As we are well into the 2nd quarter of 2025, Medicaid policymakers face a significant challenge: staring down the 800-pound gorilla in the room. The proposed budget released by President Trump focuses on areas of discretionary funding, rather than the mandatory spending in programs like Medicare and Medicaid.
The recently passed House budget resolution proposes federal Medicaid cuts of up to$880 billion over the next decade. The Healthcare Budget Reconciliation mark-up will likely take place the second week of May, with Speaker Johnson suggesting he would like to take a vote before Memorial Day.
To put that number into perspective, $880 billion represents 6% of state taxes per resident and nearly one-fifth (19%) of what states spend per student on education. For states, which must balance their budgets, this would be a substantial fiscal burden.
Two key proposals still in play to address spending levels in Medicaid include:
- Reducing or eliminating supplemental
Medicaid payments, and
- Placing caps on the federal share of funding for the 40 states that expanded Medicaid under the Affordable Care Act (ACA).
This analysis focuses on the first issue—supplemental payments—because Florida did not expand Medicaid under the ACA and is therefore more directly affected by potential changes to supplemental funding.
All states except Alaska use provider taxes to help fund Medicaid. Ambulances, health plans, hospitals, intermediate care facilities for people with developmental disabilities (ICF/DDs), and nursing homes are the common beneficiaries. Florida uses provider taxes in numerous categories, including nursing homes and hospitals. The state also uses local government tax bases to support specific programs to draw down additional federal dollars for hospital funding, including for the Low-Income Pool (LIP), which supports hospital uncompensated care, and the Hospital Directed Payment Program (DPP), which helps offset some of the unfunded costs of caring for more than four million Florida Medicaid enrollees. The state benefit to use these types of funding mechanisms is to reduce the Medicaid burden on state revenue and shift that to local government or the providers themselves instead.
As more states transition to managed care and reliance on supplemental payments increased, the Centers for Medicare and Medicaid Services (CMS) updated its rules. CMS required directed payments be tied to the use and delivery of services under the managed care contract, be equally distributed to specified providers under the managed care contract, advance at least one goal in the state's managed care quality strategy, and not be conditioned on provider participation in intergovernmental transfer (IGT) agreements.
However, even with these changes to the supplemental payment programs, Federal concerns over whether "states are covering their fair share of Medicaid" remain. Drastically altering or removing these programs all together could drastically impact the State.
If the Federal government cuts or removes these programs, Florida could lose up to $6 Billion in its healthcare economy. However, the increasing difficulty in accessing care is a growing concern, leading to higher costs. Access to care is already getting harder in many areas. Just this year, 15 hospitals have closed across the country. In 38 states, people are on waitlists for Medicaid home and community-based services.
There is undoubtedly waste in the Medicaid program nationwide. US healthcare spending increased by 7%, the overall inflation rate is 3.8%, and the pace is unsustainable. Practical considerations for the legislature will be complex if there is a drastic cut, as the state did not expand Medicaid, leaving options like eliminating optional benefits (e.g., pharmacy benefits) or reducing provider payment rates.
Over the 15 years since the ACA passed, healthcare costs have continued to rise while access to care remains problematic. One important lesson from the past decade should be that access to insurance does not equate to access to care. Instead, we need to examine where costs have ballooned over the past decade and explore systematic change, rather than simply cutting provider funding in an entitlement program to deliver care at lower costs.
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