Medicaid Legislative Update: Government Relations Team and The Latest on Budget Reconciliation

Read the most recent legislative update regarding the “Big Beautiful Bill” here.

Krause has engaged a government relations group to advocate for the Medicaid long-term care program. In service of the trust that you and your clients put in us every day, we will begin sending periodic updates sourced from our government relations team to keep you informed. Our goal with these updates is to arm you with sufficient background, context, and insights to help you and your clients navigate Medicaid planning throughout the budget reconciliation process.

Because our engagement with the Government Relations Team has been ongoing, this first letter is designed to get you up to speed on the reconciliation process itself, where this bill has been, where the bill is now, and what we are hearing about where the bill is going. We will place this legislation in context of the policy issues it aims to address, and the political realities faced by the stakeholders. We will avoid speculation except when speculation is communicated to us, and we will identify it as such.

While we can never guarantee that legislative outcomes will match the insights we pass along, we have found our team’s information to be timely, reliable, and more reflective of the final outcomes than other sources. Importantly, while our team contextualizes, they do not editorialize. And we at Krause are committed to presenting the information we receive without running it through any political lens or filter.

What Is Budget Reconciliation?

Budget reconciliation is a special legislative process that is separate and distinguishable from other legislative processes such as joint resolutions and standalone legislation. Reconciliation begins by both chambers of Congress adopting a budget resolution that authorizes the resolution process. The reconciliation process begins by one chamber “marking up” legislative language through committees, ending when that chamber passes its version of the bill to the other chamber for consideration. The other chamber then repeats the process, either marking up the existing bill or creating their own. Once both chambers have passed their respective versions of the bill, the House and Senate negotiate toward “reconciliation” of the two bills. Once a single reconciled version passes both chambers, it is sent to the President for signature.

Unique aspects of budget reconciliation as a special legislative process are both practical and political. A practical aspect of budget reconciliation includes limitations on debate time and introduction of amendments. Without these guardrails the process could get bogged down in endless procedure. A political aspect is that bills passing through reconciliation do not require 60 votes in the Senate—the number of votes required to override a filibuster—only requiring a bare majority of 51 votes in the Senate. This makes having an accurate whip count essential from a political standpoint. One consideration that straddles the practical/political line is the scope of reconciliation, which is limited to legislation addressing federal spending, revenues, or the debt limit. Policy changes that do not relate to budgetary considerations cannot be included in a reconciliation bill. (This is referred to as the Byrd Rule for Senator Rober Byrd.) This is practical for similar procedural reasons as the limitations on debate and amendments, but also political in that it is intended to prevent policies outside those designated policy areas from being “snuck through” on a bare Senate majority rather than the 60-vote threshold.

What Are the Issues?

The river of issues running through reconciliation is wide and deep given the number of interested parties and programs impacted. Broadly speaking, the issues can be broken into four categories: (1) tax policy; (2) social programs; (3) energy and environment; and (4) immigration and defense. While energy/environment and immigration/defense are best left for other publications, tax policy and social programs relate directly to the interests of our clients and our business.

For spending related to any piece of legislation, agency, or government program, there are two concerns that taxpayers have: (1) how much does it cost? and (2) how are we paying for it? Tax policy relates directly to revenues that the government can raise by laying and collecting taxes, and social programs are government expenditures that those tax-derived revenues pay for. In the context of the bill, termed the “One Big Beautiful Bill” by President Trump, the debate has coalesced around a set of tax policy issues and social programs that have created a push/pull dynamic where cutting taxes necessitates spending cuts to pay for them, with Medicaid being one significant target.

Now, on to specifics. The primary tax policy issue at play in the OBBBA is the extension of the tax cuts established by the 2017 Tax Cuts and Jobs Act during President Trump’s first term. There are secondary debates regarding the Child Tax Credit and SALT (State and Local Tax) Deduction, but as alluded to in the prior paragraph, the primary conversation being had by congressional Republicans is around the question, “How do we pay for the tax cut extension?” While the Supplemental Nutrition Assistance Program (SNAP) and Affordable Care Act (ACT) are also targets of cuts to pay for the OBBBA, the Medicaid program has taken center stage.

Several Medicaid issues have surfaced during the debate on how to pay for the OBBBA. The primary issues include work requirements, provider taxes, and eligibility verification, though there are other issues such as expansion funding, cost-sharing (co-pays and premiums for enrollees), and restrictions/limitations on covered services that have also garnered attention.

• Work Requirements – These would require Medicaid expansion enrollees to engage in certain qualifying activities for a set number of hours each month to remain qualified for Medicaid. These activities could include employment, job training, and/or community service.
• Provider Taxes – Provider taxes operate to draw down additional federal matching funds for Medicaid under the expansion rules. The state imposes a tax on certain health facilities (often tied to Medicaid); the revenue generated is used to fund the state’s share of Medicaid; and by increasing the amount of state spending on Medicaid, the state then draws a larger federal match. Proposals are to either reduce the cap on provider tax rates from 6% to 3.5% (Senate) or impose a moratorium on provider taxes altogether (House).
• Eligibility Verification – This would increase the frequency of the eligibility verifications currently performed on enrollees on an annual basis and make the verification process stricter.

