Administration Policies Go Beyond 2025 Republican Reconciliation Law, Deepening Its Harm

Our nation’s policymakers play a significant role in supporting or weakening the health and well-being of their constituents through the laws they pass and the actions they take. Last year’s harmful Republican reconciliation law cut more than $900 billion from Medicaid, taking coverage away from millions of people, risking access to care for many others, and increasing pressure on state budgets.

Now, a series of Trump Administration actions will worsen these harms if not reconsidered and rolled back. Taken together, recent policies from the Centers for Medicare & Medicaid Services (CMS) on the Medicaid work requirement and approaches that states use to finance their Medicaid programs, pay their providers, and innovate in their programs will diminish access, stifle innovation, and leave Medicaid enrollees worse off. While the best way to stop the harm of last year’s reconciliation law is for Congress to reverse course, CMS should reconsider its policies — including those that go beyond the statute — that will deepen the harm of an already harmful law.

The following are among the Administration’s Medicaid policy choices that will lead to more coverage losses, less access for enrollees, and destabilizing cuts for providers.

The work requirement interim final rule further jeopardizes health coverage for people with serious medical needs. The harmful 2025 Republican reconciliation law takes away coverage from some parents and many childless adults who can’t prove that they are meeting a work requirement or are exempt. The law creates a “medical frailty” exclusion from the work requirement for people with serious illnesses, like cancer, autoimmune diseases, mental health conditions, and substance use disorders. But the Trump Administration’s interim final rule implementing the requirement made major, last-minute policy shifts, including to the medical frailty exclusion, that will likely increase the number of people who are denied or lose health coverage due to the requirement. The rule also makes it harder for states to implement the work requirement by the January 2027 deadline in a manner that would better protect eligible people from losing coverage.

Capping Medicaid payment rates across the program will limit access and compound harm to enrollees and providers. CMS’s proposed rule capping Medicaid managed care and fee-for-service payments goeswellbeyond the limits required by the reconciliation law. The Administration’s rule proposes extending payment limits to all services covered under state directed payments (SDPs, which states use to direct Medicaid managed care organization to pay specific providers to drive access and quality); eliminating one of the methodologies states currently use to authorize SDP rate increases; extending SDP limits to U.S. Territories; and imposing the same new payment limits on certain Medicaid fee-for-service payments.

Taken together, these changes — which are more extreme in states that adopted the Medicaid expansion — will lower payments to providers and reduce access to services for Medicaid enrollees. CMS’s rule itself confirms the depth of its expanded policy: the Congressional Budget Office (CBO) estimated that the SDP provisions in the reconciliation law would cut $149 billion in federal Medicaid funding over ten years, yet CMS estimates that the rule will cut federal Medicaid funding to states by more than $510 billion over the next ten years.

There are guardrails for SDPs and other supplemental payments that could be implemented to balance advancing access to care for enrollees and fiscal and program integrity. However, the proposed rule does not achieve this balance. Instead, it severely hamstrings states’ flexibility and disregards the reduction in access to services for Medicaid enrollees in favor of continuing the 2025 law’s ultimate goal of cutting federal Medicaid funding.

Proposed provider tax rule will increase state budget hardships and put enrollees’ coverage and access at risk. Another proposed rule from CMS places restrictions beyond what the reconciliation law requires on health care-related provider taxes. Almost all states have used provider taxes to help finance the state share of Medicaid costs, consistent with federal guardrails. Provider taxes support efforts to expand eligibility and increase provider reimbursement to improve access to care.

Last year’s law prohibited states from implementing any new provider taxes (or increases to existing taxes) after July 4, 2025, and changed long-standing federal rules guiding states’ use of provider taxes. The proposed rule expands the new provider tax requirements to taxes on other health-care related entities like health insurers — limiting state options to raise revenue to fund Medicaid. It also enhances threats to states’ federal Medicaid funding, especially with the new methodology that would be required to calculate that existing taxes fall within the law’s statutory limits.

CMS estimates the rule will cut federal Medicaid funding by more than $245 billion over the next decade, compared to CBO projections that the reconciliation law’s provider tax restrictions would cut federal Medicaid funding by $191 billion. However, CMS’s estimate does not account for the full impact of its proposal since it excludes the impact on state budgets from extending the limits to new taxes. The rule will further restrict states’ ability to respond to rising health care costs or economic crises; hamper state budgets; and potentially require states to make tough choices that affect enrollees’ access to care, like cutting provider reimbursement (including through eliminating SDPs) and coverage of optional benefits, as CMS notes in its analysis.

New policy on section 1115 demonstrations will stifle innovation and limit states’ ability to implement or continue certain policies. Ahead of a rule planned for later this year, CMS released guidance for state Medicaid agencies about how it will apply the 2025 reconciliation law’s standards for budget neutrality. Here, too, the Administration’s approach is more sweeping than the law requires. The approach to assessing budget neutrality in the guidance will add significant administrative burdens for states and put funding for coverage and benefit expansions and service delivery innovations at risk. Because many states use section 1115 demonstrations for some or most of their Medicaid programs, almost every state will be affected by these changes. At the same time, state Medicaid agencies are implementing myriad other burdensome requirements from the harmful 2025 law.