President Trump Signs Budget Reconciliation Bill Into Law

On July 3, the House passed the Senate’s version of the budget reconciliation bill, House Resolution 1. President Trump signed the bill into law on July 4. The newly enacted law will reduce federal Medicaid spending by about $1T over ten years. Some key provisions that were finalized include establishing work requirements for Medicaid enrollees between 18 and 65 who are not disabled, in school, or caregiving, among a few other exemption categories. The law also makes sizable changes to Medicaid financing mechanisms.

The law prohibits states from establishing any new provider taxes and will reduce the provider tax safe harbor threshold in states that have expanded Medicaid from 6% down to 3.5% starting in FFY2028 through FFY2032. Nursing facilities and intermediate care facilities are exempt from the lower tax rate cap. In response to concerns about the impact of reduced Medicaid funding on rural healthcare providers, the Senate version of the bill created a Rural Health Transformation Fund, which allocates $50B over 5 years through a state application process on behalf of rural providers including hospitals and FQHCs. The application and award decision process must all be completed by the end of 2025, according to the statute.

Half of the funds will be distributed between states with approved applications, with the remaining being allocated at the Secretary’s discretion. The law also caps new state-directed payments (SDPs) for inpatient hospital and nursing facility services at 100% of Medicare rates for states that have expanded Medicaid and 110% of Medicare for other states. Starting in 2028, existing SDPs above the Medicare rate will be reduced by 10% each year until the Medicare rate is reached. The law includes many other healthcare provisions that will come into effect in the coming years, including reductions in federal cost sharing for Marketplace health plans, reducing retroactive coverage, preventing some CMS final rules from being implemented, increasing the frequency of redeterminations for expansion adults, and restricting Medicaid eligibility for certain lawfully residing immigrants. Sellers Dorsey has compiled a detailed summary of the final bill that highlights key Medicaid-related changes, effective dates, and implementation funding so that you can plan, adapt, and stay ahead.  (Inside Health Policy, July 3; Modern Healthcare, July 3).

• From Our Viewpoint:

Passage of the budget reconciliation bill marks a significant shift in federal Medicaid and healthcare policy. Provisions that restrict states’ use of provider taxes and SDPs will decrease the amount of federal matching dollars states are able to draw down, forcing states to make up the lost federal funding with state funds or consider reducing overall Medicaid spending by reducing eligibility and enrollment through various methods, reducing or eliminating optional benefits, eliminating coverage of optional groups in Medicaid, or reducing Medicaid provider reimbursement rates.

Although it will take time for the full impact of the reductions in federal Medicaid spending to be felt and will vary widely by state, those impacts will ultimately pass through to providers and Medicaid beneficiaries. To learn more about how states, providers, and plans can manage these impacts, please join us for our Sellers Dorsey webinar on July 21 from 2-3pm ET. Register here.

State Medicaid agencies will also now be tasked with implementing community engagement requirements (also known as work requirements). Although the final reconciliation bill provides states the opportunity to request additional implementation time from CMS, as well as funds to assist with developing and implementing the systems necessary to enforce these requirements, states, providers, and other stakeholders will still be looking to CMS for formal policymaking and implementation guidance by next year.

Sellers Dorsey recently published a document outlining key considerations for states, MCOs, and other stakeholders as they begin to consider how to implement these new requirements.

Federal Judge Issues Order Halting OBBBA Defunding Planned Parenthood

On July 7, U.S. District Judge Indira Talwani granted Planned Parenthood Federation of America’s (PPFA) request for a temporary restraining order (TRO) to prevent the federal government from imposing a federal funding ban under the “One Big Beautiful Bill Act” (OBBBA) on certain non-profit clinics that receive Medicaid funds if they also provide abortion care services. PPFA argues that the OBBBA provision violates both the First Amendment and Fifth Amendment with relation to prohibiting retaliation due to differences in political opinion and due process. Judge Talwani’s TRO will last for 14 days, and the judge is expected to rule on whether or not to grant a longer injunction period on July 21. Planned Parenthood currently serves over 1 million Medicaid beneficiaries across the nation (Inside Health Policy, July 7; The Hill, July 7).

