On Monday, the U.S. Senate Finance Committee released legislative language for its version of the “One Big Beautiful Bill Act,” a budget bill that would overhaul the nation’s tax structure, in large part through expansive cuts to Medicaid (Medi-Cal in California).
As anticipated, Republican senators are proposing even deeper Medicaid cuts than their counterparts in the House of Representatives. One change in the Senate’s version would lower the provider tax that states are allowed to assess, ravaging California’s Medicaid program. For states that have adopted Medicaid expansion, including California, it reduces the provider tax limit from the current 6% to 3.5% by 2031.
While the House version of the bill was projected to force 11 million people to lose health care coverage and drain $800 billion from Medicaid nationally, with an outsized impact on California, the Senate version goes even further, gutting many of the key mechanisms the state uses to finance Medicaid.
CHA’s preliminary analysis of the impact of the Senate bill suggests that California could see as much as $118 billion in hospital cuts over 10 years in a worst-case scenario:
- $25 billion – $30 billion — Moratorium on new provider taxes or any increases to existing taxes imposed as of enactment, as well as a reduction of provider tax safe harbors for expansion states from 6% to 3.5% by 2031 (except for existing taxes on nursing facility or intermediate care facility services). The safe harbor would be reduced by 0.5% each year beginning in 2027 until a state’s program reaches 3.5%. Non-expansion states would be frozen at their current rate.
- $20 billion – $30 billion — Requirement that the Centers for Medicare & Medicaid Services amend existing regulations to cap states’ directed payment levels at 100% of Medicare rates for services provided after the date of enactment. This is accompanied by a time-limited grandfathering of existing spending levels above Medicare in 2026 based on what was approved or submitted in good faith for 2025. Those grandfathered payment levels would phase down by 10% each year starting Jan. 1, 2027, until payments reach the cap of 100% of Medicare rates. This provision only applies to expansion states; non-expansion states will be limited to 110% of Medicare rates.
- $25 billion – $100 billion — Prohibition of approval of health care-related taxes that place a higher tax burden on Medicaid revenue compared to non-Medicaid revenue. This puts the entirety of California’s Proposition 35 managed care organization tax structure at risk and would require significant changes to the Hospital Quality Assurance Fee program. This includes language establishing that changes made to come into compliance with this uniformity requirement will not cause a state to be in violation of the moratorium on new or increased provider taxes.
- $18 billion — Reduction in the federal match for the expansion population to 80%, down from 90%, in states that provide comprehensive coverage for undocumented immigrants on or after Oct. 1, 2027. This also reduces the federal medical assistance percentage from 90% to 50% for emergency services provided to undocumented adults (we are still working to model the impact of this provision but expect it will be significant).
Once the Senate passes a bill, that version will need to return to the House, providing another potential opportunity to seek amendments and improvements. Whether the House or Senate version (or a compromise position) wins the day, the cuts to Medicaid will be massive and have far-reaching consequences for health care in California. At a minimum, hospitals and other health care providers will need time to adjust to the challenges of this new environment — that’s something CHA will press with California’s Republican members of Congress.
As CHA engages with its Republican congressional delegation, ads that illustrate the value Medicaid brings to California’s communities are running in key legislative districts. Before the final bill passes, legislators must understand what’s at stake — and how California’s health care system will be diminished in the wake of this legislation.
Until every last vote is counted, CHA will continue to fight for amendments that will help ease the pain for hospitals and the people who rely on them.
