Medicaid cuts: The how and why
Plain language translation of what the heck happened and where this will go
Last week, Congress passed the largest federal healthcare cuts in U.S. history, with nonpartisan modeling suggesting $1 trillion in cuts over the next decade. This represents the most significant change to our healthcare system since the passage of the Affordable Care Act. However, instead of moving toward a healthier, more prosperous future—where we prevent disease, expand access to care, feed children, and increase life expectancy—this bill chose the opposite.
Due to the flood of news, only 8% of Americans are even aware that this was included in the “Big Beautiful Bill” that passed. There’s also been a stunning lack of plain-language explanations. Even headlines like “11 million people could lose health insurance” don’t answer the basic questions: How? Why?
Here’s a breakdown of what happened, the implications for you and your community, and what you can do about it.
What is Medicaid?
Medicaid provides health insurance for more than 78 million Americans (1 in 4 people). It acts as a safety net in two ways:
For people with low or limited income, pregnant women, people with some disabilities, and children
For people eligible for both Medicare and Medicaid, such as older adults needing long-term care
It supports:
Half of all births in the U.S.
Long-term care for millions of seniors
Children with special needs and adults with chronic illnesses
Hospitals, particularly in rural and underserved communities
And it’s incredibly popular: More than 83% of Americans view Medicaid favorably.
How is it paid for?
Medicaid is a state and federal partnership, with both levels of government contributing to the pot to fund healthcare.
The federal government pays a large share of Medicaid costs for each state. Precisely how much it pays is determined by a variety of factors, including the state’s per capita income and who is covered, but it can foot 50-90% of the state’s bill (or parts of it). In exchange for the funds, there are federal rules that specify which services must be covered, how to provide coverage for those services, and the cost of those services.
Individual states also cover costs and set their coverage policies: who’s eligible for services, what services are covered, and payment policies.
How are cuts being accomplished?
This was not part of the regular annual budget process. That’s coming in October, which includes things like cuts to research through NIH and CDC budgets.
Instead, Medicaid cuts were passed through “reconciliation”—a fast-track process that allows Congress to make significant changes to taxes and spending with just a simple majority in the Senate (instead of the 60-vote majority needed for a fiscal budget). Reconciliation is the same tool that was used for the 2017 Trump tax cuts and the 2021 Covid-19 relief package.
Medicaid is squarely in the crosshairs because it accounts for a large portion of the federal budget, behind Medicare and Social Security (which are, politically, third rails for politicians to touch).
What is the reasoning behind cutting Medicaid?
Supporters of the cuts often cite “fraud, waste, and abuse.” So the bill frames many of its changes around the idea of tightening the system. The bill doesn’t directly eliminate benefits, but it introduces major new hurdles for people to stay covered, like:
Work requirements. This would require some people to prove they’re working (or doing things like job training or volunteering) in order to keep their Medicaid coverage.
Continual monitoring of eligibility. This means people on Medicaid would have to frequently show proof that they still qualify, for example, by proving how much money they make or where they live, more often than they already do.
The bill also directly limits the amount the federal government puts into the pot for states, like:
Limiting states’ abilities to tax health care providers. Health care facilities pay taxes to their state to help fund Medicaid. Because states’ Medicaid payments are matched by federal dollars, provider taxes can increase how much federal money states receive without the state paying more. This bill restricts how much states can do that, which could reduce the amount of federal money states get for health care.
Reducing the federal match for Medicaid expansion. The federal government currently pays most of the cost for states that expanded Medicaid under the Affordable Care Act (mainly for low-income working adults). This change would mean the federal government pays less, and states would have to cover more of the cost themselves.
Why is this a problem?
First, it doesn’t target where most fraud actually occurs. I think everyone agrees we should address fraud in public programs. Speaker Johnson pointed to $50 billion in annual fraudulent payments. But this number comes from improper payments, which are mostly due to insufficient information, not fraud.
This bill also assumes that all fraud is committed by Medicaid recipients. That’s wrong. Most fraud comes from providers. The 2023 federal health care fraud enforcement report listed no cases of beneficiary fraud. Examples from that year include:
A Texas ambulance company billing for fake runs
A Kentucky pharmacy charging for unfilled prescriptions
A Michigan doctor exploiting patients with unneeded treatments
Second, some proposed solutions may not work, especially those related to work requirements.
In theory, work requirements sound reasonable: if people can work, they shouldn’t be on Medicaid. But the reality is more complicated:
Most Medicaid enrollees already work (64%). The vast majority of the rest are unable to work due to a qualifying disability or caregiving responsibilities.
Work requirements don’t increase employment. Inducing work was not the original intent of the Medicaid program. There are examples of people losing their jobs because they lost Medicaid and couldn’t get their needed medications.
Many enrollees are transient, making consistent communication difficult. Many who do work can’t keep up with the burdensome reporting. The systems are hard to navigate.
How do we know? We’ve tried work requirements before and they failed.
In 2018, Arkansas was the first to implement Medicaid work requirements and more than 18,000 people lost their health insurance in just a few months. Most of them weren’t unemployed. They didn’t realize they needed to submit new monthly paperwork, couldn’t navigate the clunky system, or missed a deadline. There was no increase in employment. Just more uninsured people. Medical debt, which many Americans fear, increased. (It is essentially nonexistent in other high-income countries.)
