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AHLA's Speaking of Health Law
How Will the One Big Beautiful Bill Act Transform Medicaid?
Passed by Congress with razor thin margins, the One Big Beautiful Bill Act (OBBBA) marks the largest Medicaid cut in U.S. history, slashing more than $900 billion over the next ten years, with the CBO estimating more than ten million people losing health insurance by 2034. The implications for providers, legal counsel, and other stakeholders are enormous. Harsh P. Parikh, Partner, Nixon Peabody LLP, Lloyd A. Bookman, Founding Partner, Hooper Lundy & Bookman PC, and Anne Winter, Senior Managing Director, FTI Consulting, discuss the transformative impact that the OBBBA will have on Medicaid. They cover work requirements, beneficiary eligibility and coverage requirements, funding and payment limitations, fraud and abuse provisions, the Rural Health Transformation Program, and what to expect next.
Watch this episode: https://www.youtube.com/watch?v=JDYg4KZwL0M
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SPEAKER_03:And hello. Welcome to the AHLA Speaking of Health Law, where today we unpack the one big beautiful act, a sweeping overhaul reshaping Medicaid as we know it. Passed via budget reconciliation with razor-thin margins, 51 to 50 in the Senate, 218 to 214 in the House, this legislation marks the largest Medicaid cut in U.S. history, slashing$911 billion over the next 10 years. CBO estimates that these changes will result in 10 million people losing health insurance by 2034. From new work requirements to dramatic funding changes in rural health innovation, we'll break down what matters for providers, stakeholders, and legal counsel. I'm Harsh Parikh, joined by Anne Winter and Lloyd Bookman, and today, together, we'll guide you through what's changing, who's impacted, and what the future may hold for Medicaid. Quick disclaimer, this podcast is a non-political discussion recorded on August 27th, 2025. All views expressed are our own and do not represent those of any other organization. This content is for informational purposes only and does not constitute legal advice or professional advice. With that, let's get started. I'm Harsh Parikh, a partner at Nixon Peabody. I work with healthcare providers, stakeholders, and managed care organizations to navigate complex regulatory and and reinforcement issues, including Medicaid. Lately, I've been leading Nixon Peabody's efforts in helping clients understand and adapt to the new law. Let me pass it over to my co-presenters, Lloyd and Ann. Lloyd?
SPEAKER_01:Hi, good morning, everybody. I'm Lloyd Bookman with Hooper Lundy and Bookman. I have been a healthcare lawyer since the Carter administration in 1979, so I've been practicing for 45 years. A significant portion of my practice has involved the Medicare and Medicaid programs with a heavy emphasis on Medicaid. I have advised various state hospital associations concerning healthcare supplemental payments, directed payments, provider fee programs, and have drafted legislation for a number of states relating to provider fee programs. I'm very happy to be here today and join Ann and Harsh in presenting this important topic. Good
SPEAKER_02:morning, everyone. My name is Anne Winter. I'm a senior managing director at FTI Consulting. I have over 25 years in the Medicaid ecosystem, getting my start at ACCESS, which is the Arizona Medicaid agency where I led the capitation rate setting and managed care contracting for much of the program. And since then, I have been at Medicaid Payers. I have been head of Medicaid regulatory compliance at CVS Caremark. And in the last 10 years I have been consulting and I'm really glad to be here.
SPEAKER_03:Great. So let's dive in to the first main change that the new law makes, which is a major shift for Medicaid expansion adults ages 19 to 64. Starting in January 2027, the new law requires that most of these adults will need to complete and verify at least 80 hours per month of community engagement. This includes work, education, volunteering, or a mix to qualify for coverage and maintain eligibility. States must frequently track and confirm these hours before enrollment and during regular eligibility checks. There are some limited exceptions here for parents with children under 14, certain disabled veterans, as well as certain medically frail individuals, and states can grant certain short-term hardship exemptions. However, failure to comply with this requirement can lead to disenrollment, but affected individuals have the right to notice and appeal. The law sets strict federal oversight, reduced funding for noncompliance, and expects significant operational upgrades for Medicaid agencies around the country to implement these new so-called work requirements. To better understand these new requirements and what they could mean in practice, and let's look at how states have used similar policies before. What have we learned from these policies, for example, in Arkansas or Georgia?
