https://www.commonwealthfund.org/publications/issue-briefs/2026/jul/what-hr1-changes-medicaid-payment-error-rules-mean-states?utm_campaign=Achieving%20Universal%20Coverage&utm_medium=email&_hsenc=p2ANqtz-_4gn_scyZZRitJs-aO1UvceVmuRTNXV1Va4y9AVu9kLrq-4XooW3sbaRw5yUQDOBrEyqaAPp4d4fo3BWf-LRSDncnoRg&_hsmi=427535375&utm_source=alert

Abstract

Issue:

The tax and spending law known as H.R. 1 includes provisions to revise what is counted as a Medicaid payment error and to recoup more federal funds. The new rules, which go into effect in 2029, target payments with inadequate documentation.

Goals: To review the scope of improper Medicaid payments and the potential impact of H.R. 1 policies on states, providers, and patients.

Methods: Analysis of research, government data, proposals, final rules, and laws.

Key Findings and Conclusion:

Although the provisions aim to reduce erroneous Medicaid payments, error rates could rise due to new Medicaid work requirements and other H.R. 1 provisions that make eligibility determination processes more complex for states. More than 20 states already have improper payment rates that exceed the threshold, meaning they could face significant financial penalties when the provisions go into effect. Policymakers could help reduce payment errors and the financial risk to states by encouraging the Centers for Medicare and Medicaid Services (CMS) and the U.S. Department of Health and Human Services to share best practices with states, use state audit data to improve oversight, and streamline Medicaid regulatory requirements. Additionally, CMS and states already have processes in place — including corrective action plans — to address erroneous payments.

Introduction

The tax and spending law, H.R. 1 (originally titled the “One Big Beautiful Bill”), enacted in July 2025, includes more than $900 billion in cuts to Medicaid, the public health insurance program financed jointly by the federal government and states. Some analysts have projected that, along with the law’s other changes to Medicaid, these cuts — the largest in the program’s 60-year history — will cause more than 7 million Americans to lose their Medicaid health coverage.1 The cuts will also shift costs to states, weaken the fiscal stability of health care providers, and diminish patients’ access to care.2

Supporters of H.R. 1 have asserted that it contains measures to address fraud, waste, and abuse. One of these provisions requires the U.S. Department of Health and Human Services (HHS) to recoup federal dollars for erroneous Medicaid payments — such as payments made for medical services when billing paperwork was missing or Medicaid eligibility paperwork was incomplete — once those payments exceed a certain level. The most recent data from the Centers for Medicare and Medicaid Services (CMS) released in January 2026 indicate that the nationwide error rate is 6.12 percent, slightly more than twice the 3 percent rate allowed under H.R. 1.3 According to that report, 77.17 percent of erroneous payments are due to incomplete documentation (namely missing paperwork), which is not generally indicative of fraud or abuse.4

The Congressional Budget Office (CBO) estimates that the policy change will reduce federal Medicaid spending by $7.55 billion and cause 100,000 individuals to lose their coverage as states tighten their processes to avoid penalties.5 To reduce error rates to comply with the new requirement and avoid financial penalties, states could further restrict eligibility determination processes to add greater certainty to ensuring all documentation has been submitted or require prior authorization before a provider can provide care.

Cumulatively, the implementation of H.R. 1’s broader Medicaid changes — such as implementation of work requirements, more frequent coverage renewals for certain enrollees, and changes to provider taxes — could make reducing improper payments more difficult.6 These changes will increase the administrative burden for states and patients while decreasing the funding available for Medicaid programs. With more administrative requirements and fewer dollars with which to implement programs, the chance of error increases.

This brief defines erroneous Medicaid payments and explores whether improper payment rates are an accurate measure of fraud. We describe how H.R. 1 expands the definition of an erroneous payment while limiting the federal government’s ability to waive penalties on states with improper payment rates that exceed a certain threshold even if they are making good faith efforts to address the errors. We also present data showing the disproportionate impact on some states and offer alternative strategies for policymakers to better support states in reducing improper Medicaid payments.

Defining Improper and Erroneous Medicaid Payments

Improper Medicaid payments, as defined in statute, can be overpayments, underpayments, and payments where there is not enough information to determine whether the payment was correct — such as when medical billing codes are inaccurate, provider paperwork is missing, or applicants submit incomplete documentation. Improper payments also include payments made for individuals who were enrolled in Medicaid despite being ineligible, as well as payments for services that do not comply with Medicaid program requirements such as duplicative payments.

The federal government determines what’s “improper” by reviewing Medicaid fee-for-service claims, managed care payments, and eligibility decisions. “Improper payments” is a broad category, while “erroneous payments” — payments that are incorrect under program rules — represent a more specific subset within it.7 Sometimes the terms are used interchangeably.

How CMS Defines Improper Payments

Improper payments can result from a variety of circumstances, including:

• Items or services with no documentation.
• Items or services with insufficient documentation.
• Items or services with documentation that does not substantiate the payment.
• Items or services where the payment was to the right recipient for the right amount, but the payment process did not comply with applicable statutory or regulatory payment requirements.
• With respect to Medicaid and CHIP, there is no record of the required verification of an individual’s eligibility factors, such as income.

Data: Centers for Medicare and Medicaid Services, “Fiscal Year 2025 Improper Payments Fact Sheet,” Jan. 15, 2026.

