Donohue: “Everyone will feel the $1 trillion cut in Medicaid”
Medicaid provides health insurance for one in five Americans. It is the largest insurance program by enrollment, covering around 74 million people, including 40 percent of births, 66 percent of people in nursing homes and, when combined with the Children’s Health Insurance Program (CHIP), half of America’s children.
H.R.1 (The One Big Beautiful Bill Act), signed into law in
2025, is estimated to cut Medicaid spending by nearly a trillion dollars by
2034 and cause millions to lose coverage.
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| (Credit: Adobe Stock) |
HPM Professor and Chair Julie Donohue joined the Healthy Dialogue podcast (hosted by her husband and HPM alum Dr. Derek Angus) to discuss the wide-reaching impacts of the cuts and how everyone, not just those enrolled, will feel the effects.
Medicaid was enacted in 1965 in the same piece of
legislation that created Medicare – and by some of the same people in the
federal government who influenced the New Deal policies of Franklin D.
Roosevelt.
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| HPM Professor and Chair Julie M. Donohue, PhD |
Medicaid has expanded many times, through many different
Congresses, typically in a bipartisan way, to reach more people who are
generally lower income and have higher health needs but are left out of the
employer health insurance system.
Donohue says that at the center of Medicaid is a debate
that, depending on who is in power, is taken one of two ways. Some view access
to health care as a right and see Medicaid as a way to make sure as many people
as possible have access in a very “patchwork” insurance system. Opponents of
that idea don’t see access to health care as a right and want it to serve a
narrower audience.
“That tension, I think, has been kind of baked into Medicaid
from the start because of its link to being a means-tested or income-based
program, and it's linked to welfare,” she added.
Until the Affordable Care Act, to qualify for Medicaid, a
person had to meet not only an income threshold but also other criteria. Over
the years, Congress has been very supportive of covering children, so the income
threshold for qualifying children is very high. There has also been bipartisan
support for pregnant women and people with disabilities. The fractures start to
form over so-called “able-bodied” working adults.
“That was kind of the biggest change brought about by the
Affordable Care Act was breaking that need for these other categorical
eligibility groups. And really just getting down to the basics of, we want the
Medicaid program to be available to everyone with low income who is left out of
the employer-based system,” said Donohue.
The federal government spent $668 billion on Medicaid in the
2025 fiscal year, about 9.5 percent of its total budget. States share in the
cost of Medicaid. With those contributions, Medicaid spending is just under $1
trillion a year. States also have significant control over how Medicaid is
administered, including payment rates and eligibility. Under the ACA, states
had to decide whether to adopt expanded Medicaid policies.
“The way the legislation was initially crafted, it had some
pretty strong financial incentives for states to adopt an expansion of
Medicaid, really to try to cover more people in that working-age adult group,”
said Donohue.
Until the ACA, Donohue says, using an example of a 30-year-old
man working but making minimum wage with no disability and no children, that
person didn’t qualify for Medicaid. Expansions under the ACA allowed adults
like that to qualify regardless of health or employment status.
A Supreme Court ruling gave states the option to expand or
not. From 2014 to now, 40 states have expanded, which Donohue says is good for
individuals because more have coverage and for states because the federal
government covers a larger share of costs for expansion-eligible people than
for traditionally eligible groups.
Despite expanded coverage and bipartisan support. Medicaid
is not without its critics, who typically focus on three issues: lower
payments/reimbursement to providers, stigma about being enrolled and claims of
widespread fraud.
“Historically, Medicaid has not paid providers, doctors,
hospitals and other providers as well or at as high a rate as either Medicare
or commercial insurance. And that has led to occasional access problems,” said
Donohue, adding that the number of physicians who take patients covered by
Medicaid is about 20 percentage points lower than those who take commercial or
private insurance. States have started to increase payment rates to make them
comparable to other insurance payments; however, provisions in the OBBBA are
now limiting states’ ability to pay competitive rates.
Since Medicaid has traditionally been tied to other welfare
programs, it has faced a certain stigma because some people don't qualify. To
break that stigma, many programs have been renamed, meaning some people may not
even realize they are enrolled in Medicaid. Oklahoma’s program is called
SoonerCare, Massachusetts's is MassHealth, and Pennsylvania's is called Medical
Assistance. However, while reducing stigma, it has created communication
problems around policy changes.