SPEAKER_02:Yeah, we have a fairly recent example in Arkansas, and Georgia actually has an implemented active work requirement program today. I think the main lesson learned in those programs is that, and to your point that you mentioned, Parsh, is that data and infrastructure are going to be key to implementing this effectively and efficiently. When Arkansas implemented work requirements several years ago, the court shut down the program because 18,000 people lost eligibility within six months. And a lot of it was due to lack of communication. The Harvard study on that program mentioned that 70% of the people that lost eligibility, A, didn't think it applied to them, the work requirements, or weren't even aware of it. In Georgia, they anticipated, they only expanded to 100% of federal poverty level, but they anticipated about 240,000 people would be eligible and sign up. Only 7,500 actually got through the process. And a lot of it had to do with the technology and infrastructure. So I think, you know, with these recent lessons, you know, and the funding that the HHS is going to give, I think, you know, hopefully it will go smoother. I want to note there are other states that are already in the process of submitting waivers to CMS to implement work requirements before JMS. January 1, 27. It's like Idaho, Ohio, Arizona, where I live, has a book, a law in the books that says every year they have to submit until they get approval. So it'll be interesting to see how states roll this out early. And it might be some lessons learned from some other states. But I have one question I want to get your perspectives on is, as I think about this is the biggest chunk of that, you know, 911 billion in savings. is the CBO, interestingly, in 2023, did a preliminary scoring of work requirements for Congress. And that number was much lower. It was 109 million. And they actually, in the letter they submitted to Congress, cited the issues with the Arkansas program. So I just wonder, you know, it's just interesting to think that the scoring got higher. Part of it might be because they're including parents of children over 14. So anyway, just a Just a question I had for you and any perspective you may have.
SPEAKER_03:Yeah, that's interesting. And that the numbers are different this time around. I mean, it could be right that layering this requirement on top of the other pieces of the bill, including the, you know, the next section we'll get to end where sort of there's these new eligibility determinations, reduced retroactive coverage, etc. It's sort of the combination of the two that perhaps leads to, you know, additional savings.
SPEAKER_02:Yeah.
UNKNOWN:Yeah.
SPEAKER_03:Lloyd, what's your perspective on this? I mean, in one way, right, there is sort of this general feeling among the legislature that, you know, folks should be working if they can. So why is this a bad thing? Sounds like, you know, Anne has provided some examples of, you know, experiences in some jurisdictions. But as a general matter, you know, what are the implications of this new requirement?
SPEAKER_01:Well, a couple of things. One, well, as a practice, CMS has to come up with regular to implement this requirement by June 2026. And the requirement's supposed to be implemented by December 31, 2026 by states with a possibility of a two-year waiver. Very concerned that the CMS guidance will be very restrictive and require substantial documentation that folks that are Medicaid eligible just simply won't be able to comply with. And that's a part of what happened in Arkansas. So we're very concerned with the loss substantial number of enrollees, not because either that they're not even engaged in community activities, but simply because they can't get through the process correctly. Implications are people who lose Medicaid eligibility still get sick. That doesn't mean, losing eligibility doesn't mean you're not going to need healthcare. It means you're going to need healthcare, but if I lose my Medicaid eligibility, I'm not going to go to the best level of care for what I have. I'm not going to go to a primary care doctor. I'm going to end up in the ER. And so we're going to see with this and some of the other changes. The fear is that you're going to see hospitals continuing to treat more and more uninsured patients, losing money, bearing the cost, states not being able to come up and support the hospitals. And the real fear over the full 10-year period that the bill's in effect been scored for is that we're going to lose hospitals, particularly rural hospitals and emergency departments. So that's the big fear. Last point is I think this represents a whipsawing that we see every few years. The Democrats, it seems to me, think healthcare is a right and they're willing to pay in order to ensure that there's something approaching universal coverage. And that's what we've seen. Republicans, it seems, think healthcare is a matter of individual responsibility to a large extent. There should be a safety net, but it's up to the individual to take the steps necessary to comply with requirements and to otherwise, if they can possibly afford it to acquire health insurance. So we keep seeing this going, whipsawing back and forth. And I think it's very concerning for providers, particularly providers that treat safety net patients. So,
SPEAKER_03:Lloyd, you don't see sort of this leading to more folks being eligible for employer-sponsored health care. It's not sort of taking folks that are under Medicaid and shoving them into another, you know, maybe employer-sponsored care or some other health coverage plan. It sounds like the real... expectation here is that folks will lose coverage. And as you said, they still have healthcare needs, just won't have coverage.