Improper Medicaid Payments as a Measure of Fraud

According to CMS, the improper payment rate is not a “fraud rate” but rather a measurement of payments made that did not meet statutory, regulatory, or administrative requirements.8

More than 75 percent of improper payments — just over 77 percent in 2025, as mentioned above — are due to insufficient documentation, and most involve a state, contractor, or provider missing an administrative step.9 With additional documentation, these payments may be correct.

Calculating Improper Medicaid Payments

Each year, CMS conducts a payment error rate measurement (PERM) audit in 17 states — one-third of all states — so every state is reviewed once every three years. Each state’s improper payment rate is calculated by dividing the total value of overpayments and underpayments in a representative sample from three categories (Medicaid eligibility, fee-for-service, and managed care) by the state’s total Medicaid expenditures.10 CMS also publishes a national Medicaid improper payment rate, which was 6.12 percent in the most recent data.11 In 2025, these improper payments totaled $37.9 billion, including $10.8 billion (28.6%) from fee-for-service Medicaid, $27.0 billion (71.4%) from eligibility, and $0 from managed care Medicaid.12

Since 1983, federal law has set an allowable improper payment rate of 3 percent. When a state exceeds this threshold, the HHS secretary is required to recover the federal share of the excess erroneous payments as a penalty. However, the secretary has long had discretion to waive these repayments if a state was making a good faith effort not to exceed the allowable error rate, and the secretary has generally waived penalties.13

Medicaid Improper Payment Rate for Fiscal Year 2025

• Medicaid improper payment rate: 6.12%; $37.39 billion
• Medicaid appropriate federal payment rate: 93.88%; $573.6 billion
• Percentage of improper payments resulting from insufficient documentation: 77.17%

Notes: Each year approximately 17 states are reviewed. The national improper payment rate is a combination of the more recent three cycles in 2023, 2024, and 2025. In contrast to the 3 percent allowable error rate for Medicaid, Medicare is allowed a 10 percent error rate.

Data: Centers for Medicare and Medicaid Services, 2025 Medicaid and CHIP Supplemental Improper Payment Data (CMS, Jan. 2026).

What Is the Current Process for States to Address Error Rates?

States are required to develop a Medicaid corrective action plan (CAP) and submit it to CMS within 90 days of receiving their PERM error rate to address the errors identified in the PERM review.14 The CAP serves as the formal vehicle through which the state explains why errors occurred and identifies root causes across fee-for-service, managed care, and eligibility categories. In the CAP, which is intended to serve as a performance management tool, a state also commits to specific corrective actions designed to reduce future improper payments.

Once CMS approves the state’s PERM CAP, the state is required to implement the corrective actions in accordance with the approved schedule, usually over the course of multiple years. CMS collaborates with states by providing guidance, technical assistance, templates, and other supports.15 All states are required to keep CMS updated regarding the status of the CAP implementation, but states with PERM error rates above 3 percent are required to do so every other month according to federal regulations.16

A state is deemed to be making a good faith effort if it is meaningfully implementing its CAP in alignment with the underlying regulation even if the state has not yet fully eliminated improper payments. As mentioned, historically the HHS secretary has been allowed to waive penalties if the state was making a good faith effort; however H.R. 1 eliminates the option to do so.

Key Findings

H.R. 1 expands what’s considered an erroneous payment and restricts HHS’ authority to waive penalties.

The law alters erroneous payments, which are included in CMS’ PERM audits, in two primary ways: it expands the definition of an erroneous payment, and it adds restrictions to HHS’ ability to waive the penalty for erroneous payments.

Widening the scope of erroneous Medicaid payments. H.R. 1 expands the definition of erroneous payments to include payments made on behalf of individuals who the state does not know for sure are eligible for Medicaid because insufficient information is available to prove their eligibility (such as someone whose documentation was not saved correctly at enrollment or renewal). Expanding the definition in this way risks overstating improper activity by the states by equating administrative uncertainty with fraud.

Restricting HHS’ authority to waive penalties. The law also limits which erroneous payments can be waived: HHS can waive up to the total amount paid in overpayments on behalf of eligible individuals, or payments where there is not enough information available to prove eligibility. HHS can no longer waive penalties for payments made on behalf of individuals who were ineligible for Medicaid, or for services provided to patients with insufficient information to confirm their eligibility. Guidance from CMS will clarify how this will be implemented. Ultimately, this change takes away HHS’ flexibility to waive financial penalties when states are making good faith efforts to address their errors.

H.R. 1 also expands the type of audits that can be used to determine Medicaid erroneous payment rates. Whereas historically these audits have been conducted by CMS, the law gives the secretary authority to conduct audits directly or to use state audits, such as the Medicaid Eligibility Quality Control program.17

These erroneous payment provisions take effect in fiscal year 2030, which begins on October 1, 2029. In November 2025, CMS indicated that it plans to issue further guidance to states on how to implement this section of the law.18 That guidance has not yet been released and could come in the form of preliminary guidance or a proposed regulation. H.R. 1 does not require CMS to use a specific regulatory pathway for implementation.

H.R. 1’s erroneous payment provisions will have a disproportionate impact on some states.

