States Face Financial Tradeoffs from H.R. 1 Medicaid Changes  

In order for states to implement costly changes, like work requirements, by the deadlines set in H.R. 1, they need to make budget changes this year. This is especially true for expansion states, since many of the Medicaid eligibility provisions impact only the adult expansion group. For example:

• Facing a current funding shortfall, North Carolina is mitigating Medicaid spending by reducing some optional services, cutting administrative costs, and lowering provider reimbursement rates by 3% or more, unless a comprehensive budget is passed. The state’s Healthy Opportunities Pilot, which was shown to decrease emergency department use and reduce health care costs, is shutting down due to funding. Over the last three years, the 1115 waiver program has addressed health-related social needs such as housing, food, and transportation for Medicaid recipients in specific regions of the state.
• Colorado is rescinding plans to increase Medicaid rates for providers, saving about $38 million to make up for funding shortfalls. The state also made cuts to other programs, such as higher education and affordable housing, to address gaps in the budget.
• Oregon’s 1115 reentry waiver, which supports those about to leave incarceration with transitioning to Medicaid and accessing care, has canceled implementation after an anticipated start this fall due to competing priorities to implement H.R. 1 Medicaid provisions.

States Seek Funds through the Rural Health Transformation Program

H.R. 1 also created a new grant opportunity for states, the Rural Health Transformation (RHT) Program, which aims to improve health care access, quality, and outcomes in rural communities through one-time grants to states. With a total of $50 billion, the fund does not fill the gap of the over $900 billion in Medicaid spending cuts over the next 10 years.

Half of the RHT funds will go to all states with an approved plan, meaning if all states apply, they will receive $100 million annually for up to five years if applications and ongoing activities meet the criteria. The other half of the funds are to be allocated to states by the Centers for Medicare & Medicaid Services (CMS) based on factors such as rural data and assessment of proposals.

Most states are expected to apply, and almost all are currently gathering input from stakeholders to set priorities in their rural health transformation plans to submit to CMS by November 5, 2025. Approved uses for the funding include technology solutions to manage chronic diseases, workforce development, value-based care models, and opioid treatment.

The RHT Program values innovation, so states will need to weigh their options in proposing new initiatives versus plugging holes in lost funding to existing programs. For example, Alaska has shared a draft of six initiatives for their application based on stakeholder input. Some of these include strengthening and expanding maternal and child health programs, modernizing infrastructure to improve health care access through new technology and data tools, and investing in the health care workforce through new pipeline and recruitment strategies.

Beyond Budgets: Impacts on Communities and Families

As states navigate how to allocate resources under new constraints, residents will face the impacts directly. The Medicaid provisions in H.R. 1 will directly affect Medicaid recipients and their families. The Congressional Budget Office (CBO) estimates that 7.5 million will become uninsured by 2034 from losing Medicaid and CHIP coverage. Uninsured or underinsured people are less likely to access the care they need, like preventive services and chronic disease management.

Providers and hospitals may see increased rates of uncompensated care and lower reimbursement rates, and they may have more limited capacity to see Medicaid patients. This can result in reduced staffing and hospital closures that impact all patients receiving care, as well as hurting local economies. Stakeholders, especially ones most impacted, like safety net hospitals and rural hospitals, can weigh in on their state’s Rural Health Transformation applications and look to play a role in their state’s initiatives once approved.

Transform Health will continue examining the ways states are responding to and implementing changes to Medicaid. Follow us on LinkedIn for insights from our policy team on how these developments are shaping the health care system and landscape across the country.