Last week, the House voted in favor of the reconciliation bill that includes roughly $700 billion in Medicaid savings over the next 10 years. As drafted, the plan will likely strip coverage from millions of beneficiaries and reduce hospital capacity in underserved areas. Although Congress could target waste in other parts of the budget, it has chosen to zero in on Medicaid instead. A smarter approach would safeguard enrollees’ coverage while pursuing federal savings elsewhere.
Protecting access to Medicaid coverage must remain a core policy principle. Researchers Angela Wyse and Bruce Meyer recently found that Medicaid, for all its imperfections, is a vital and effective tool to reduce mortality: expanding the program cut death rates among low-income adults by 2.5 percent at a cost of roughly $179,000 per life-year saved.
Modernizing Medicaid to better support states and curb waste is essential, but the House reconciliation bill derives most of its savings from work requirements—an unproven strategy that would likely deepen coverage losses for expansion enrollees. The Senate can pursue fiscal restraint and mitigate impacts on care by emphasizing cost-shifting reforms that fall on states with the fiscal capacity to absorb them, better shielding vulnerable beneficiaries and small rural hospitals.
Work requirements are unproven and will result in significant coverage losses
Under the current plan, the most significant savings would come from work requirements for Medicaid coverage. The Congressional Budget Office (CBO) estimates that this provision will save roughly $280 billion, making up around 40 percent of all the savings to come out of the Energy & Commerce Committee. The work requirement would be limited to Medicaid’s expansion population (those making up to 138% of the Federal Poverty Level or $21,597 for an individual in 2025) and applies to able-bodied working adults without dependents (ABAWDs). More than 20 million adults rely on Medicaid expansion for their health coverage, and a large share of them would be directly affected by the proposed rules.
The House bill would compel states to add work requirements to Medicaid expansion: applicants would need to document 80 hours of employment (or other qualifying activity) in the month before enrollment and, thereafter, for at least one month in every six‑month coverage period. States could go further by implementing more stringent requirements, such as demanding more frequent work hour verification. This minimum required work requirement is roughly similar to the current Supplemental Nutrition Assistance Program (SNAP) work requirement, albeit is extended to age 64 while SNAP currently exempts those over 55 from participation.
The CBO estimates that 7.6 million adults will lose their Medicaid coverage under the House plan, the majority of which will come from failure to comply with the work requirement. The exact number will depend on how stringent states opt to be in demanding work hours verification. As drafted, the bill would also deny premium subsidies on the Affordable Care Act marketplace to anyone who loses Medicaid coverage under the new work‑requirement rules.
Work requirements are intended to promote self‑sufficiency and reduce costs by helping beneficiaries raise their incomes above Medicaid eligibility levels. Yet no credible evidence shows that tying Medicaid coverage to employment actually increases work rates–and the policy would instead add cumbersome paperwork for those who already meet the requirements.
Two states, Arkansas and Georgia, have implemented Medicaid work requirements in the past decade. In Arkansas, researchers found no significant changes in employment, community engagement status, or number of hours worked from before and after implementation. Many who lost coverage under Arkansas’ work requirement were already working sufficient hours, but still lost coverage because of reporting difficulties. This is partly because 90 percent of those subject to the work requirement are already employed or exempt.
In Georgia, which had a work requirement tied to a coverage expansion, early reporting revealed that 90 percent of the expansion funding went to administrative and consulting costs–not to patient care. Building the data systems and verification processes needed to run work requirements takes time. The House Energy & Commerce Committee originally acknowledged this by setting the policy’s launch for January 1, 2029, giving states time to absorb lessons like Georgia’s. The latest draft, however, moves the start date up to December 2026. To help states more effectively build the infrastructure necessary to implement the requirement, the Senate should strongly consider re-extending this window.
Medicaid does need tighter fraud and waste controls, but past experiments show that work requirements miss that target: they fail to curb improper spending, slash coverage for eligible adults, and—by draining patient revenue—put already‑fragile rural hospitals and clinics at greater risk of closure.
Medicaid coverage losses could close key lines of service in rural areas
Finding responsible healthcare savings requires not only protecting the most vulnerable patients, but also insulating the most vulnerable hospitals to ensure adequate access to care. If the projected losses in coverage hold true, hospitals that serve Medicaid expansion patients would see a significant loss in revenue. In the states that expanded Medicaid (and would be disproportionately affected by coverage losses), there are 190 rural hospitals at “immediate risk of closure.” The hospitals that treat more Medicaid patients would see the largest drop in revenue and may need to drop core lines of services or close entirely due to an increase in uncompensated care costs.