The following table illustrates the state rates during the most recent audits, including which states had rates over the 3 percent threshold, making them subject to penalties under the new law starting in 2029. As mentioned, the most recent national Medicaid PERM rate is 6.12 percent.19

https://e.infogram.com/9aa9d988-11e2-4560-9353-e6e1cb856afa?src=embed&embed_type=responsive_iframe

H.R. 1 already puts extensive strain on state budgets, shifting costs for Medicaid, the Supplemental Nutrition Assistance Program (SNAP), and other programs from the federal government to states. The erroneous payment provision contributes to this by adding yet another potential reduction in federal funding and further jeopardizing states’ fiscal stability. In response, states may adopt stricter approaches to eligibility determinations, such as requiring complete documentation or prior authorization before payments are made. These changes could delay treatment for patients, add additional medical debt or uncompensated care if care is not covered, add additional administrative burden for patients and providers, and put states out of compliance with federal application processing times.

Although the provision is intended to reduce erroneous payments, error rates are likely to rise as states implement other H.R. 1 provisions that make processes more complex — such as adding Medicaid work requirements and doubling the frequency of eligibility redeterminations for individuals eligible for Medicaid under the Affordable Care Act Medicaid expansion. These changes increase the risk of errors, and states may not have sufficient time to fully adjust before the new erroneous payment rules go into effect in 2029.

Recommendations for Reducing Fraud, Waste, and Abuse

Given the potential negative impact of the H.R. 1 provisions on states, policymakers have an opportunity to identify other options that could be more effective at reducing erroneous Medicaid payments. The Medicaid and CHIP Payment and Access Commission (MACPAC), Government Accountability Office (GAO), and National Association of Medicaid Directors (NAMD) have each offered recommendations to reduce unnecessary spending in Medicaid.20

About Medicaid Program Integrity

When designed and implemented well, program integrity initiatives help to ensure that:

• eligibility decisions are made correctly
• prospective and enrolled providers meet federal and state participation requirements
• services provided to enrollees are medically necessary and appropriate, and
• provider payments are made in the correct amount and for appropriate services.

Data: Statement of Tim Hill, Commissioner, Medicaid and CHIP Payment and Access Commission, “Examining How Improper Payments Cost Taxpayers Billions and Weaken Medicare and Medicaid,” Committee on Energy and Commerce, Subcommittee on Oversight and Investigations, U.S. House of Representatives, Apr. 16, 2024.

Of these, NAMD’s recommendations are particularly helpful to consider as state Medicaid agencies share the federal government’s commitment to safeguarding Medicaid funds. Program integrity efforts depend on effective collaboration between state Medicaid agencies and CMS. NAMD recently outlined five core areas of recommendations to improve program integrity in Medicaid:

• Strengthen the federal and state partnership through training, technical assistance, and structured collaboration. Expanding access to the Medicaid Integrity Institute and strengthening peer-to-peer learning opportunities are two options. Other strategies include enhancing the role of the Fraud, Waste, and Abuse Advisory Group and convening key program integrity partners, including Medicaid agencies, program integrity units, and others.
• Provide targeted support for high-risk service areas that present elevated program integrity risks. Suggestions include developing national risk indicators for high-risk services and providers, and offering more targeted guidance on monitoring strategies, including more frequent provider reverification and clearer documentation expectations.
• Improve data sharing and national visibility. Enhancing use of CMS’ nationwide dataset, the Transformed Medicaid Statistical Information System (T-MSIS), could allow program integrity efforts to be driven by actionable nationwide data — rather than a single state’s data. Agencies could then identify cross-state billing patterns, detect emerging fraud schemes, and flag providers operating across multiple jurisdictions.
• Enhance information sharing on providers and enforcement actions across programs. This would involve shifting from passive data collection to actionable intelligence across multiple programs, such as Medicaid, Medicare, and Veterans Affairs.
• Expand access to tools, technology, and analytic capacity to support program integrity efforts. Predictive modeling, data analytics, interoperable systems, cross-program datasets, and artificial intelligence tools — with appropriate safeguards — could help states develop a more complete picture and effectively identify suspicious patterns.

Additional details regarding these recommendations are available from NAMD.21

Of note, these strategies — as well as those set forth by MACPAC22 and GAO23 — are collaborative, not punitive. They focus on ensuring states have the resources they need to effectively prevent and address erroneous payments. They acknowledge that as fraud schemes grow increasingly complex and span multiple programs and jurisdictions, stronger coordination, expanded data sharing, and more closely aligned federal and state/territorial strategies are needed to effectively identify and address emerging risks. Both states and CMS can play key roles in helping this happen effectively.

In contrast, H.R. 1’s erroneous payment provisions — combined with the law’s broad Medicaid cuts — create considerable financial risk for states without pairing that with the supports necessary for states to effectively address erroneous payments. As a result, states may need to limit coverage or erect barriers to services for beneficiaries, who are the least likely actors to commit fraud against Medicaid.24

HOW WE CONDUCTED THIS STUDY

This study was conducted by analyzing the underlying statute of the One Big Beautiful Bill (H.R. 1) that was signed into law on July 4, 2025; reviewing CMS data on Medicaid program integrity, including the most recent data from FY2025 that was released in 2026; analyzing relevant regulations that govern requirements related to improper payments and Medicaid corrective action plans; reviewing the preliminary and interim guidance released by the Centers for Medicare and Medicaid Services (CMS) to date to implement H.R. 1; reviewing previous guidance from CMS regarding erroneous payments; reviewing recommendations from advisory bodies such as the Medicaid and CHIP Payment and Access Commission (MACPAC) and the Government Accountability Office (GAO); considering recommendations from entities such as the National Association of Medicaid Directors; and conducting a literature review.

https://www.healthcaredive.com/news/rural-health-transformation-fund-50-billion-push-hospitals-shrink/823206

To avoid losing funding, many states are pursuing proven cost-saving strategies like downsizing inpatient care rather than untested approaches, some experts say.

