Too often, policymakers are stuck fighting the last war. That’s what is happening in today’s debates over Medicaid. With states facing difficult budget decisions, Medicaid inevitably draws attention because it is the single largest line item in most, if not all, state budgets. But how lawmakers choose to address these pressures will determine whether patients are protected and access to care is preserved, or state governments inadvertently trigger a healthcare access crisis.
The core of this disconnect is flawed Medicaid spending projections that often fail to recognize how much progress is already being made by President Donald Trump, with more to come. Under his leadership, reforms are reshaping the program in ways that will naturally bend the cost curve downward without resorting to blunt, harmful cuts. Yet budget projections and the policy arguments around Medicaid often fail to account for these changes, creating unnecessary panic and misguided proposals.
Three key trends should seriously reduce future Medicaid spending if we allow them to work as intended:
First, Trump’s immigration agenda is step-by-step, ensuring that many ineligible individuals will no longer remain on the Medicaid rolls. By removing ineligible noncitizens from the system, states will reduce enrollment and spending while ensuring resources go to those who are truly eligible. Some states and advocates will maintain that there is no fraud of this sort in the Medicaid system, but it beggars belief that this is true, given the widespread, credible reports that fraud has been perpetrated even on federal programs such as E-Verify and Social Security.
Second, the “big, beautiful bill” passed by Congress this summer includes work requirements that will encourage able-bodied recipients to return to the workforce. Although many people work and also qualify for Medicaid, many workers do not. Potentially large numbers of people will return to work, and that likely means more Americans accessing private coverage through their jobs and no longer being on Medicaid. This initiative, very similar to the community engagement initiative started under Trump’s first term, will reconnect individuals with the dignity of work while reducing dependency on government programs.
Third, the extraordinary expansion of Medicaid enrollment during the COVID-19 era is continuing to unwind. The pandemic pushed Medicaid enrollment to historic highs, but the states have disenrolled an extremely large number of people in the last few years, in the largest effort of this type ever attempted. As states have resumed normal eligibility checks, millions of people who no longer qualify have been and are being disenrolled. That process is already lowering enrollment and costs. This disenrollment effect, while enormous, has sometimes not been fully recognized, and reporting has been uneven. Policymakers need to make sure that when they are looking at the Medicaid numbers, they are not working with the COVID-19 era hanging over them.
These are some of the right ways to reduce Medicaid spending by focusing on eligibility, accountability, and work. However, there are also wrong ways. Many policymakers are consistently tempted to cut Medicaid reimbursement rates, which seems like an obvious fix. But direct cuts are a blunt tool, even if they may be satisfying to those who are unsympathetic to providers such as hospitals. But relying on these types of policies is a third-best option after enabling healthcare choice and competition, and the types of thoughtful reforms such as those already working their way through the system.
Take Indiana. Reports indicate that the state is considering further cuts to Medicaid. I would hope for its sake that this would not take the form of continuously reduced Medicaid reimbursement rates. Indiana has the earned reputation as a state that has managed to provide access without overpaying healthcare providers. Indeed, it already ranks among the lowest in the nation in terms of what Medicaid pays its healthcare providers. Its base rates are well below those of neighboring states such as Illinois, Kentucky, Michigan, and Ohio. Today, Indiana hospitals are notably reimbursed at about 57% of the cost of treating Medicaid patients. Therefore, the state is already parsimonious in its program.
In this environment, Indiana has 27% of its rural hospitals operating at a loss. Since 2004, four rural hospitals have closed, and five more are at risk. In a state where 4.5 million residents live in areas with reduced access to ambulance service — areas where emergency care is already dangerously far away — further cuts to Medicaid reimbursement could threaten this emergency access, and no one wants that.
Some argue that cutting Medicaid reimbursement can be used as leverage to reduce commercial insurance rates. But this theory misunderstands hospital economics. Facilities generally operate on narrow margins, and their largest expenses are usually on salaries and labor, such as doctors and nurses, as well as critical equipment. These cannot easily be trimmed. When reimbursement drops below sustainable levels, hospitals are forced to cut back and eventually close. This would reduce competitors in the market. The result would be the opposite of what reformers intend: It would end with higher commercial insurance rates, reduced access to care for Medicaid patients, and a healthcare system under growing strain.
Trump’s reforms are already setting the stage for lower spending and stronger accountability. States should give these reforms the chance to work, rather than rushing into cuts that may do lasting damage. Medicaid needs thoughtful stewardship, not blunt-force reductions that threaten access to care.
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At a time when millions of people depend on Medicaid, policymakers should focus on reforms that encourage work, strengthen eligibility oversight, promote patient choice and private sector competition, and protect access to providers. The reforms that are already moving forward under the leadership of the president and his team have tremendous promise to reduce costs, while preserving access for our fellow Americans to the Medicaid program.
Policymakers should see how these reforms are working before setting out even more policies that could inadvertently harm the program and the services it provides. We should urge state and federal leadership to lower costs responsibly without creating a new healthcare crisis in the process.
Eric Hargan was acting Health and Human Services Secretary and Deputy HHS Secretary during the first Trump administration.