Jun, 18, 2025

Senate Finance Unveils Reconciliation Legislation: Further Medicaid Cuts and Notable Policy Changes from House-Passed Bill

Manatt Health

On June 16, the Senate Finance Committee released its budget reconciliation legislation.[1] Overall, the Senate bill’s health policy provisions hue closely to and build on the policies included in the House-passed budget reconciliation bill—H.R. 1, the “One Big Beautiful Bill Act”—with changes that make even deeper Medicaid cuts.

As in the House bill, the Senate Finance Committee proposal concentrates cuts to the Affordable Care Act’s (ACA) Medicaid expansion,[2] including by imposing a mandatory work requirement, requiring co-payments, and increasing frequency of eligibility redeterminations; limiting the tools available to states to finance their share of Medicaid program costs; and broadening prohibitions for non-citizens’ access to healthcare. However, there are several key differences in the Senate’s proposal that are worth highlighting, including several policies that yield deeper Medicaid savings than H.R. 1. to fund other Trump administration priorities. These differences—outlined below—are expected to deepen the federal Medicaid funding cuts and coverage losses projected by the Congressional Budget Office (CBO). Based on H.R. 1, CBO estimated that federal funding for Medicaid and the Marketplaces would be reduced by $900 billion and an estimated 10.9 million individuals could lose coverage.

  • Medicaid provider taxes: The Senate bill makes a significant change to the House-passed bill’s provider tax provision by layering on top of the moratorium on new or increased provider taxes from the House bill a reduction in the 6% cap down to 3.5% for expansion states only. Expansion states will see their 6% cap decline by 0.5% point per year beginning in federal fiscal year (FFY) 2027, though skilled nursing facilities and intermediate care facilities are exempt from this cap ramp down.
  • State-directed payments (SDPs): The Senate bill sharply diverges from the House bill with respect to SDPs. Under the Senate language, states would need to reduce their SDPs by 10 percentage points per year beginning in 2027 until the SDPs were no greater than 100% of Medicare for expansion states or 110% of Medicare for non-expansion states. The Senate language retains the House’s cap on new directed payments of 100% of Medicare for expansion states and 110% of Medicare for non-expansion states.
  • Non-citizen coverage provisions: The Senate bill makes three significant changes to the House bill regarding health coverage for non-citizens:
    • In a new provision, the Senate bill would end the availability of federal Medicaid funding for certain groups of immigrant non-citizens who have been covered through Medicaid for decades, including refugees and asylees (although states would retain the option to cover children and pregnant people with these statuses).
    • With respect to emergency Medicaid, the Senate bill provides that states may only receive their regular federal medical assistance percentage (FMAP) for emergency services provided to non-citizens, including those who currently qualify for an enhanced rate.
    • With respect to the House-passed FMAP penalty for expansion states that have programs that provide health coverage to certain types of non-citizens, the Senate bill clarifies that states will not receive an FMAP reduction for providing any form of coverage required by federal law, any form of coverage (including state-funded coverage) to qualified non-citizens (including humanitarian parolees), or federally funded coverage to lawfully residing children and pregnant women in Medicaid or the Children’s Health Insurance Program .
  • Work requirements: The Senate Finance Committee bill introduces several notable modifications to the House-passed work requirements mandate:
    • Effective Date: The Senate version maintains the January 1, 2027, implementation date and clarifies that states can implement earlier via a section 1115 demonstration. However, it also permits states to request U.S. Department of Health and Human Services (HHS) Secretary approval for an exemption from the effective date and delay implementation by up to two years—through December 31, 2028—as long as the state demonstrates a “good faith effort” to come into compliance and meets new reporting requirements.
    • Verifying Compliance and Exemptions: The Senate bill:
      • Limits the exemption from work requirements for parents, guardians, caretaker relatives, or family caregivers to individuals with dependent children 14 years or younger, whereas no age limit for dependent children had previously applied. (The exemption for caregivers of a disabled individual remains unchanged.)
      • Gives states flexibility to determine mandatory exemptions without requiring individuals to verify the underlying information.
      • Establishes an additional “short-term hardship” exemption for people traveling for an extended period to access medically necessary care for a serious or complex medical condition that is not available in the individual’s community.
      • Clarifies that states may require individuals to demonstrate that they meet work requirements for no more than three consecutive months prior to application—effectively limiting the look-back period for determining compliance.
      • Newly prohibits states from using contractors (e.g., Medicaid managed care organizations, prepaid inpatient health plans) to determine whether enrollees are complying with the work requirements, unless the contractor has no financial relationship with the health plan providing the enrollee’s Medicaid coverage.
    • Federal Guidance and State Funding: The Senate bill requires HHS to issue an interim final rule by June 1, 2026—a shift from the House-passed legislation, which called for sub-regulatory guidance by December 31, 2025. Additionally, the Senate version directs HHS to distribute $200 million to states (an increase from the $100 million in the House-passed legislation) to support systems development for FFY 2026.
  • Cost-sharing requirements: In the provision requiring states to impose cost sharing up to $35 on most services for adults in the ACA expansion group, the Senate bill newly specifies that cost sharing may not exceed a “nominal” amount for non-emergency services furnished in a hospital emergency department (defined as $8 as of 2015, adjusted for inflation).
  • Marketplace policies: In close accordance with H.R. 1, the Senate Finance Committee language would make it harder to enroll and reenroll in coverage and limit immigrant eligibility for premium tax credits (PTC), significantly decreasing the number of individuals receiving PTC and covered by the Marketplace. Provisions to do so include ending automatic reenrollment and the ability to receive advance payments of the PTC (referred to as APTC) with a pending application. Newly added provisions would specifically allow the use of electronic data that is available to the Marketplace or from a reliable third-party source and would allow the Secretary to make a person eligible for APTC while full eligibility is pending, in the case of a special enrollment period for a change in household size.