Listen to the article7 min

The Rural Health Transformation Program is beginning to reshape how hospitals in rural America deliver care. But with nearly a trillion dollars in Medicaid cuts looming and pressure to show results or risk losing funding, many states are pursuing the safest path available: paying hospitals to downsize.

Congress established the $50 billion, five-year fund under the One Big Beautiful Bill Act to improve healthcare access, quality and outcomes in rural areas — and to win over a handful of Republicans who threatened not to vote for the bill over concerns it would gut Medicaid funding and take out rural hospitals in the process.

The funds are meant to improve rural healthcare access, which has been declining in the U.S. for years. More than 100 rural hospitals have closed in the past decade, and more than one-third are at risk of closing, according to the nonprofit Center for Healthcare Quality and Payment Reform.

The OBBBA will reduce Medicaid spending by an estimated $911 billion over the next decade and increase the number of uninsured people by 10 million, according to the Congressional Budget Office. The RHT program, meanwhile, could offset 37% of the estimated cuts to federal Medicaid spending in rural areas, or about 5% of the total estimated cuts to federal Medicaid spending, according to a KFF analysis of the CBO’s estimates. 

In light of the massive funding cuts, the RHT program may not live up to its promises, experts say.

“If we weren’t facing a trillion-dollar cut in the Medicaid program over the next 10 years, this could be a once-in-a-generation policy,” said Bradley Cunningham, a regulatory and policy analyst at the Association of American Medical Colleges.

In December, all 50 states received their first-year awards, totaling $10 billion and averaging roughly $200 million per state. The program caps direct care spending at 15% of funds, steering the bulk of the remaining money toward infrastructure, technology, workforce and new care models.

However, states only had about seven weeks to prepare their applications. So, their plans largely focus on proven cost-cutting strategies rather than innovation, and now they’re locked into whatever they proposed.

“They had to prioritize speed over thoroughness,” said Aaron Bujnowski, a managing director with the healthcare industry group at consultancy Alvarez & Marsal.

As a result, rural health systems in at least 25 states will need to rightsize to receive funding, NPR reported in April. That can mean cutting services, such as dialysis or labor and delivery, or subsidizing conversions to the Rural Emergency Hospital designation, which requires eliminating inpatient care.

That could affect academic medical centers and other large providers, as they often absorb patients when rural facilities cut services or close. The wave of rural hospital closures over the past decade has already pushed patients to urban academic health systems, increasing volumes and straining capacity.

The point was driven home by an AAMC member who ran the only academic medical center in his state, said Leonard Marquez, senior director of government relations and legislative advocacy at the AAMC.

“He looked at me and said, ‘If my rural hospitals are not healthy, I cannot be healthy,’” Marquez said.

Five buckets, 50 plans

States are taking sharply different approaches to the RHT program. Bujnowski identified five broad categories: Downsizing and REH conversion, as in Kansas and Montana; workforce development, including Maine’s expanded scope of practice for physician assistants; technology and alternative payment models, with 42 of 50 states including some form of value-based care expansion; social determinants of health, including food-as-medicine programs in Arkansas and Pennsylvania; and states that are still refining their plans.

The applications for funding were “so divergent” that it’s difficult to discuss the program in holistic terms, Cunningham said. 

Moreover, the program’s clawback authority, which allows the CMS to reduce a state’s funding in subsequent years if it fails to demonstrate outcomes, is weighing heavily on states’ decision-making.

Read More in Hospitals

Because of this, states have strong incentives to pursue proven models rather than untested approaches, as they must demonstrate measurable progress in the first year or risk losing funding in the second.

That dynamic likely limits innovation and spurs cuts because reducing services will quickly lead to direct and measurable progress. So, states are more inclined to expand capitated primary care payments or subsidize REH conversions — interventions with existing track records — than attempt something novel without a demonstrated history of results.

Still, not everyone sees the service cuts as a loss.

Framing the program as incentivizing hospitals to shrink is misleading, said Robert Parris, a managing director who leads government-focused healthcare advisory work at consulting firm Huron. What’s actually happening, he said, is that communities are getting more of what they need and less of what they don’t.

“It’s more about reallocation as opposed to taking away,” Parris said.

The program is also shifting how leaders think — from what services a facility can provide within its own walls to what care the surrounding population actually has access to, said Paul Johnson, a managing director who works directly with rural hospital clients at Huron.

Many hospitals had these changes on their wish lists for years, but they couldn’t justify the investment because they were focused on surviving the next budget cycle.

“It’s almost like a license for them to pivot into things that they know they’ve had to do,” Johnson said.

Programs over people

But with nearly half of rural hospitals operating in the red, the 15% direct-care cap doesn’t replace what they lost from Medicaid cuts, forcing difficult decisions about which services to keep.

Hospital boards are weighing four options, Bujnowski said: Close services, convert to a Rural Emergency Hospital, develop truly innovative payment models or improve access to technology like digital health tools.

In many instances, the first two offer the clearest path to continued funding under the RHT program.

The need to demonstrate outcomes, as well as the looming threat of funding clawbacks, could also cause hospital leaders to become overly focused on program management at the expense of the communities they serve.

“The most common mistake could be to put programs over people,” Bujnowski said.

The best leaders will ensure their initiatives stay aligned with what patients in their communities actually need. Boards should ask what sustained, community-appropriate care looks like beyond 2030, when the program’s funding runs out.

