Nicolai Haugsted
Trump’s signature law could trigger a $52 billion Medicaid squeeze as experts warn about access to essential care.
Millions of Americans rely on Medicaid with the reasonable expectation that having health insurance will also mean finding someone willing to treat them.
Those two things do not always go together.
Doctors and hospitals already receive less from Medicaid for many services than they do from Medicare or private insurance, giving some providers little financial incentive to accept additional Medicaid patients.
A major provision of Donald Trump’s signature 2025 tax and spending law is now set to put considerably more pressure on that fragile equation.
New research published in Health Affairs estimates that federal limits beginning to bite in 2028 could require reductions of roughly $51.8 billion a year in a category of Medicaid payments used by states to boost reimbursement to health care providers.
Researcher Debra Lipson warns that patients could ultimately feel the consequences in a very practical place — the doctor’s waiting room.
Having Medicaid does not guarantee finding a doctor
Medicaid provides health coverage to people with low incomes through a program jointly financed by federal and state governments.
Access has long been one of its weaknesses.
Lower reimbursement rates mean some doctors either refuse Medicaid patients altogether or restrict how many they accept.
States have increasingly tried to close that gap using arrangements known as state-directed payments.
Such payments allow states operating Medicaid managed care programs to require insurers to increase payments to certain hospitals, nursing facilities and other providers.
Spending through the mechanism has grown rapidly.
Lipson’s analysis found that 39 states paying above Medicare rates spent an average of $106.3 billion annually on the relevant state-directed payments during the 2024-25 rating periods.
Trump’s 2025 law is about to change the rules.
Washington is putting a ceiling on the payments
Congress imposed new limits on how generous certain state-directed payments can become as part of the 2025 budget reconciliation law.
Medicaid expansion states will generally be limited to 100 percent of the corresponding Medicare payment rate for affected services.
States that did not expand Medicaid can go as high as 110 percent.
Previously approved payments above those ceilings receive temporary protection, but that protection starts disappearing in 2028.
Rates will then be reduced by 10 percentage points every year until they reach the permitted level.
Supporters see the limits as a way to rein in a financing mechanism that has expanded dramatically and allowed states to draw increasing amounts of federal Medicaid money.
The Trump administration has argued more broadly that tighter restrictions are needed to protect the program from waste and questionable financing practices. CMS has described state-directed payment reform as part of an effort to improve fiscal integrity while maintaining access to care.
Lipson’s analysis focuses on the other side of the equation.
Less money going to providers can eventually mean fewer providers willing to take Medicaid patients.
Researcher warns patients could pay the price
Lipson examined the state-directed payments most exposed to the new restrictions.
Her study estimates that payments in 36 states could require annual reductions of approximately $51.8 billion.
Seventeen states face potential reductions equivalent to between 10 and 25 percent of their overall Medicaid spending, according to the study.
Lipson believes health care providers will have difficult decisions to make as that money disappears.
“It means that more of these hospitals, (and) a few nursing homes that are wrapped up in our academic medical centers, are going to start limiting the numbers of Medicaid patients that they see,” Lipson said.
“It’s going to make it more difficult for people who are on Medicaid to get essential care.”
Her warning is an assessment of the likely consequences rather than a guarantee that individual hospitals or doctors will reduce access.
Still, the scale identified in the study is substantial.
Some states face a much bigger shock
The financial pain would not be distributed evenly across America.
Nebraska, Louisiana and South Carolina stand out in Lipson’s analysis, with the affected reductions potentially exceeding one-quarter of total Medicaid spending in each state.
Other states heavily dependent on state-directed payments near commercial insurance rates include Iowa, Nevada, Arizona, Kentucky, New Mexico, Illinois, Tennessee, Florida, Georgia, North Carolina, Michigan and Mississippi, according to the source material.
Such differences matter because states have constructed their Medicaid financing systems in very different ways.
Places that relied heavily on enhanced payments to keep providers adequately reimbursed have much more to unwind once the federal ceiling arrives.
States with relatively little dependence on the mechanism face a considerably smaller adjustment.
The $52 billion figure needs some context
Calling the study’s estimate a straightforward $52 billion Medicaid cut would miss an important distinction.
Lipson calculated how much annual Medicaid spending through the affected state-directed payment arrangements may have to fall for states to comply with the new federal limits.
Her estimate does not mean Washington will simply remove $51.8 billion from Medicaid on a particular day.
States have time to adjust, and the grandfathered payments will be phased down over several years beginning in 2028.
Still, the Congressional Budget Office previously estimated that the state-directed payment provision itself would reduce federal Medicaid spending by roughly $149 billion over a decade.
Hospitals and other providers therefore have good reason to pay attention before the phase-down even begins.
Private insurance could feel it too
Lipson also raises another possibility.
Hospitals losing Medicaid revenue still have bills to pay.
Some could attempt to recover part of that money by negotiating higher reimbursement rates from commercial insurers, according to her analysis.
Such a response could shift part of the financial pressure beyond Medicaid and toward employers and privately insured Americans.
Whether providers can successfully make that shift will depend on local markets, negotiating power and numerous other factors.
Reduced Medicaid participation presents another option.
For patients, that outcome could create the particularly frustrating scenario Lipson is warning about: possessing insurance on paper while discovering that fewer nearby providers want to accept it.