SPEAKER_01:Yeah. I mean, combining this with the ACA retractions to the expansion programs under, I mean, to the ACA, excuse me, to the ACA exchange programs, you're going to see folks losing coverage. I don't think you're going to see a major shift into employer-sponsored coverage at all.
SPEAKER_02:And to that point in the Harvard State that on Arkansas, it showed that, you know, it did not increase employer coverage. You know, people didn't fall off because they were going to go out and get jobs and then get, you know, covered. That wasn't a result that they saw. They were already working. They just were unable to fill out the application and paperwork.
SPEAKER_03:Right. So let's jump into the second part of sort of the same issue, which is the new requirements impacting beneficiary eligibility eligibility and coverage. And so, Anne, maybe you can give some historical perspective on, you know, what happened to Medicaid eligibility, enrollment, determinations, et cetera, you know, during COVID, post-COVID, and that'll sort of help us dive into what the new law requires.
SPEAKER_02:Yeah, I think we have, you know, a really recent example of what could potentially happen here with the every six-month redetermination period. Early 2020, the federal government, you know, announced a public health emergency. And as part of that, they gave states an extra 6.2% in federal matching dollars, which is pretty significant. And there were some strings tied to it. One of the strings was you could not force people to be redetermined. And so there was a complete, it was almost like continuous eligibility for three years. And so when the end of the PHE occurred in March of 2023, states in April of 23 could start doing the redetermination. And one term of art you hear out there is it's the unwinding, the PHE unwinding. And so states had a certain period of time. They didn't have to do it all at once. They could phase it in. But by the end of the PHE, 94 million people were on Medicaid, and they all had to go through some type of process to determine continuing their eligibility. And so immediately, 25 million people lost eligibility, and a lot of them were again, it kind of got back to systems. Medicaid programs have really antiquated systems. And so, you know, they just broke down, they froze. Some states did not use ex parte determinations where you can go into the treasury or SNAP to find, you know, income eligibility. So it was really quite a disaster. But I think, you know, based upon that, I think states have that recent experience and I think they're going to be able to hopefully address it better and more quickly. I think also, I almost think the OBVBA should be the one big beautiful technology act because really to definitely implement this technology is going to be so critical and key and even artificial intelligence and being able to process applications quickly, you know, so you can see the technology community really kind of starting to talk about this and what, you know, states and plans and providers are going to need in order to make this a successful transition. Yeah, go ahead.
SPEAKER_03:I'm really glad you brought up the technology piece because I feel like as we sort of continue this conversation, that might be something that isn't really talked about in terms of ameliorating or perhaps blunting the real impact of some of these provisions. If you can get technological solutions to some of these issues, reducing the paperwork headaches that led to the issues in Georgia and Arkansas. Perhaps, you know, the impact of the laws here are not going to be as concerning as they appear.
SPEAKER_02:Yeah.
SPEAKER_01:I guess one of the questions with respect to technology solutions is how do you make those get out to poor people, Medicaid beneficiaries, enrollees who might not have high-speed internet, who might not be connected, who might not have... No broadband in
SPEAKER_02:rural areas,
SPEAKER_01:you know. Exactly.
SPEAKER_02:Yeah.
SPEAKER_01:So that... It seems to me that needs to be part of the solution if we're going to rely on technology applications as a solution to the problem.
SPEAKER_03:Yeah, no, that makes great sense. So just jumping into the bill, Ann, as you said, starting in January 2027, the new law requires that instead of once a year, Medicaid beneficiaries are going to be required to confirm eligibility every six months. And then the other piece of the legislation is that retroactive coverage, so once a beneficiary is eligible, retroactive coverage is now limited to one month going back rather than three months. The last piece here in the law is its impact on immigrants. And maybe we'll jump to you, Lloyd, on this. But big picture, the law limits eligibility for Medicaid to just U.S. citizens, certain lawful permanent residents, and certain specific groups. But it excludes groups like refugees and humanitarian relief from eligibility in the Medicaid program. Lloyd, any other thoughts on sort of the implications here of immigrants?