“That should be your North Star,” Bujnowski said.

But whether the program’s limitations allow for genuine transformation — or simply a managed, federally-funded downsizing — is a question that won’t be answered for years.

http://www.rockinst.org

In a recent blog post, Looming Government Shutdown? A Brief Overview of Expiring Federal Authorizations, the Rockefeller Institute of Government detailed the health care policies and programs requiring an extension and, in some cases, funding by Congress. For over two weeks now, failure to reach agreement on a Continuing Resolution (CR) to keep the federal government fully funded has resulted in a temporary federal shutdown.

The debate is both highly nuanced and politically charged. It involves multiple healthcare issues. The House passed a CR (sometimes also referred to as an extender) that would largely continue current funding levels through November 21, 2025, but with some new spending items, such as additional funding for congressional member security. Thus far, the Senate majority has not had the votes to pass the extender.

Under Senate rules, 60 votes are required to overcome a filibuster. This necessitates at least seven Democratic senators to vote with the Republican majority for passage. Only three Democratic senators and one Independent have voted in favor of the House-passed extender to date, and one Republican did not vote with the majority. This leaves the current vote count at 56 out of the necessary 60 votes.

The Democrats are seeking an amendment to the Republican supported CR, which would fund the government through October 31, 2025. At the core of the current dispute, the Democratic minority is seeking, among other things, in its proposed amendments: (1) restorations of the health care cuts in the recently passed HR1—also known as the One Big Beautiful Bill Act (OBBBA), and (2) permanent extension of federal funding not included in HR1 for enhanced subsidies—known as advance premium tax credits (APTC). APTCs provide additional federal funding to lower the cost of health insurance coverage purchased through the Affordable Care Act (ACA) marketplaces. These enhanced APTC subsidies were initially authorized during the COVID pandemic and are set to expire at the end of 2025, unless extended. In essence, the disagreement is over the health care cuts HR1 made, which were followed by more restrictive regulations governing the purchase of health insurance coverage, and whether Congress will continue COVID-era enhanced subsidies.

Additionally, while not included in the broader media coverage, the Rockefeller Institute has previously highlighted October 1, 2025, as the scheduled implementation date for reductions to Disproportionate Share Hospital (DSH) payments. DSH provides federal funds to hospitals that serve a high number of low-income and uninsured patients to help cover their uncompensated care costs.¹ Language delaying the cuts to DSH is in both the Republicans’ CR as well as the Democrats’ proposal.

Restoration of HR1 Cuts

Prior work by the Institute, as well as other commentators, has detailed the funding cuts and other changes included in HR1 and through federal regulation, and their adverse impacts on New York’s $300 billion healthcare economy.

The Democratic minority in the Senate is seeking restorations for all of the health provisions changed in HR1. Of the Democrats’ proposed restorations, three specific areas that have been the subject of the Republican majority’s criticism include proposals relating to the financing of healthcare for certain non-citizens (both lawfully residing and illegally residing). The proposals or restorations include: (1) permitting particular lawfully residing immigrants (persons residing under color of law, or “PRUCOL”) to purchase health insurance on the official ACA marketplace, who were excluded in HR1; (2) reversing the narrowed definition of PRUCOL in HR1; and (3) restoring the federal matching share of emergency Medicaid funding which was reduced in HR1.

These issues have been subject to oversimplification in public and political discourse. Prior Rockefeller Institute of Government writings have clearly detailed these programs and who is or is not eligible. At the core of the issue, with limited exception relating to the percentage of federal funding for emergency Medicaid,² federal funds have always been prohibited from funding coverage for those who are not lawfully residing in New York or other states. However, HR 1 also significantly reduced federal funding for both emergency care, which is provided to undocumented persons during a life-threatening emergency, and for lawfully residing residents, like refugees and asylees, that was previously authorized.³

New York estimates the changes to the definition and eligibility for the tax credits in HR1, and the enhanced subsidy expiration that was not extended in HR1, would result in a loss of over $7.5 billion in funding to New York’s healthcare economy, beginning January 1, 2026. In particular, the change in HR1 removing certain immigrants from eligibility for APTC reduces available federal funding to the State. As a result of these changes, on September 10, 2025, New York made a request to terminate the Section 1332 State Innovation Waiver and return to the Basic Health Program, risking coverage for approximately 450,000 New Yorkers with incomes between 200 and 250 percent of the poverty limit who, as a result of the loss of funding will have to purchase coverage on the exchange, obtain coverage through their employer or become uninsured. The comment period for the notice concluded on October 10, 2025, and anticipated submission to CMS was scheduled for October 15, 2025.

Some portion of the restoration of HR1 cuts that are being proposed may, however, go to undocumented immigrants with respect to emergency Medicaid funding. Medicaid pays a share of the financing of emergency Medicaid services for persons with life-threatening or organ-threatening conditions—this was the case both before and after HR1. HR1 continues to fund emergency Medicaid, but reduces the federal share from 90 percent to 50 percent for certain adults.

According to New York State Department of Health data provided to the Empire Center for Public Policy, a think tank, as of March 2024, there are 480,000 noncitizens enrolled in the emergency Medicaid program. These are largely undocumented immigrants who are otherwise not eligible for Medicaid or the Essential Plan as a qualified alien, PRUCOL, or through any other program. Absent emergency Medicaid federal funding, however, hospitals would still be required to provide care in emergent situations under the Federal Emergency Medical Treatment and Labor Act (EMTALA ) without federal money to reimburse those hospitals for that care. EMTALA was a bipartisan bill that was signed by President Regan back in 1986. Among other things, EMTALA protects everyone—primarily US citizens—who need immediate emergency care by requiring hospitals to treat patients whether they have proof of identity or insurance, or not.

