House Republicans held the mark-up last week for their reconciliation package, which includes several significant reforms to Medicaid, the federal-state entitlement that provides health benefits to roughly one in five Americans.
The package is not perfect. But it would restore some measure of fiscal sanity to the program by, among other things, reining in the schemes that have allowed states to fleece federal taxpayers for decades.
States administer their own Medicaid programs, and the federal government generally provides at least one dollar for every dollar a state spends. The states receive $9 for every dollar they spend on able-bodied adults making up to 138% of the poverty level, thanks to Obamacare’s expansion of the program. Forty states and the District of Columbia have expanded their programs.
Over time, states have found clever ways to take advantage of Medicaid’s joint funding structure and extract even more money from the federal government. Since 2008, the federal government’s share of Medicaid spending has increased from 60% to 72%.
Now, House Republicans are trying to eliminate some of that gamesmanship. Their proposal would deliver $625 billion in savings over the next decade, according to the Congressional Budget Office.
One provision would limit “provider taxes,” a financing gimmick wherein states tax healthcare providers and then return the tax revenue in the form of higher Medicaid payments. Those laundered tax revenues get coded as additional state spending and attract matching federal funds. The GOP plan would place a moratorium on new provider taxes, which would score $87 billion in savings over the next decade.
Republicans are also cracking down on a particularly flagrant abuse of provider taxes. It’s against the law to provide Medicaid benefits to illegal immigrants using federal funds. Some blue states flout the law by leveraging provider taxes to extract huge sums from the federal government to fund the bulk of their Medicaid programs and then declaring that they’re using state funds to cover noncitizens.
Take my home state of California, where Medi-Cal, our version of Medicaid, covers 1.6 million illegal immigrants at an estimated cost of $6.4 billion. That wouldn’t be possible without provider taxes. Thanks to these and other financing gimmicks, the Golden State is on track to receive $19 billion in federal funds between April 2023 and December 2026.
Even so, the program is so expensive that Gov. Gavin Newsom now wants to pause enrollment of new illegal immigrants aged 19 and older and charge premiums to those who’ve already signed up. The changes would save over $5 billion.
The reconciliation package will make it a bit more expensive for states to enroll illegal immigrants in Medicaid by providing only $8 for every dollar they spend on the expansion population, rather than $9. Hardly a hardship.
Another provision would require childless, prime-age adults to work, attend school, or volunteer for 80 hours a month. Such a requirement would save $301 billion over seven years.
BIG BEAUTIFUL BILL IN THE BALANCE: GOP FRACTURES OVER MEDICAID WORK REQUIREMENTS
Finally, Republicans are taking steps to stop waste, fraud, and abuse. States would have to conduct more frequent eligibility checks to ensure Medicaid benefits go only to those who are legally entitled to them. These audits would save an estimated $163 billion.
Republicans have a golden opportunity to nudge Medicaid back toward fiscal sustainability. Let’s hope they don’t waste it.
Sally C. Pipes is president, CEO, and Thomas W. Smith fellow in healthcare policy at the Pacific Research Institute. Her latest book is The World’s Medicine Chest: How America Achieved Pharmaceutical Supremacy — and How to Keep It (Encounter 2025). Follow her on X @sallypipes.