SPEAKER_01:Yeah, I think you have to look at the retractions on immigrant eligibility in the broader context of immigration enforcement by the administration and the fear that folks, particularly undocumented folks, have about being at the being subject to ICE. And so we're seeing already that patients coming into hospitals who are asked, for example, to fill out information to try to apply for Medicaid, even today, before all of the heightened eligibility requirements have kicked in, are reluctant. Hospitals are getting harder and harder time to enroll folks in Medicaid programs, including people who are citizens. They just don't want to give information out. They're going to get services anyway, and they're scared. So I think we are going to see that. And And again, as undocumented folks don't get services, they'll get sicker, be in hospital EDs and lead to that whole problem.
SPEAKER_03:Yeah, as you said, right? I mean, it's not that people aren't getting sick, they're just aren't gonna have coverage. So you're maybe putting them in a position where the condition gets more and more acute and perhaps we end up spending more and more healthcare dollars on that. Okay, let's jump to sort of the next big topic. And Lloyd, I know this has sort of been in your jam for many, many years and decades, if I may say so, which is the changes the law makes to Medicaid funding and limitations on ways that Medicaid agencies and states try to increase the funds that are available to the state.
SPEAKER_01:Yep. Thanks, Harsh. Hospitals and other provider organizations throughout the country have been using a combination of provider taxes and supplemental payments where the non-federal share of the supplemental payments are generated by provider taxes for many years now. It's become sort of a staple. It's how state governments actually can afford Medicaid. Right now, 49 states have a provider tax program. Whatever you may think of the policy merits of a provider tax program, the fact is that with 49 states deeply involved in provider taxes, it's become an integral part of how many Medicaid is funded. We have it. And so you can't just throw it out. The federal government has hated, or CMS, in my opinion, has not liked provider taxes. It's been on their hit list for a long time. How can we reduce it? But we can't reduce it politically because so many states rely on it, red states and blue states, states throughout the country. So what we see in, and I call it HR1, not the big, beautiful bill. What we see in HR1 is an effort to reduce both provider taxes, not have new provider taxes, and to cut back on state-directed payments. The cutbacks to provider taxes are a couple. One, in order for a provider tax to pass muster under federal law, it has to be broadly based, it has to be uniform, and it can't have what's called a hold harmless where the state holds providers harmless from paying the tax. There's a direct hold harmless and an indirect hold harmless. There's a safe hold from having a tax viewed as an indirect hold harmless where the tax is to date less than 6% of net patient revenue. So that's a safe harbor. A lot of states have been using that safe harbor and having their tax programs go pretty close to that 6% line. Well, CMS has done, I mean, the Congress has done a couple of things. One, we can't have any new provider taxes. So if you don't have a provider tax on a particular provider class or line of services, you can't put a new one in. Okay. Secondly, for expansion states or existing provider taxes, you can't have a percentage of net revenue that is any higher than the existing percentage. And secondly, beginning of October 1, let me make sure I get the date correct here, 2026, the safe harbor percentage goes down from 6%. by basically 0.5% a year until you get down to 3.5%. So you're going to have a lot of states having their provider tax availability reduced and capped. And with fewer provider taxes, either the states are going to have to kick in more money or we're going to see reduced payments to providers. There's another provision. That provision is going to affect many, many states and many, many provider tax programs. There's another provision. that theoretically is effective immediately. It was effective on July 5th, which deals with the uniformity provision. A lot of states have, not a lot of states, actually seven states have provider tax programs where Medicaid utilization is taxed at a higher rate than other utilization. And that helps reduce the number of providers, frankly, who are losers under the program. It's been a staple of the programs for a number of states for a number of years. And it worked because there's a statistical test you can meet under the federal regulations in order to have a program be deemed uniform. And you can meet the statistical test even if you tax Medicaid utilization more heavily than non-Medicaid utilization. CMS hates this. They've called this a loophole. They've called it other things. And the HR1, following on a notice of proposed rulemaking from CMS that came out in May, HR1 tries to put a stop to this practice. and says basically they can't tax Medicaid utilization at a higher rate than non-Medicaid utilization. And the tricky part of that is it's effective July 4th. It is effective upon the effective date of HR1. CMS has the ability to implement a three-year transition period, up to a three-year transition period, but we haven't seen any regulations that would, except for the proposed rule that came out before the bill, So we don't know what the transition period is going to look like. We don't know if there's going to be a transition period. We don't know who it's going to apply to. And so we have a number of provider fee programs that are in a state of limbo right now, not knowing whether they're good, bad, indifferent, have to change. They'll be given the ability to change. It's sort of a scary time for those programs. So that's the provider fee side. Let me move quickly to the state-directed payment side. What's