The debate in Washington over restoring cuts passed in HR1 may not be resolved in a CR. Despite the potential impacts on federal funding to New York associated with the currently passed CR in the House and, therein, maintaining HR1’s changes and funding cuts, there are other important elements that, if excluded from an agreement, would add to the impact of HR1 reductions.

This post summarizes two important issues that are of significant financial impact to New York, which could be important elements of a potential bipartisan compromise solution.

Extending Enhanced Advance Premium Tax Credits and Disproportionate Share Hospital Funding

In addition to restoration of the health care cuts in HR1, a second key issue in the current federal shutdown relates to programs with significant financial impact to New York that were not addressed in HR1: continued funding for Enhanced Advance Premium Tax Credits (APTC), as well as extension of the Disproportionate Share Hospital (DSH) funding at current levels. A permanent extension of the enhanced APTCs was included in the Democrat minority CR, and both parties included an extension of current DSH funding in their respective proposals.

Enhanced APTC

Enhanced APTC federal funds are used to lower health insurance premium costs for qualified health plan (QHP) coverage purchased through ACA health marketplaces. The extension of enhanced APTC, which was not addressed in HR1, relates to enhanced subsidies for purchasing qualified health plan (QHP) coverage. Existing subsidies for those not enrolled in Medicaid, Medicare, or other coverage that provide financial assistance beyond what was authorized under the Affordable Care Act (ACA) are set to expire on December 31, 2025.

The enhanced APTC subsidies were initially authorized during COVID-19 in the American Rescue Plan Act (ARPA) and extended in the Inflation Reduction Act.⁴ Not only were the enhanced subsidies for purchasing health insurance coverage increased (for those who were already receiving a subsidy) through advance premium tax credits, but eligibility for subsidies was expanded to include those above 400 percent of the federal poverty limit ($62,600 for an individual and $128,600 for a family of four in 2025).

The extension of the enhanced APTC was neither included in HR1, nor was it included in the Republican’s continuing resolution. As a result, it has been less widely publicized component of the current healthcare debate in Washington than the proposals to restore reductions in funding for non-citizen care, in the Democrat version of the CR.

At present, it remains unclear if the COVID-era enhanced premium tax credits will be renewed by Congress. The CR proposed by the Congressional majority only provides continued funding of existing programs through November 21st and would not solve the subsidy cliff (a sudden and steep increase in premiums for those purchasing coverage in the individual or small group market) before open enrollment begins on November 1st. Despite the fact that this issue remains open in the federal funding debate, there has been strong public support as of late for extending enhanced APTC. Of those polled by the Kaiser Family Foundation between September 23 and September 29, 2025, 78 percent of respondents indicated Congress should extend the enhanced tax credits (92 percent of Democrats, 82 percent of independents and 59 percent of Republicans).

Moreover, in mid-late September, Republican Senator Lisa Murkowski (AK), who voted against the CR, proposed a two-year extension in efforts to reach agreement on the potential shutdown, and news outlets reported⁵ that Republican senators were working on legislation that would extend the subsidies. At present, it appears Senator Murkowski is the only sponsor of her bill (S. 2824), which would extend the subsidies for two years. There is also currently proposed legislation, the Bipartisan Premium Tax Credit Extension Act (H.R. 5145), which would extend the enhanced subsidies for one year, through December 31, 2026. As of October 9th, 2025, there are 27 bipartisan House co-sponsors, including three members of the New York Congressional Delegation sponsoring the bill: Representatives Suozzi (D, NY-3), Lawler (R, NY-17), LaLota (R, NY-1).

Absent legislative action, it is estimated by the Kaiser Foundation that the cost to purchase health insurance in the individual market could increase by over 75 percent nationally due to the subsidy expiration.

While New York and other states would be impacted, the enhanced subsidies have the greatest direct impact in the 10 remaining non-Medicaid expansion states: Alabama, Florida, Georgia, Kansas, Mississippi, South Carolina, Tennessee, Texas, Wisconsin, and Wyoming.⁶ These states account for 79 house majority votes (out of 106 associated with the 10 states in total).

Moreover, there are particular and significant portions of the population within and outside of these states that would be greatly impacted. According to Kaiser, nationally, “more than a quarter of farmers, ranchers, and agricultural managers had individual market health insurance coverage (the vast majority of which is purchased with a tax credit through the ACA Marketplaces). About half (48%) of working-age adults with individual market coverage are either employed by a small business with fewer than 25 workers, self-employed entrepreneurs, or small business owners. Middle-income people who would lose tax credits altogether are disproportionately early and pre-retirees, small business owners, and rural residents.

And while the ACA Marketplaces have doubled in size nationally since these enhanced tax credits became available, more than half of that growth is concentrated in Texas, Florida, Georgia, and North Carolina.”⁷

DSH Funding

Medicaid Disproportionate Share Hospital (DSH) payments are federal payments to hospitals that serve a high number of low-income and uninsured patients to help cover their uncompensated care costs. These payments are a critical form of financial assistance for “safety-net” hospitals, helping them remain financially stable and continue providing essential services to vulnerable populations. Federal law requires states to make these payments to qualifying hospitals, but there are overall and state-specific limits on the total amount of funding available.

