Medicaid on the Chopping Block: The Looming Threat to Healthcare Access

As Congress continues to grapple with the fiscal year 2025 reconciliation package, the American Hospital Association (AHA) has issued a stark warning: proposed changes to Medicaid could have catastrophic consequences for hospitals and the millions of Americans who rely on the program for healthcare. The AHA's April 29 letter to majority and minority leaders in both the Senate and House urges lawmakers to avoid disruptive policy changes that could upend the Medicaid program and other coverage options.

The AHA's concerns are not unfounded. The proposed changes, which include moving the underlying finance structure to a per capita cap, reducing the federal medical assistance percentage for certain states, and placing new limits on provider taxes, could severely impact state financing for their Medicaid programs. This, in turn, would harm hospitals and Medicaid beneficiaries, who already face significant challenges in accessing quality healthcare.

The per capita cap, in particular, is a cause for alarm. Under this financing structure, the federal government would establish fixed funding limits per enrollee in different eligibility groups. This would mean that the total federal payment to states would equal the sum of capped amounts multiplied by enrollment in each category. For hospitals and healthcare providers, this change could be particularly challenging. Medicaid accounted for 19% of all spending on hospital care in 2023, or $283 billion out of the $1.5 trillion spent on hospital care. Hospital care also accounted for about one third (32%) of Medicaid spending in 2023, or $283 billion out of $872 billion in total Medicaid expenditures. This significant portion of hospital funding is at risk under a per capita cap, as states would have to manage within the fixed federal funding limits.

Hospitals that care for a relatively large share of Medicaid patients, especially those in states with high Medicaid enrollment like New Mexico (where 1 in 3 people have Medicaid coverage), would be particularly vulnerable. These hospitals might face reduced reimbursement rates or cuts to supplemental payments, which would directly impact their finances. For example, rolling back coverage would increase the number of uninsured patients, resulting in higher uncompensated care costs. Hospitals may respond to these financial pressures by operating more efficiently or by making various cuts—such as offering fewer services, laying off staff, or investing less in quality improvements—and lower payment rates could reduce the willingness of hospitals to see Medicaid patients.

The AHA also highlighted the potential long-term effects on healthcare access and quality for Medicaid beneficiaries if states are forced to reduce provider payments due to federal funding cuts. Lower payment rates could make it less financially viable for hospitals and physicians to treat Medicaid patients. This could lead to fewer providers accepting Medicaid, resulting in reduced access to care for beneficiaries. With fewer providers accepting Medicaid, more patients may end up seeking care in emergency rooms or other settings where they cannot be turned away, leading to increased uncompensated care costs. This could strain hospital resources and potentially lead to closures, particularly in rural areas where access to care is already limited.

The impact of reduced provider payments would likely be disproportionately felt by vulnerable populations, including low-income individuals, people with disabilities, and those living in rural areas. These groups often rely heavily on Medicaid for their healthcare needs and may face significant barriers to accessing alternative care options. For instance, in rural areas, where many residents already face limited access to care, one third (34%) of rural residents say there are not enough hospitals in their community to serve local residents, while about half say there are not enough primary care providers (49%) and about seven in ten say there are not enough mental health providers (67%) or specialists (71%) in their community.

The AHA also urged Congress to extend enhanced premium tax credits that are set to expire at the end of the year. These credits have been crucial in helping low-income individuals afford health insurance, and their expiration could further exacerbate the challenges faced by Medicaid beneficiaries.

In summary, the proposed changes to Medicaid could have severe and far-reaching consequences for hospitals and the millions of Americans who rely on the program for healthcare. The AHA's warning serves as a stark reminder of the importance of preserving and strengthening Medicaid, and the need for lawmakers to act with caution and consideration for the real-world impacts of their decisions. As Congress continues to work on the fiscal year 2025 reconciliation package, it is crucial that they heed the AHA's call and avoid disruptive policy changes that could harm hospitals and Medicaid beneficiaries.