a state-directed payment? State-directed payment is a where the state directs the Medicaid managed care plans, the MCOs, what to pay providers. Often it's, well, you've got to pay providers your contracted rate plus X dollars per day or Y dollars per visit or something like that. And most states have directed payment programs and most of those programs are financed by provider taxes. Well, CMS is restricting or excuse me, Congress is restricting through H.R.1, the amounts that can come through state-directed payments. So the basic rule, the rule has been that state-directed payments combined with other Medicaid payments couldn't exceed the average commercial rate, which gave folks a lot of room to go up. The average commercial rates in most states are much higher than total Medicaid payments. For H.R.1 change, changes the world there. Effective immediately, effective immediately, although moved out to January 1, 2028 for certain grandfather plans. And I'll explain what that means in a minute. State directed payments can't exceed Medicare rates in an expansion state, a state that's expanded Medicaid under the ACA and can't, which again, can exceed 110% of Medicare rates in non-expansion states. effective October 1, 2028, in a grandfathered, in a state with a grandfathered plan, the state-directed payments will have to be reduced by 10% a year until they get down to Medicare rates. In a non-expansion state, it is, again, 10% a year until they get down to 110% of Medicare rates. What's a grandfathered plan? This was a matter of a lot of discussion and back and forth between the House and the Senate. But what we ended up with is a grandfather plan is one that has either been approved before May 1, 2025, or a completed preprint, which is the way a state seeks approval of a directed payment plan. A completed preprint seeking approval was submitted prior to enactment, prior to July 4, 2025. So if you're grandfathered, You're okay until October 1, 2028. And after that, you're going to start seeing your state-directed payments being reduced by about up to 10% a year until you hit Medicare rates, which is going to be a large reduction to state-directed payments in many states. And it's going to impact providers very significantly.
SPEAKER_03:Thank you, Lloyd. That really complicated piece of legislation and Medicaid financing. I guess, you know, you started the conversation discussion saying, well, put aside the merits of this, the view, I think, from the feds and a lot of legislatures is these mechanisms, right, are gaming the system. You know, Medicaid is an uncapped benefit. And this is a way you're creating distortion among Medicaid funding principles and disparities among states. And so there seems to be, you know, some concern with these unique mechanisms and And they say, once you know one state's Medicaid program, you know one state's Medicaid program, because they're all different, right? So Anne, maybe you can jump in here and, you know, understanding that, you know, there are concerns with these tools that states have used historically to, you know, get federal funds for the Medicaid program. But what are other implications that you sort of see as a result of these financial pressures?
SPEAKER_02:Yeah, I mean, there's so many implications to this as far as, you know, the whole safety net system you know, and potentially gutting it. And, you know, I, I think all of us could talk about that, but I'm going to put my old state hat on. I did implement a 2% MCO tax here in Arizona in order to raise money for providers. So went through that CMS approval process back in the day, but I'm going to, you know, in thinking about having been at the state and thinking back, you know, to really 2008, you know, when we had the economic crash, you know, we're almost in a very similar position right now because for the first time, states are starting to feel fiscal pressures on multiple levels. They got so much ARPA money during the PHE. You know, I mean, they were spending money. They had to spend the money. Like, it wasn't an option. And so, you know, there was so much infrastructure building. Provider rates were increased in Medicaid. They had to have home and community-based services implementation plans to get the extra federal money. And so, you know, they And now with that money is gone, the ARPA money is gone, you know, so they have to maintain, you know, a maintenance of effort of what they had built through that, you know, infrastructure funding. And now you have the cuts to providers. States are going to have to make a really hard decision of, am I going to backfill that? And, you know, several state hospital associations funded Medicaid expansion through their own provider taxes, you know, and so there could be a longer even term implication for, you know, Medicaid expansion, but we've already seen some states cut rates across the board. I mean, Lloyd, you and I were talking the other day, Idaho 4%, North Carolina announced a 3%. And so, you know, is some of that cut going to go help fund the backfill of some of these, you know, taxes? I don't know. It's going to be a real juggling game. And again, from sort of a Medicaid regulatory point of view, is one of the most important and monitored requirements of managed care organizations is network adequacy. So every state in federal role has to establish time and distance standards for Medicaid patients based on their location, where they live, to make sure they have an adequate network and access to care. Well, this is going to probably have a big impact on those network adequacy standards. And I think all of you have heard of these ghost networks, particularly in behavioral health where you have a provider directory on the plan's website and you call and they're not in network. Well, I don't want to say we're going to expand our ghost networks, but the network pressures that this is going to put on is going to be huge for Medicaid beneficiaries just to get access to care and from a regulatory perspective.