While any change to Medicaid would necessarily impact enrollees, changes to work requirements, provider taxes, and eligibility verification have the potential to have a significant impact on enrollees and to change the entire program moving forward. Work requirements could cause widespread disenrollments and prevent those seeking work from getting the care they need to obtain gainful employment. Limiting or eliminating provider taxes would hinder states by eliminating revenue streams designed to deliver care to more people, strapping them in the face of cuts. Increased eligibility verification has the potential to increase disenrollments not through failure to meet the criteria, but due to the strict formalities and document submission requirements.

Where Are We Now?

Before outlining the current issues, it’s important to get up-to-speed on where this legislation has been thus far:

• February 25, 2025: The House of Representatives passed H.Con.Res. 14, a budget resolution enabling reconciliation.
• April 5, 2025: The Senate approved an amended version of the House budget resolution, setting the stage to begin reconciliation legislation.
• May 22, 2025: The House of Representatives passed the One Big Beautiful Bill Act or “OBBBA”(H.R. 1)
• June 16, 2025: The Senate Finance Committee released its version of the bill, introducing changes to the House version of the OBBBA.

Additionally, through this process, there have been countless committee hearings, debates, and failed votes. While the goal set by the President is to have legislation on his desk by July 4, 2025, that deadline may be in peril due to political opposition, internal strife within the party, and public outcry over potential Medicaid cuts.

What Are We Hearing?

So, where is this legislation going? What are people on Capitol Hill saying? What chances does it have of passing?  Here’s what we are hearing from our Government Relations Team:

Medicaid Cuts (Generally): There is clearly public opposition to many of these proposals. Additionally, there are some key Senators to keep an eye on as we track the legislative math (keeping in mind Vice President Vance as the tie-breaker): (1) Josh Hawley (R-MO) has concerns over the impact Medicaid cuts could have on his constituency (heavily enrolled in Medicaid); (2) Susan Collins (R-ME) opposed the April budget resolution; (3) Lisa Murkowski (R-AK) also has a heavily enrolled constituency in Alaska, and has broken with the President before; (4) Rand Paul (R-KY) is a fiscal hawk and wants heavier cuts, including to Medicaid; (5) Ron Johnson (R-WI) is another fiscal hawk focused on debt and deficit concerns more broadly. There is a notable friction from the more populist approach rejecting Medicaid cuts (Hawley) and the more hawkish ranks rejecting the current proposals as not going far enough (Johnson).

Long-Term Care Medicaid: There is palpable reticence to go near this part of Medicaid given the demographic overlap of enrollees and key voting blocs. Additionally, there is the perception issue that “evicting Grandma” is going to be extremely unpopular and probably carry with it some pretty bad news coverage. There has been discussion around the edges by congressional staff, such as changes to retroactive eligibility and the home equity limit, but LTC Medicaid is not a focal point.

Home Equity Limits: The legislative proposals we have seen include changes to the home equity limits, including a carve out for agricultural properties. Final language will likely differ from what is currently in place given that it will require a close look at projected impact on rural communities and healthcare facilities for balancing, but the rationale we have heard is that increasing this limit and decoupling it from annual inflation increases provides savings on a go-forward basis that help pay for the tax provisions of the bill.

Read more about potential changes to the home equity limits for Medicaid.

Retroactive Coverage: Current law allows for retroactive Medicaid eligibility up to 90 days prior to the application date so long as the applicant was otherwise eligible throughout that period. The current proposals reduce that retroactive eligibility from 90 days to 30 days. We have heard this was seen as low-hanging fruit by staff and congressional leaders to reduce spending and offset costs while not outright changing eligibility itself.

Medicaid Compliant Annuity: Referring back to the view on Medicaid cuts generally and specifically LTC Medicaid, Congress and staff are looking for areas they can cut that will offer significant savings. Given the narrow use case of the MCA strategy and some of its benefits (anti-fraud role of the insurer), there wouldn’t be enough savings to pay for a significant enough portion of the OBBBA to merit its consideration for change. Additionally, it is our understanding that the involvement of a commercial party (insurance company) in the annuity transaction serves as an important anti-fraud consideration, particularly given the state goal of rooting out fraud, waste, and abuse.

With the Senate Finance Committee having just recently released their version of the OBBBA, many stakeholders are still trying to get their arms around the new language. Based on the information we are hearing, neither the Senate version nor the House version have the votes to pass both chambers. The Senate version is likely an opening salvo to anchor the bill in place closer to their version than the House’s with discussions and negotiations to develop from there.

Senate Majority Leader Thune will likely allow his members to crow for a few days about provisions that they disagree with coming out of the Senate Finance Committee markup. However, we are likely to see Leader Thune get those members back to the negotiating table in relatively short order, working with House leadership and staff to negotiate a reconciled bill.

Summary

The final reconciled bill will likely blend provisions from both the House and Senate versions. At this point, it’s unlikely that any additional cuts to Medicaid will be proposed given public reaction and political opposition both from without and from within the Republican Party. Because President Trump has hemmed in Congress with his comments on defense spending and Medicare (i.e., not a target for cuts), and the opposition related to Medicaid making further cuts more difficult, it’s increasingly likely that we see a final version of the bill that includes the tax cut extension in full and only some of the total cuts required to offset the cost of those cuts.