Georgia has work requirements (the only state that still has them in place), and it’s hugely expensive and an administrative nightmare.
Third, Medicaid is widely known as one of the most efficient forms of government insurance. Cutting Medicaid access means a less efficient health system, overall. A 2020 study in Health Affairs found that adults with Medicaid had 27% lower healthcare spending than those with private insurance, despite having a poorer health status on average. Medicaid enrollees had fewer outpatient visits and lower rates of prescription drug use compared to privately insured individuals.
Fourth, this bill makes no effort to address the real drivers of rising health care costs. There aren’t changes that address the high prices of drugs or the health care consolidation and complexity that are driving up health care costs. During the Affordable Care Act, over $1 trillion in healthcare spending was saved and then about $900 billion was reinvested back into the healthcare system. This is doing none of that.
The impact: more uninsured, squeezed hospitals and nursing homes
Through these provisions, the bill assumes that fewer people will be on Medicaid because they will be unable to comply due to missed paperwork and an increasingly complex and punitive system.
The bill also directly cuts the amount of federal money allocated to states’ budgets. The spending cuts will vary by state, but Louisiana and Virginia will likely be the most heavily affected, with spending cuts of 21% over 10 years.
So, states will have to determine how to fill the resulting funding gaps. How states respond will be highly variable, but most models are predicting that states can’t fill in all the gaps with their tight budgets. This can result in:
Kicking people off coverage, even if they still qualify.
Cutting benefits, like mental health, dental, or home-based care.
Reducing payments to providers and health systems.
Together, this equates to less federal funding being needed, and consequently, the U.S. federal government will save $1 trillion over the next 10 years.
This sounds great! But short-term savings will have a long-term impact. It’s estimated that 11 million Americans are losing their Medicaid coverage. No healthcare coverage means delayed care, higher health care costs, and death. A study found it could lead to 52,000 preventable deaths per year.
Hospitals, especially those in rural and safety-net areas, will be particularly hard hit. In many communities, Medicaid is the largest payer for hospital services. When patients lose Medicaid coverage (whether due to work requirements, missed paperwork, or stricter eligibility rules), they don’t stop getting sick. However, they will now show up at the doctor’s office, clinic, or emergency room without insurance. Many hospital systems, especially in rural areas, are on the brink of financial collapse. This bill could push them over the edge, leading to layoffs, service cuts, or even full closures. A policy analysis found close to 400 hospitals will be closed.
After accounting for the population of each state, the risk of hospital closures is 1.7 times higher for people living in red states compared to blue states:
Red states: 216 at-risk hospitals for ~170 million people
Blue states: 122 at-risk hospitals for ~167 million people
Nursing homes will also close. Medicare doesn’t cover long-term care, and Medicaid supplements it. By cutting Medicaid, an estimated one in four (or ~600) nursing homes will be closed.
What’s next, and what does this mean for you?
Senator Thom Tillis (R-NC) said it plainly:
“What do I tell 663,000 people in two or three years when President Trump breaks his promise by pushing them off Medicaid because the funding’s not there anymore?”
This is going to get very real for millions of Americans. But it won’t happen overnight. Each state will have different requirements, paperwork, and loopholes for people. And each state will use its budget differently to try to fill the gaps.
Most of the provisions are delayed, with the bulk of changes not set to take effect until 2026 or 2027 (after the midterm elections), and some not until 2028. In total, it will take about a decade for the full impact to unfold. Importantly, that delay gives Congress time to revisit or revise parts of the bill. And while the cuts are massive, they may not lead to as much lost coverage as some anticipate. As The Washington Post’s Ramesh Ponnuru pointed out, the Congressional Budget Office—though strong on fiscal forecasting—has a poor track record when it comes to modeling the effects of health care legislation.
Still, these are not risks worth brushing off.
Here’s what you can do:
Help your communities: Many will face new forms, deadlines, and confusing rules.
Inform families: Kids aren’t auto-enrolled in free school lunch anymore. Check on elderly in long-term care who may lose coverage.
Check CHIP: Children may still qualify even if their parents lose coverage.
Support: Donate to rural hospitals, food pantries, and care networks.
Vote: This is a policy choice. Make your voice heard.
Spread the word: When people ask why they lost coverage, or why their local hospital shut down, or why there isn’t a nursing home for their parent, point to this bill.
Bottom line
Instead of moving towards a health system that lifts people up—towards more prevention and better access to services, free from debt—we are moving towards one that increases bills, debt, and makes people sicker. This isn’t intelligent reform, but rather a quiet, bureaucratic process that can and will be devastating to individuals and the communities around them.
Love, YLE
Big thanks to Drs. Chima Ndumele and Dhruv Khullar, health policy experts who had the patience to go back and forth with me so I could “translate” the implications to your community.
Curious: For those of you that work with Medicaid populations, what would be helpful to help inform (1 pager?) or help navigate in these next few years?
Just want to emphasize a critical point you made: “Most of the provisions are delayed, with the bulk of changes not set to take effect until 2026 or 2027 (after the midterm elections)…”