SPEAKER_01:Great points. To put some dollars on this, just for California, the California Hospital Association has estimated that these cuts to the direct payments and to provider taxes combined will be about a 14% to 30% reduction in payments to hospitals. And combined with a potential 4% reduction in Medicare due to sequestration, the CHA is predicting a$66 billion to$128 billion reduction in hospital payments over the next 10 years. I don't know how you make that That's going to lead to significant dislocations.
SPEAKER_03:Well, there's one way to make that up, and that's the Rural Health Transformation Program. But before I get to that one, do you want to touch on the fraud and abuse provision really quickly?
SPEAKER_02:Yeah, just really quickly, there's going to be, and again, you know, there's a technology component to this. There are new provisions to really make sure that Medicaid people are alive, you know, are eligible, providers are alive and properly enrolled in Medicaid programs. And so there's going to be, I think it's 20, 20, 29, when they implement a new technology system, because states right now, I think I mentioned earlier, these MMS systems are really old, you know, hard coded and COBOL or something, you know, a lot of them and states are trying to modernize, but they don't necessarily talk to each other. So it is true. People can be enrolled in more than one Medicaid program. And so there's going to be new technology at the CMS level in in order to be able, I think, to see across states to make sure there isn't duplicate enrollment. And then the other ones, the famous death master file and that DOJ is really excited about is states will have to start checking the death master file quarterly to make sure that all the Medicaid enrollees are alive. And also they're gonna start checking the death master file as part of the revalidation of provider enrollment. to make sure providers are still alive. And so those are some of these fraud, waste, and abuse provisions.
SPEAKER_03:Lloyd, do you want to touch on the cost-sharing piece?
SPEAKER_01:Just really briefly. Yeah, the HR1 requires states to introduce cost sharing up to$35. It's beginning, oh gosh, I forget the date, beginning October 1, 2028, again, after the election. But again, up to$35, but there's no minimum. It doesn't say how, low the cost sharing has to be. So I'm not quite sure how that's going to be implemented. If you have a state that's more liberal, like California or Massachusetts, can you go away with a cost sharing of$1 as opposed to$35? There are a variety of services that will be accepted from the cost sharing, including primary care services, for example, which is a good feature. So I don't know that the cost... We'll see how the cost sharing provision is implemented. Again, since there's no minimum, it's not certain to me exactly what's going to happen.
SPEAKER_03:Right, and it could be some states implement it, and the other piece, right, is routine waivers of cost sharing is something you don't think about in the Medicaid context, but it's another issue that folks will need to consider. Okay, let's jump to the Rural Health Transformation Program, which does provide some potential relief in light of these financial pressures. The HR1 sets aside$50 billion over five years from 2026 to 2030 to help rural healthcare adapt and innovate. Each year,$10 billion will be distributed half equally among all participating states with an approved plan and half allocated based on rural populations and hospital needs. States are to apply to this program by December 31, 2025 with a detailed plan explaining how they'll improve rural access, drive better outcomes, use new technologies, foster partnerships and stabilize rural health hospital financially. CMS will review and approve applications minor progress to ensure that the funds fulfill the purpose of the program. Now, this program is what a lot of legislatures are pointing to as a way that some of these impacts I've been discussing will be blunted. So while this program is designed to ease the impact of some of these other Medicaid funding changes, it's viewed really as a major new federal investment focused on rural health with the potential to foster real improvements if used strategically. Anne, can you update us on sort of where This program is, as of today, what are states doing to take advantage of this large pool of money that's now going to be available?
