Republicans in Congress are weighing a politically fraught strategy to fund President Donald Trump's domestic agenda by slashing Medicaid spending through the closure of a long-standing financing tactic used widely by red states. The proposal, which could eliminate up to $600 billion in federal expenditures over a decade, would target the so-called provider tax "loophole" that allows states to generate higher Medicaid reimbursements through circular payments between hospitals and state governments.
"What started as creative budgeting in New England has, over four decades, snowballed into a mainstay of financing Medicaid," wrote Margot Sanger-Katz and Sarah Kliff in The New York Times. "In some states, provider taxes and related payments bring in more than a third of overall federal funding for the program."
The accounting mechanism, pioneered by then-New Hampshire Governor Judd Gregg in the 1980s, involves states taxing hospitals and nursing homes, then reimbursing those facilities and using the money to draw down matching federal funds. Though utilized in some form by every state except Alaska, it is especially prevalent in Republican-led states now facing potential shortfalls under the GOP budget framework.
The House Energy and Commerce Committee, which holds jurisdiction over Medicaid, is scheduled to mark up its portion of the budget on May 7. It must identify $880 billion in savings-an almost unattainable target without reducing Medicaid outlays, according to the Congressional Budget Office.
While hardline conservatives favor deep cuts, moderates are pushing back. "We won't vote for something that takes away benefits from seniors, disabled and vulnerable people that we represent who rely on Medicaid," said Rep. Nicole Malliotakis (R., N.Y.), one of 12 Republicans from swing districts who signed a letter warning leadership about Medicaid rollbacks.
President Trump, for his part, has repeatedly stated he will not support legislation that reduces core entitlements. "If it cuts it, I would not approve," Trump said in an interview with Time. "I would veto it, yeah."
Still, GOP leaders insist they aim to reduce "waste, fraud, and abuse," not benefits. Speaker Mike Johnson (R., La.) told Fox News, "When you have people on the program that are draining the resources, it takes it away from the people that are actually needing it the most and are intended to receive it."
Among the proposed cost-saving measures is a rollback of the Affordable Care Act's enhanced federal match for Medicaid expansion. Rep. Austin Scott (R., Ga.) argued, "The federal government is paying 90 percent of the Medicaid expansion. What we have talked about is moving that 90 percent level of the expansion back toward the more traditional level."
An analysis by health policy nonprofit KFF found eliminating the enhanced match could save $626 billion over a decade but would shift substantial financial burdens to states. Twelve states, eight of which voted for Trump, have laws that would automatically end their Medicaid expansion if federal support declines.
Senate Republicans including Sens. Lisa Murkowski (R., Alaska), Susan Collins (R., Maine), and Josh Hawley (R., Mo.) have voiced opposition to reductions that would impact their constituents. Other floated ideas-such as imposing work requirements or removing noncitizens from eligibility-offer comparatively modest savings and are unlikely to meet the committee's financial goals.
