In late May, the Centers for Medicare and Medicaid Services, known as CMS, proposed a rule targeting an obscure aspect of Medicaid that, despite GOP rhetoric about eliminating “waste, fraud and abuse,” would further erode healthcare access for the 66 million Americans enrolled in managed Medicaid. What’s more, CMS’ proposed rule goes well beyond even Congress’ draconian directives in last summer’s Big Beautiful Bill.
Medicaid is typically thought of as public health insurance, and the traditional version of this critical safety net program operates on a fee-for-service model. But more than three-fourths of Medicaid enrollees receive care through managed care organizations such as Centene, Elevance Health and UnitedHealth Group. Within these programs, states decide which services will be offered to enrollees and which will be carved out, such as dental benefits or non-emergency medical transportation.
Several hundred rural hospitals are already at risk of closure even before most of H.R. 1’s core provisions go into effect.
Although both traditional Medicaid and managed Medicaid deliver essential health coverage to low-income people across the country, both also reimburse at lower rates than Medicare or private insurance. As a result, Medicaid recipients typically have less access to care. While 90% of physicians accept new privately insured patients and just over 85% accept new Medicare patients, only 71% accept new Medicaid patients (though there is wide variation nationally).
When too few physicians accept Medicaid, patients may be forced to travel greater distances, potentially accruing greater financial and opportunity costs, or wait longer for appointments at the risk of their condition worsening. A meta-analysis of 34 studies found that Medicaid patients are less able than privately insured patients to schedule appointments, especially for specialty care and among older patients.
That is, necessary medical care may be covered on paper but not accessible in practice.
To make up for the shortfall in reimbursement rates in fee-for-service Medicaid, states can disburse grants to hospitals that serve a disproportionate share of Medicaid enrollees. For the more common managed care organizations, there are state-directed payments, or SDPs. Through shared federal and state funding, SDPs allow state Medicaid agencies to order managed care plans to boost reimbursement rates to be on par with the average commercial rate for healthcare providers and hospitals.
This approach doesn’t just make it more financially feasible for providers to accept Medicaid. It lets states tie these payments to specific improvements in care, as more dollars flow to safety net hospitals, behavioral health providers, nursing facilities and others. The enhanced payments help to bridge the gap between the costs of providing care and the amount people are compensated — all while moving toward value-based care.
Over the years, SDPs have helped provide meaningful access to care for millions of Medicaid enrollees.
But H.R. 1, the One Big Beautiful Bill Act that President Donald Trump signed last summer, took aim at these payments (in addition to its broader historic cuts to Medicaid, and compulsory Medicaid work requirements).
Medicaid is particularly critical to healthcare access of children and pregnant individuals.
First, it prohibits states from levying new taxes on healthcare providers or increasing existing provider taxes that have supported more generous reimbursements. Second, it introduces strict caps closely tying SDPs to Medicare reimbursement rates, with somewhat more stringent constraints for states that opted to expand Medicaid. Tethering managed Medicaid reimbursement to the widely popular program of Medicare may seem reasonable, but Medicare reimbursement rates have not kept pace with inflation and are lower than reimbursement by commercial insurers.
Though these restrictions apply nationally — to both new and existing SDPs — they may be felt especially acutely by rural hospitals, which serve a disproportionate share of Medicaid enrollees and have little commercial revenue to rely on. Several hundred rural hospitals are already at risk of closure even before most of H.R. 1’s core provisions go into effect.
To make matters worse, CMS’ proposed rule, now accepting public comments, goes far beyond what Congress required. H.R. 1 imposed caps on SDPs in four areas: inpatient hospital services, outpatient hospital services, nursing facility services and qualified practitioner services at academic medical centers. CMS proposes extending the caps to all SDPs for all services across the country, imposing harsh new constraints on the provision of medically necessary care for low-income individuals. What’s more, it extends these new restrictions from the states, as Congress directed, to U.S. territories, despite their already being strained in delivering Medicaid. It even imposes limits on reimbursements in fee-for-service Medicaid supplemental payments that are unrelated to managed care.
After Trump signed H.R. 1 last summer, the Congressional Budget Office estimated that the changes to SDPs would cut Medicaid by $149.4 billion. CMS’ own analysis estimates that its proposed rule will more than triple that cut, to $515 billion.
The effects of these cuts will be felt far and wide, but some particularly vulnerable groups — children and those who are pregnant — may especially feel the pinch. Medicaid is particularly critical to healthcare access for children and pregnant individuals. And while H.R. 1 did not single out pediatric and maternal health services, the CMS rule’s broader sweep makes it more difficult for states to address America’s abysmal maternal health outcomes.
Republicans in Washington are tying states’ hands ever tighter when it comes to Medicaid. The new restrictions on SDPs are no different, precluding more generous reimbursement while hindering states that had expanded Medicaid to more low-income individuals. Cumulatively, these cuts will make it far more difficult for providers to offer comprehensive, quality care to low-income populations. And as states face greater budget shortfalls, they may seek to make their Medicaid programs less generous by eliminating or paring back some optional benefits such as dental care, physical therapy and prescription drug benefits.
The CMS rule doesn’t simply codify Congress’ historic cuts to Medicaid. It expands on them. Quite apart from rooting out fraud and waste, it is yet another step to roll back healthcare access for our nation’s most vulnerable, who this administration sees as undeserving of quality care. While the cuts are aimed at Medicaid, their effects will be felt far more broadly. Hospitals and other providers will face further financial strains, forcing closures and, in turn, reduced access to care for the publicly and privately insured alike. Weakening the financial foundations of healthcare for low-income individuals does not promote efficiency — it means there will be fewer providers and fewer hospitals, and it reshapes who can realistically obtain medical care in America.
Miranda Yaver
Miranda Yaver is an assistant professor of health policy and management at the University of Pittsburgh and the author of "Coverage Denied: How Health Insurers Drive Inequality in the United States."