Because Medicaid does not require an affirmative opt-in, many ABAWDs do not enroll and instead know that Medicaid will automatically cover their bill. Rather than opt-in and report their work hours under the new requirement, many ABAWDs will likely maintain their same behavior and be disenrolled, leaving hospitals with an unpaid bill. Some of those hospitals will rely more heavily on Medicaid disproportionate share (DSH) payments to make up the uncompensated care costs.
Of course, not all hospitals operate with razor thin margins. Larger hospital systems in suburban and urban markets with a wider commercially-insured patient population are more insulated from Medicaid cuts. The hospitals most affected by Medicaid coverage losses are small, rural hospitals and the impact of those closures are devastating for patients. For example, since 2021, more than 100 rural hospitals have closed their birthing units and can no longer offer childbirth delivery services. Nearly half of all births in rural areas are covered by Medicaid, so any additional cuts will likely accelerate future closures.
These policy changes land just as the United States confronts an acute shortage of hospital beds. Beds per 1,000 residents have declined every decade since 1960 as demand for healthcare has risen with population growth and wider insurance coverage. Addressing our healthcare supply crisis requires supporting the hospitals most at risk for closure. While there are more direct ways to ensure adequate rural hospital supply, ensuring that they continue to receive Medicaid reimbursement is a necessary foundation.
A better way forward: savings options and their impact on states
Not all Medicaid savings impact states or beneficiaries equally. Reforms like lowering the federal match to states would save federal money by shifting more of the costs to states, who then would be asked to fund the difference. The CBO estimates that states broadly would be able to make up half of any losses in funding due to lower federal reimbursement. Because work requirements are the primary source of healthcare savings under the House plan rather than reforms that shift costs to states, more people will lose coverage for every dollar saved under this proposal.
But the House proposal does include some cost-shifting reforms. Among them is a moratorium on new state provider taxes, which would save around $90 billion over 10 years. To receive a higher effective matching rate, states tax and boost payments to the same provider simultaneously, allowing them to inflate their Medicaid spending without increasing their net spending. This loophole artificially increases the reported spending on Medicaid services and federal reimbursement — one of several financing gimmicks used by 49 states to fund their Medicaid programs. Provider taxes have become a key fixture of how states fund their Medicaid program, now accounting for 17 percent of state Medicaid spending and growing.
The House proposal prevents future growth in provider taxes while allowing states to mostly maintain their current taxes. But the administration is rolling back one specific provider tax loophole through rulemaking, used by 4 states primarily: New York, California, Massachusetts, and Michigan. Both the moratorium on future provider taxes and the closing of a major loophole used by states with higher fiscal capacity are responsible moves to stem the growth in federal spending on the program.
One notable cost-shifting reform absent from the House bill is adjustments to the matching grant reimbursement known as the Federal Medical Assistance Percentage (FMAP). The matching grant currently covers anywhere from 50 to 83 percent of costs depending on the per capita income of the state’s residents, but a 90 percent matching rate is offered for the expansion population. Although there is no binding cap on the portion covered by the federal government, there is an FMAP minimum of 50 percent that affects 10 states.
While states with lower per capita income receive a higher federal match, the 50 percent floor effectively provides a carve out to the wealthiest states – allowing them to fund their Medicaid programs at disproportionately low rates. For example, without the FMAP floor, New York and California would each receive a 38% match in 2026 based on their per capita income. Even just lowering the floor to 45 percent would save an estimated $350 billion over 10 years – more savings than the work requirements provision included in the current proposal. Compared to work requirements which impact all 40 expansion states and place a disproportionate cost and administrative burden on lower-income states, lowering the FMAP floor would only impact 10 relatively wealthy states. More importantly, a reduction in the FMAP floor would blunt the impact on patient benefits, because the affected states have a higher fiscal capacity (higher tax bases and more flexibility) to fund a larger portion of the difference than poorer states.
Policymakers should consider finding savings where states are better prepared to offset the loss of funding to blunt any reduction in benefits for Medicaid patients.
Next steps
It is imperative that policymakers design reforms responsibly so that savings come from areas of excess spending rather than areas of need. Under the current proposal, many Medicaid beneficiaries will unnecessarily lose coverage due to administrative burden and small, rural hospitals will be hit with higher uncompensated care costs as a result.
The budget bill is headed to the Senate, where between now and July 4, Senators will develop a new version. Policymakers should prioritize savings that curb the impact on patient benefits, particularly for the low-income Medicaid recipients who would lose coverage under the current proposal.