“People may be hearing on the radio or in the news media, “Big
changes are coming for Medicaid and think, ‘Oh, but that doesn't affect me
because I'm in SoonerCare or I'm in MassHealth.’”
Beyond the name, Medicaid enrollees sometimes face stigma
because enrolling means showing financial need, which can be hard to admit.
However, Donohue says that everyone covered by any insurance requires some
subsidy.
“Employer-based health insurance on which a majority of
Americans rely is heavily subsidized because it's paid for before income taxes
and payroll taxes are taken out,” she said. There's no stigma around the
federal subsidy for employer-based health insurance. And in my mind, there
should be no shame or stigma associated with Medicaid coverage. It's just a
different kind of subsidy.”
As for claims of fraud, Donohue cites the work of state
Medicaid programs that dedicate significant resources to detecting and
preventing fraud.
“Every healthcare program has some level of fraud,” said
Donohue. “The other thing I would say about fraud in Medicaid is that providers
more often perpetrate it than the beneficiaries themselves. So most of the
action in terms of preventing fraud in Medicaid or detecting it is around the
provider side.” She adds that claims by the federal government about rampant
fraud are a way to blunt criticism of them impeding loss of federal funding and
coverage losses for millions of people.
A reason for the cuts to Medicaid until the OBBBA is to
permanently extend 2017 tax cuts that overwhelmingly benefit the wealthiest
Americans. Taken together, at least a dozen changes to Medicaid over the next
10 years represent a 15 percent annual reduction in federal commitments to
Medicaid. Nearly eight million people are expected to lose their health
insurance coverage as a result of the cuts.
As a result, those with commercial and private insurance
will feel the impact because those who lose coverage will still need care and
will often turn to emergency departments, which will provide care but then pass
those costs on to payers.
Unlike proposals to repeal the ACA and end Medicaid expansions
in 2017, the new law makes cuts and changes more indirectly by increasing the
administrative burden on enrollees through measures like work requirements.
“On its face, that seems reasonable. You know, after all,
most people have health insurance coverage through their workplace,” said
Donohue. “A majority of people covered in Medicaid through that expansion
population are, in fact, working full-time or part-time. It's just that they're
working in low-wage jobs that keep them at or around the poverty line.” The
burden for enrollees comes when they have to document their work hours and
submit paperwork every six months to demonstrate they are still meeting
eligibility requirements. Donohue says research data show that people who lose eligibility
over the work requirement often aren’t doing the work; instead, they can't
complete the paperwork.
While policymakers claim the work requirements will reduce
Medicaid fraud, Donohue says the evidence doesn’t support those claims.
“There are lots of reasons why people work aside from health
insurance coverage. But there's been lots of survey evidence that shows that a
majority of people who are enrolled in Medicaid through the expansion are
already working full or part-time, or they're attending school, or they are
caretakers for children or elderly or disabled relatives at home, or they're
not able to work because of a serious health condition. So when you add all
those groups up, those groups would either be exempt because they're complying
with their work requirements or because they meet one of the kinds of medical
exemptions,” she adds.
With provisions limiting how much states can pay providers
that accept Medicaid, the OBBBA could also lead to the closure of some
hospitals or other health care providers that heavily depend on the Medicaid
population.
Rural hospitals – which already run on lower margins – are
expected to feel much of the strain because they often serve a population
disproportionately insured by Medicaid and will be forced to provide care with
lower payouts or with none at all for enrollees who’ve lost coverage.
Donohue says there is hope the full cuts won’t be felt
because they are already unpopular with 63 percent of those surveyed by the
Kaiser Family Foundation, who hold an unfavorable view of them. That number is
expected to rise in 2027 as cuts to other programs like the Supplemental
Nutrition Assistance Program (SNAP, otherwise known as food stamps) take
effect.
“A silver lining that could come out of the cuts to Medicaid
through the One Big Beautiful Bill Act is an increased awareness of the
important role that this program plays for our health and our security,” she
said
You can listen to the entire podcast
here or wherever you listen to podcasts.
