When Medicaid Cost Cutting Is Simply Cost Shifting

With the “big, beautiful bill” to advance President Trump’s America First agenda passed by the U.S. House of Representatives on May 22nd, all eyes are on members of the U.S. Senate as they weigh in with their own ideas about what should be in the legislation. 

We can expect Medicaid cuts – passed to partially offset the revenue loss from tax deductions and higher spending for defense and border security — will continue to be a hotly contested issue. We saw it play out when Medicaid broke the logjam in last week’s negotiations, with the last-minute decision to push up the date for Medicaid work requirements from Jan. 1, 2029, to “not later than December 31, 2026,” and allow states to add requirements earlier. 

On one hand, Medicaid spending is a runaway train. Medicaid enrollment and outlays for the next decade will be more than $300 billion higher from Fiscal Year (FY) 2025 through 2033 than projected last year. On the other, proposed Medicaid cuts translate into considerable losses in economic activity. The Congressional Budget Office (CBO) estimates that at least 8.6 million people of the 70 million lower-income and disabled people on Medicaid would lose coverage under the changes proposed by this bill, and also projects it will generate $698 billion in federal savings.

For months now, we’ve heard a cacophony of speculation from Congressional leaders about proposed Medicaid cuts with a goal of saving billions. Arguments have reached fever pitch about how to accomplish this and what their impact will be. It’s a balancing act. The House’s decision to drop some of the more drastic Medicaid cut proposals has been bad news for budget hawks, but good news for the most vulnerable. 

Furthermore, we hear voters expressing their outrage at the prospect of cuts to Medicaid funding, and how Congressional Republicans are wary about pulling back funding from healthcare programs that their constituents rely on. According to public opinion polling in April, about 75% of Republicans overall favor maintaining Medicaid spending, and 49% support increasing it.  

Medicaid cost cutting is simply cost shifting 

Until the Senate weighs in, no one can predict how much the Medicaid rollback will be, or its impact on the one in five Americans who rely on it. 

In my view, the major unintended consequences of cutting Medicaid will be a cascade of cost shifting, worsening of health outcomes, and higher total cost of care. Individuals who lose their Medicaid coverage will still need healthcare, and we know that many folks who are uninsured will delay care until they absolutely need it and then show up at the emergency room. The cost of care for those uninsured patients will shift to the hospital which, under one scenario, will seek to absorb that cost by negotiating higher reimbursement rates from its commercial insurance contracts. Commercial insurance companies will attempt to recover their cost increases through higher premiums, while paying for more expensive care for sicker people who would have had access to primary care had they been covered by Medicaid.  

Potential medicaid cuts up for senate review 

House Republicans view the big, beautiful bill as a victory for meeting President Trump’s goal to create Medicaid efficiencies and reforms through work requirements and elimination of waste and fraud while iavoidingcutting Medicaid and Medicare benefits.  

As always, there are two sides to the story. A number of the House members’ final measures to reduce Medicaid funding are at odds with the views of established industry experts. Some positives and negatives for three of the provisions: 

Implementing work requirements to receive Medicaid payments could result in potential cost savings of $109 billion, according to the CBO. Under the new bill’s work requirements, most childless adults without disabilities between the ages of 19 and 64 must provide documentation that they worked 80 hours a month to qualify for Medicaid. Once states establish requirements, about 1.5 million adults on average would lose federal funding for their Medicaid coverage. While learnings from the Georgia work requirement pilot, which proposes compliance responsibilities shift from individuals to the state are encouraging, implementation will require a thoughtful approach.

However, many believe work requirements won’t have much impact on Medicaid costs. According to a recent Kaiser Family Foundation (KFF) report, 64% (16.1 million) of adult Medicaid recipients under 65 were working full-time (44%) or part-time (20%) in 2023. Of the remaining 36% (10 million) of Medicaid adult recipients 28% did not work because they were retired, caregiving, attending school, had illness or disability, or could not find work. The upshot? Unless states find ways to keep the administration burden low, many people will lose coverage.

Requiring enhanced eligibility and verification for Medicaid will help to reduce abuse and fraud, saving at least $160 billion by kicking ineligible recipients due to fraud off Medicaid, according to Rep. Jodey Arrington of Texas, Republican chairman of the House Budget Committee. It could also incentivize more people to join the workforce. 

However, according to the Centers for Medicare and Medicaid Services (CMS) total improper payments related to Medicaid in 2024 totaled $31 billion, of which 79% was due to insufficient documentation, not fraud. In fiscal year 2024, this indicates the amount of fraud is $6.5 billion per year or $65 billion over 10 years. In addition, enhanced eligibility and verification for Medicaid will result in members facing a growing risk of losing coverage — often due to paperwork, confusion, or lack of support. For health plans, that means higher churn, re-enrollment costs, and care disruption.

Excluding undocumented immigrants from Medicaid will protect the long sustainability of the program, and it aligns with a broader push for stricter immigration enforcement and concerns about federal benefits going to noncitizens. 

However, denying Medicaid to undocumented immigrants will discourage them from seeking healthcare and will increase public health risks and increase uncompensated care costs for providers and hospitals. Many argue it is more political theater than policy because undocumented immigrants already have limited access to Medicaid.  

Holistic solution for real medicaid reform

We all agree that Medicaid needs reform. In my opinion, reform means reducing costs due to improving efficiencies and creating better health outcomes. 

To find real solutions, I urge the Senate to start by asking: 

• Are we saving money — or just shifting costs elsewhere?
• Long term, will these cuts reduce expenses or drive them higher?
• How can we invest in smarter solutions that prevent worse health outcomes and costly crises?

The good news is there is no shortage of innovative ideas about improving Medicaid holistically, including higher quality of care, greater system efficiencies, and easing staffing shortages. The upshot of these systemic enhancements?  Medicaid cost cuts, not cost shifts, would be real and long lasting. They should be considered regardless of whether they are part of the solution to address the national debt problem.

We must decide where caring for our children and those less fortunate fits on the priority list. Our policymakers need to take a long-term view on what it takes to truly lower Medicaid costs, and who pays the price when their proposals for Medicaid cost cutting are simply cost shifting.

Photo: Mbve7642, Getty Images

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