Funding for the DSH program was set to expire on or about October 1, 2025. Extension of the DSH program was not included in HR1. As discussed below, the impact on “safety-net” hospitals in New York is significant.

Impact on New York

Expiration of Enhanced APTC

In 2022, the last time the Enhanced APTC subsidies were set to expire, New York State estimated that their expiration would increase premium costs for qualified health plan (QHP) enrollees by 58 percent and reduce funding to the Essential Plan by $600–$700 million.⁸ New York recently estimated the impact at 38 percent following passage of the House bill, which did not include the extension. According to NYSOH, the subsidy benefits nearly 140,000 New Yorkers and reduces coverage costs by $1,368 per person annually (previously $1,453 in 2022), which equates to over $200 million in federal funding that would be diverted from New Yorkers currently purchasing coverage on the exchange.

Additionally, New York has experienced higher-than-average premium increases in recent years, so when combined with reductions to subsidies, this may make it more difficult for people to afford to buy coverage and could further exacerbate the shrinking New York individual and small group health insurance markets. Premium increases in New York exceed national trends.⁹ Part of this in New York (as opposed to other states) is due to the use of various health-related taxes, which were detailed in How Health Care Policy in Washington Could Affect New York.

Rate increases for individual, small group, and large group health insurance for the 2026 plan year were reviewed and approved, with changes, by the Department of Financial Services (DFS) in August 2025. According to DFS, individual plans will increase by an average of 7.1 percent, while small group plans will increase by an average of 13 percent, both of which are significantly less than was requested by the insurers.

New York operates a Basic Health Program (BHP) option in the ACA, known as the Essential Plan (EP). The EP is a public health insurance program for New Yorkers with incomes above the maximum Medicaid eligibility (138 percent of the federal poverty limit) and below 200 percent of the poverty limit, or with the 1332 Waiver below 250 percent of the poverty limit (FPL). The BHP provision in the ACA only allows eligibility up to 200 percent FPL. Using a provision in section 1332 of the ACA that allows for federal regulators to make certain adjustments (or waivers), New York increased EP eligibility to 250 percent FPL. However, as a result of funding reductions enacted in the HR1, New York is currently seeking to reverse its waiver expansion, bringing the future maximum eligibility to 200 percent of the FPL.

Using January 2025 enrollment data, absent other changes, the estimated lost funding to the Essential Plan would jump from $1 billion to $1.2 billion. Changes enacted in HR1 (which the Democrats are currently seeking to reverse) reduce the value of the enhanced subsidies to New York by approximately one-third, as certain legally residing non-citizens are no longer eligible for any subsidies pursuant to the federal changes.¹⁰

Enhanced Premium Tax Credit—Impact of Expiration in New York ¹¹

An extension or lack thereof of the subsidy has important implications for healthcare financing and access to coverage in the State of New York. At present, New York stands to lose $1.2 billion to $1.4 billion associated with the loss of the enhanced subsidies, including $1.0 billion to $1.2 billion currently used to provide low-cost coverage to 1.6 million persons with incomes between 138 and 250 percent of the poverty limit and nearly $200 million for 140,000 individuals purchasing coverage on New York State of Health (NYSOH).

Timing for Consumers

November 1, 2025, marks the beginning of the open enrollment period for purchasing coverage on a state or federally operated exchange for the 2026 plan year. Consumers can begin renewing plans beginning November 16, 2025, for those purchasing a qualified health plan on New York State of Health (NYSOH), with a December 15, 2025, deadline to enroll in coverage that begins on January 1, 2026.

In addition to NYSOH’s website and app, New York health insurance notices for the 2026 plan year are to be sent out by November 1, 2025, detailing premium information, including any applicable APTC. The notices will also list the income used for the automatic renewal determination in a section titled “How We Made Our Decision.” For enrollees who do not agree with the renewal determination, they can update their application on NYSOH between November 16, 2025, and December 15, 2025, to avoid a gap in coverage starting January 1, 2026.

Those rate notices are already being loaded into the plan systems and NYSOH online, as it takes some weeks to get the rate notices set and out to enrollees. If Congress does not act imminently to reauthorize the expanded APTC, consumers will receive notices that reflect 2026 premiums without the expanded APTC.

Indeed, NYSOH has already put online, as of October 1, 2025, the ‘Compare Plans’ and ‘Estimate Costs’ tool on the website, which allows consumers to look at plan options and evaluate costs. And, for consumers using the tool now, it already reflects that the Expanded APTCs will not be available for 2026.

Potential Enhanced APTC Compromise

There are three basic options available to Congress with some variation on duration with regard to the enhanced APTCs. Congress could:

1. Allow the enhanced APTCs to expire. If no compromise is reached, Congress could simply do nothing and funding for the Enhanced APTCs will stop at the end of 2025.
2. Extend the existing enhanced APTCs. The parties could compromise and extend the enhanced APTCs either permanently or temporarily to some date certain. As noted above, a bipartisan bill (H.R. 4541) would extend the enhanced APTCs for one year, and Senator Murkowski carries a bill in the Senate (S. 2824) that would extend the subsidies for two years. The Senate Democratic minority CR would extend the existing subsidies permanently.
3. Modify the eligibility criteria for enhanced APTCs. Currently, eligibility has no income limit as such, but the enhanced APTC subsidies ensure that no one spends more than 8.5 percent of income for the benchmark silver plan. Congress could make changes that include: (1) modifying the eligibility criteria to the level under the ACA to 400% of the federal poverty level (FPL); (2) adjusting the limit of the percent of income for the benchmark silver plan above (or below) 8.5 percent; or (3) some other rules that limit or expand income eligibility.