 

The other committee with health jurisdiction—the Senate Health, Education, Labor, and Pensions (HELP) Committee—released its reconciliation proposal on June 10. While the Finance Committee has jurisdiction over the tax policies associated with the ACA, the HELP Committee has primary jurisdiction over the Marketplaces. Its legislative text, however, only included one section (section 87001) appropriating cost-sharing reductions for plans, beginning in 2026, except for those that provide non-Hyde abortion coverage.

Notably, the Senate language does not include many of the Marketplace elements of H.R. 1.[3]  These omitted provisions may be added at a later stage in the legislative process. 

  • Medicare policies: While the Medicare provisions in H.R. 1 were relatively brief, most of them have been stripped from the Senate Finance Committee proposal. This includes the modified exception for orphan drugs under the Medicare Drug Price Negotiation Program; the Physician Fee Schedule (PFS) conversion factor update; and all of the Medicare Part D pharmacy benefit manager (PBM) policies.

 

 

[1] The Senate Finance Committee has jurisdiction over tax policies, including tax subsidies for Marketplace enrollees, and health programs under the Social Security Act, including Medicare, Medicaid, and the Children’s Health Insurance Program (CHIP).

[2] The Medicaid expansion eligibility group encompasses adults ages 19 to 65 with incomes below 138% of the federal poverty level (FPL). In 2025, 138% of the FPL for an individual’s annual income is $21,597. Additionally, the manager’s amendment included modifications to ensure that these changes applied to both enrollees through the Medicaid expansion and those enrolled in expansion-like coverage through Section 1115 waivers.

[3] Among the provisions in H.R. 1 that are not included in the Senate Finance bill: limiting open and special enrollment periods; tightening eligibility verification requirements; shortening the income verification period; lowering the permissible actuarial values of Marketplace plans; restricting gender-affirming care as an essential health benefit; creating the Custom Health Option and Individual Care Expense Arrangement (CHOICE) to allow employers to contribute to the purchase of individual market coverage; making all bronze and catastrophic Marketplace plans eligible to be paired with a health savings account (HSA); and various employer coverage and HSA provisions.