SPEAKER_02:Yeah, states are scrambling. They have to get these plans built and developed, and several states have requests for information, RFIs out there from all kinds of stakeholders, particularly providers, on how this should be modeled. It's not just a replacement of dish funding or provider taxes, like you said, Harsh. It's really transformation, and it has multiple components that it has to have, including technology. And so states are really trying to be thoughtful about it. Guidance is supposed to come out next month. And like you mentioned, their applications are due. I think one of the things is you mentioned there's 50% of the funding, every state's get equally, but the other 50% is going to be granted out and not all of it, not every state's going to be eligible for it potentially. And so that's why I think states are really trying to be thoughtful about how they do these applications. applications because I think correct me if I'm wrong, it has to go out to 25% of the states, but not all the states. And so it's going to be 50% of that, 25 billion, it's going to be very competitive. So it'll be very, you know, that's why states are really scrambling to make sure, you know, they have well thought out programs.
SPEAKER_01:Hey, Anne, is there, and you're much more up on this particular provision than I am, are there criterion for CMS to select states or is there a political element? them into it? How's that? I think
SPEAKER_02:that's coming out next month, the guidelines. Yeah, I think, well, maybe we need to reconvene next month after that.
SPEAKER_03:Yeah. And, you know, the statute has certain, you know, things that, you know, that CMS is supposed to focus on as they evaluate applications. There are some statutory, but it's pretty loosey-goosey and they're all oars. So, you know, depending on how you craft the application, I think there's a lot of flexibility and some just discretion by the agency on who will meet the criteria. Lloyd, any other thoughts on the impact? I mean, this is 50 billion. I think we started the conversation with over$900 billion being cut from the program. Do you see this as a way to perhaps blunt some of the financial stress that are caused by the other provisions that we've been talking about?
SPEAKER_01:Yeah, although 50 billion sounds like real money, it does to me. I think most states, most rural providers are looking at it as the finger in the dike Just not enough. Too little. We already have rural hospitals nationally struggling, most of whom are in the red. We've had rural hospital closures. And it's better than not having the$50 billion, obviously. But as Anne explained, it's going to, what, 20% of the states? So there'll be winners and losers and rural hospitals that don't see the funding. And it's just not enough. enough to offset the impact of HR1. Yeah.
SPEAKER_03:Okay. So let's sort of end our discussion with, you know, our crystal balls and our sort of takes on what's next. So maybe, Anne, we'll start with you. You know, talk us through, you know, what you sort of see as the timeline for implementation and, you know, perhaps one or two key takeaways for the audience.
SPEAKER_02:Okay, I got my notes on the timeline because there's a lot of different components to that. So immediate, we've talked about some of the immediate things, but it's the provider tax freeze, rural health applications that we were just talking about is immediate. In 2026, immigration restrictions, the work requirement guidance and rural funding begins. 2027, a lot happens. Work requirements begin, six-month redeterminations and the retroactive coverage limits, 28 is the state-directed payments begin, the reductions and cost-sharing requirements. And then as I mentioned in 29, the duplicate enrollment system should be up and go live. So here's the thing I would look to watch for, just having set capitation rates, having looked at utilization rates, in working with Medicaid payers for a number of years is this bill really has the potential to destabilize the market. And as we think about even just with the PHE unwinding when 25 million people lost coverage, you know, in thinking about the dual work requirements and six-month eligibility going into, you know, people losing eligibility, even temporarily, that's a lot of that happened in the unwinding of the PHE. The capitation rates could And you can see this in earnings reports for all of the big Medicaid national players. They're losing money. Utilization is unpredictable. State actuaries have a hard time really predicting the risk going forward. And when you take that many people, that churn, that enrollment churn creates that environment. And then when you also say people are going to lose eligibility because they shouldn't be eligible, and you do all this to the safety net, that Lloyd was just talking about, it's going to be a potential for a lot of destabilization of healthcare delivery for a lot of people. You can already see it in the premiums for the ACA marketplace. Those plans, states are seeing 20% premium increases. And a lot of that's because they think those advanced premium tax credits are going to not be extended after January 1. So they're anticipating they're going to lose a lot of enrollment, probably healthy in And so what happens to the member risk profile? Probably more expensive. And so I think we're going to see a period of rising health care costs just from increased rates and reimbursement because of the risk pool being gutted.
