Federal Reconciliation Bill is the Perfect Storm

Last week, the U.S. Senate Finance Committee released a budget reconciliation bill that is even worse than the House-passed version, HR 1, “the One Big Beautiful Bill Act.” There are an additional $200 billion in Medicaid cuts, the student loan cuts remain, and the Medicare physician payment provision that was in the House bill is eliminated. Attached is a summary of HR 1 with the Senate changes.

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Medicaid and ACA: The Senate budget reconciliation bill continues the catastrophic Medicaid and Affordable Care Act (ACA) cuts in HR 1 and imposes even further cuts on crucial provider taxes that fund state Medicaid programs. The additional Senate Medicaid provider tax cuts are nearly $200 billion. Coupled with the $200 billion provider tax cuts already in HR 1, the Senate bill totals nearly $400 billion in calamitous cuts directly to State Medicaid programs, providers, and patients.

The total cuts to Medicaid in the Senate bill are more than $900 billion. HR 1 would result in coverage losses for 16 million Medicaid and ACA recipients. There are no estimates yet for the Senate bill.

Medicaid Provider Tax Cuts: Hospital, nursing home, and managed care organization provider taxes are used by 49 states to generate additional federal funding to meet growing health care needs across the country. The Senate bill would further reduce provider taxes from the maximum 6% tax rate to 3.5% in the 41 red and blue states that expanded Medicaid under the ACA. Starting in 2027, the bill would reduce the tax rate by 0.5% each year until a tax reaches 3.5%.

Nursing homes and intermediate care facilities are exempted from the rate reduction. In the Senate bill, State Directed Payments are limited to Medicare rates in ACA Medicaid expansion states and 110% of Medicare in non-expansion states with 10% reductions annually until the payment limit is achieved.

The bill continues the HR 1 Moratorium on new provider taxes or increasing the tax levels in the future and the requirement that all taxes be uniform among taxed entities. California’s MCO tax has a uniformity waiver from HHS and therefore, would not currently meet the uniformity requirements in the bill. Furthermore, California’s Managed Care Organization (MCO) tax rate is near the current 6% cap and would be significantly reduced under the Senate bill.

These cuts would be devasting to the millions of Californians expected to lose their health coverage, physician practices and hospitals, including California’s public and UC hospitals, which would be harmed by the state directed payment provision.

Medicare Physician Payment: In addition, the Senate Finance Committee removed the Medicare physician payment provision in HR 1 that provided a payment update of 2.25% in 2026. While it did not restore physician payment to the 2024 payment levels until 2030, it established a partial inflation update annually in the law. The failure of Congress to fully address the chronic Medicare physician under-payment and resulting patient access to care problems is devastating for America’s seniors, physician practices, and the nation’s health care system.

Student Loan Cuts: The Senate bill also continues the HR 1 student loan cuts that will create additional barriers to medical school and exacerbate physician shortages. The bill caps borrowing for undergraduate and graduate medical education at $150,000 despite the average medical debt reaching $250,000 and eliminates medical residency hours worked in non-profit hospitals to count toward loan forgiveness. Many Senators and Members of the House have expressed concern with the Senate bill, including the increased provider tax cuts.

CMA is aggressively opposing HR 1 and these additional damaging cuts in the Senate plan.

The $400 billion in provider tax cuts will create substantial gaps in state Medicaid budgets, forcing states to raise taxes or cut hospitals, clinics, nursing home and physician payments and reduce services and coverage for Medicaid recipients. No state can make up for these federal cuts. Rural hospitals and physicians in California and across the nation will be forced to close. Maternity deserts will expand. The remaining emergency rooms will be overwhelmed and waiting times for all Americans to obtain health care services will grow longer as health care costs rise. CMA is urging the Senate to eliminate the politically driven differential tax rate between expansion and non-expansion states and to remove the uniformity requirements which deceptively eliminate many provider taxes entirely.

Provider taxes are a legitimate financing mechanism grounded in federal law, approved by both Republican and Democratic Administrations, and adopted by state legislatures. The provider taxes have played a vital role in keeping rural hospitals, clinics, nursing homes and physicians in practice and ensuring patients have access to the care they need. Provider taxes have helped safety net providers remain accessible during the COVID pandemic, economic recessions, and natural disasters across the nation. Congressional Republicans are pretending these longstanding taxes are fraud, waste and abuse, accusations which are unfounded, as these programs have helped millions of people get the medical care they need.

Rather than forcing states to cut services to ACA and Medicaid recipients, CMA is urging Congress to find more balanced solutions to reforming Medicaid while protecting the nation’s health and well-being. CMA is asking Congress to address physician workforce shortages by stopping the student loan cuts and the Medicare physician payment cuts and providing an annual inflation update to ensure stability and patient access to care.

Next Steps: Senate and House leadership are still working to pass the bill before the July 4 recess.

While the fight is in the Senate today, it will likely be back to the House soon enough, so we are continuing our advocacy by encouraging physicians to contact your representatives through our Physician Campaign.

Thank you to CMA’s Elizabeth McNeil, Vice President of Federal Government Relations, for providing the update and next steps.