Rep. Morgan Griffith to Lead House E&C Subcommittee on Health

Following the resignation from the position by Representative Buddy Carter (R-GA), Representative Morgan Griffith (R-VA) is stepping into a new role as chair of the House Energy and Commerce Health Subcommittee, after previously serving as chair of its Oversight and Investigations Subcommittee. In his new position, he plans to focus on expanding rural healthcare access, easing restrictions on physician-owned hospitals, and maintaining oversight of federal health programs. Representative Griffith has supported efforts to direct federal funding to medical research, community health centers, and early education programs in rural areas (Inside Health Policy, July 3).

Advocacy Groups and Cities Push Back on New CMS ACA Rule

Several advocacy groups, including Doctors for America and the Main Street Alliance, along with the cities of Baltimore, Chicago, and Columbus are suing the Centers for Medicare & Medicaid Services (CMS) over its final rule on marketplace integrity and affordability issued earlier this summer. This rule aims to reduce improper enrollments by ending monthly special enrollment periods for lower-income individuals, tightening income verification for premium subsidies, and shortening the enrollment window.

While CMS says the changes improve fairness and efficiency, the plaintiffs warn the rule could cause nearly 2 million people to lose coverage next year, increase costs, and create new obstacles to maintaining insurance. Doctors for America, the Main Street Alliance, and the cities also highlight challenges like a monthly surcharge for some zero premium plans and reduced time to provide income documents, which may confuse or block people from trying to stay insured. The groups argue that instead of expanding access, the new final rule raises barriers and risks leaving many Americans without affordable health coverage (Fierce Healthcare, July 2).

• From Our Viewpoint:

Federal policy changes affecting the ACA are happening at a critical moment. The final rule implementing new marketplace integrity measures comes at the same time as the passage of the OBBBA, which includes provisions that reduce marketplace spending and make it harder for people to maintain their marketplace coverage. The OBBBA also fails to extend enhanced premium subsidies, which are set to expire at the end of the year. Without additional action from Congress, premiums could rise by an average of 75%, and millions may lose coverage, according to KFF and the Congressional Budget Office. These changes are expected to increase costs for both enrollees and health plans, while reducing the overall number of insured Americans.

These changes create real barriers to sustaining coverage and insurer participation in the ACA marketplace. When costs rise and government subsidies drop, insurers may stop offering ACA marketplace plans, leaving people with fewer options and possibly without coverage. As highlighted in another story below, a Wisconsin plan recently announced its intent to leave the marketplace. If insurers continue to leave the marketplace, it will become harder for families to find affordable health plans. A reduction in health insurance coverage can lead to more hospital visits for emergency care, as people without insurance may choose to delay treatment.

Medical Associations File Suit Against HHS Secretary and HHS Over COVID-19 Vaccine Recommendations

On July 7, six healthcare organizations filed a lawsuit against HHS Secretary Robert F. Kennedy Jr. and the Department of Health and Human Services. The plaintiffs allege that the Secretary’s recent decision to change COVID-19 vaccine guidance was not scientifically based and is harmful to the public. The plaintiffs include the American Public Health Association, the American Academy of Pediatrics, the Infectious Diseases Society of America, the American College of Physicians, the Society for Maternal-Fetal Medicine, and the Massachusetts Public Health Alliance. The plaintiffs were also joined by an anonymous pregnant woman who is concerned that she would not be able to be vaccinated against COVID-19. The lawsuit was filed in the western Massachusetts federal court and aims to restore the COVID-19 vaccine as a recommended shot for healthy children and pregnant women. The lawsuit also contends that Secretary Kennedy’s efforts have undermined vaccines and promoted debunked theories, fostering unfounded vaccine safety fears in patients (New York Times, July 7).