SPEAKER_03:Yeah, really interesting. Lloyd, thoughts on what's next?
SPEAKER_01:Well, let me take off from what Anne just said, because I think it's very interesting that she's discussing, well, likely the premium increases in the exchange plans and probably likely premium increases in commercial plans across the board to make up for the cost shift that we'll undoubtedly see as there's a retrenchment in Medicaid payments and a retrenchment in enrollment. But on the flip side, at least in California, Massachusetts, and some other states, we have programs that are trying to control costs to consumers of healthcare. California, we have our Office of Healthcare Affordability that has adopted cost targets, which are being implemented to restrict, for example, how much hospitals can charge managed care plans, or at least the growth. And the current target is a 3.5% increase for most hospitals, a 1.8% increase for some others. And those same targets are supposed to apply to health plans and the increase in health plan premiums. But as Anne said, we're seeing premium increase rates at much higher rates. So how's that going to work? If there needs to be a cost shift to make up for the lost revenue that providers are going to be receiving from Medicaid, Medicare, but there's no place to shift. You can't shift because you've got another very consumer-oriented, not a bad idea, notion to try to reduce costs to consumers. So I see that as providers and potentially plants. And we'll see how that plays out. I'm also wondering how hospitals and other provider organizations are going to, what they're going to say when they go to the financing markets. You know, if you want to float a bond issue, what do you put in your pro forma? I've had a number of potential buyers of hospitals come to me and say, well, what are we going to get paid from Medicaid? I don't know. And so they have backed out of of pursuing sales because it's just so unpredictable. So I see that as another disruption in the market. A couple of final words. I have both a pessimist hat and an optimist hat on. The pessimist hat is the enrollment is going down. People aren't going to get coverage. Payments are going down. There's going to be strains in them. On the provider community, we'll see provider closures and all of that. And that's a very real, somewhat dark possibility. Maybe, just maybe, Providers will be inspired and health plans and the entire healthcare delivery system will be inspired to try to make us more efficient. We are the highest cost per capita healthcare system in the world by far, and we don't necessarily get the best results. So maybe, just maybe, this will put the squeeze on folks sufficiently to make us become more innovative and develop more efficient programs with better outcomes. outcomes. That's, that's my optimist tip.
SPEAKER_02:I was going to ask you, what do you think, do you think this will help spur more value-based care, you know, value-based payment programs, more systems in that direction as part of that efficiency?
SPEAKER_01:I think so. I think it will. I think payers will be seeking value-based solutions to try to, you know, constrain their, constrain payments and hopefully improve outcomes. Yeah. So, yeah, I think that's right.
SPEAKER_03:I'm glad you entered, Lloyd, on a positive note, because as Anne sort of has been suggesting throughout, right, there is some promise ahead, right? AI and smart technology can perhaps streamline operations, cut costs, and this is the kind of kick that this large program needs. Again, trying to be an optimist here to, you know, improve the system and have more efficient outcomes. A couple of other points on sort of what we might see in the future. One, legal challenges, right? I think there are legal challenges expected to many of these provisions, especially around eligibility and the work requirements. We talked earlier, you know, we're not sure how, you know, the merit of those challenges, especially given that this was congressional action. Prior challenges were based on, you know, agency action and perhaps there wasn't enabling legislation to allow regulators to do that. but this is a congressional action. Other things we might see, right, is there's already discussions about whether these Medicaid changes can be rolled back. Future legislations, I think, Anne, you walked us through the timeline. Under the timeline, the hard things are happening sooner, you know, but then some of the potentially politically tough issues are sort of being, are coming down the pike. So there is a chance that future... legislation or shifts in political leadership, especially after the upcoming elections, may bring opportunities to revisit some of these so-called reforms. But as you've heard, for now, stakeholders should stay alert for future guidance, possible reversals, or adjustments that could emerge from months ahead. With that, let's go ahead and end the podcast. Thank you, everybody, for joining. Hope this was a helpful and informative discussion, and we look forward to an update in a few months once we see how the law gets implemented. Thank you all again.
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