – has been a lifeline that has enabled these hospitals to survive. If they face a deteriorating financial situation and are forced to cut low-margin services such as maternity care or close altogether, access to health care for everyone in these communities – including those with commercial health insurance or Medicare – will be curtailed. Cuts in services or closures will cause patients to travel long distances and seek care at other hospitals, leading to overcrowding and pressure on hospital staff to care for the increased patient population. Cuts to Medicaid mean that many of these patients may be uninsured and will place a financial burden on the hospitals that now must care for them, undermining those hospitals’ ability to provide quality care. The dominoes will fall as the ripples from the Medicaid cuts affect increasing numbers of providers and hospitals and threaten the quality of health care in communities across the US.

The Senate has a chance to undo the damage to Medicaid and the broader US hospital and healthcare system in the One Big Beautiful Bill. If Republican Senators who have raised the alarm about the harms to the medical system vote against these provisions, Congress will have the opportunity for a re-do on the healthcare provisions in the bill.

This first appeared on CEPR.

The post The Consequences of Gutting Medicaid appeared first on CounterPunch.org.

This post was originally published on CounterPunch.org.