Congress could also explore options that modify the maximum amount a household would be required to contribute towards the cost of coverage (currently 8.5% for households above 400 percent of FPL) or limit the application of the marketplace coverage rule, which was detailed in a prior Rockefeller Institute of Government report.

Expiration of Disproportionate Share Hospital (DSH) Funding

Additionally, scheduled reductions to DSH funding, that absent a change to New York State law, would primarily affect the availability of DSH funding for New York City, which were delayed from starting in October 2025 to October 2026 through 2028 in the initial House Reconciliation bill, but not included in HR1, are effective October 1, 2025, absent a federal extension. The DSH reduction has been delayed by Congress more than a dozen times since enactment through the ACA.¹²

Under current law, the availability of $2.4 billion federal DSH funding to New York, or 15 percent of federal funding for DSH ($16 billion), would be reduced. DSH funding is matched by the state or locality (through an intergovernmental transfer), making New York’s total DSH program over $4.7 billion as of federal fiscal year 2025. The Medicaid and CHIP Payment and Access Commission (MACPAC) estimates New York State’s total DSH program, including federal and non-federal shares, would be reduced by $2.8 billion, which translates to a loss of $1.4 billion in federal DSH funding (or a nearly 59 percent reduction).

On September 23, 2019, immediately preceding the last government shutdown, CMS issued a final rule, finalizing the methodology to calculate the scheduled reductions to DHS funding, as initially enacted in the ACA, during the 2020 to 2025 period. It does not appear that the Trump administration has issued guidance related to implementation in 2025; however, the regulations track with the statute, meaning the Trump administration could implement the DSH reductions required under the ACA, absent agreement on a delay.

Like an extension of the enhanced subsidies for the APTCs, an extension (meaning a delay) of the DSH cuts is an important element for New York to avoid further significant loss of federal funding (in addition to the loss of funding as a result of HR1 and the potential expiration of the enhanced subsidies).

CONCLUSION

Multiple healthcare issues are at play in the Federal government shutdown. Democrats want to restore cuts and other actions made in HR1 in an effort to mitigate the impact on residents and the healthcare delivery system, including the State’s financial plan, while Republicans are not revisiting actions taken in HR1. Among others, requested cuts to be restored in HR1 include making certain legally residing non-citizens ineligible for federal funding to purchase comprehensive coverage on health insurance marketplaces, narrowing the definition of legally residing non-citizen for purposes of public program eligibility, and reducing the match rate for emergency Medicaid.

Two additional important issues are the impending expiration of enhanced subsidies for purchasing coverage on an official ACA marketplace and the impending implementation date for previously scheduled disproportionate share hospital (DSH) reductions. As referenced above, polling suggests that the extension of the subsidy has broad public support, and there is a bipartisan bill in Congress providing an extension. In the immediate days following the shutdown, positive polling around extending the enhanced APTC suggested there was a possibility of ending the shutdown with bipartisan support. While many states benefit from these subsidies, New Yorkers, more specifically, benefit from these subsidies on the exchange and in the Essential Plan, due to the State’s adoption of the Basic Health Program option for those with income slightly above Medicaid levels. While there is some coverage and indications of support regarding the enhanced APTC subsidies, the potential for the DSH cuts to be implemented is not in the mainstream media coverage.

Moreover, with regard to the enhanced APTC subsidies, we now see that the narrative from the Republican congressional majority is shifting,¹³ suggesting that the enhanced subsidies might not be part of resolving the current debate playing out in Washington.

Nevertheless, compromise is still possible, particularly in light of the disproportionate impact the expiration of the enhanced APTC will have on Republican-led states and the broad impact of the scheduled DSH reductions. One potential path to ending the shutdown where both sides could arguably claim victory would be to drop the demand for restoration of the health care cuts in HR1 in exchange for extending the enhanced APTC and again delaying the DSH cuts. While this potential “victory” would be a benefit to New York and reopen the federal government, that does not mean that the restoration of cuts enacted in HR1 would not also be important to New York in future negotiations.

It’s impossible to predict exactly where things are headed right now, but the Rockefeller Institute of Government continues to monitor developments in Washington, continuing past efforts to detail who and what is at stake in the current debates. This post is preceded by a series of healthcare reports, blogs, and podcasts by our health team, which include more information on the programs discussed in this post and related topics. More information can be found in these past works in the health series, which is available here.

https://www.axios.com/2025/10/02/government-shutdown-hospital-funding-medicaid?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

Hospitals in rural and underserved areas could lose out on billions of dollars in federal funding if the government shutdown drags on.

Why it matters: 

Many hospitals already run on tight margins and are bracing for fallout from Medicaid cuts and other changes in the One Big Beautiful Bill Act.

The big picture: 

The immediate concern is health policies that expired when government funding lapsed at midnight Tuesday. Health providers and their lobbyists expect Congress will make providers whole in an eventual funding deal and reimburse claims made during the shutdown.

• But that’s not a given. And uncertainty about how long the shutdown will go on is leaving some of the most financially vulnerable hospitals in limbo.
• “There’s just that underlying fear of, oh my gosh, what if they can’t come together on any agreement to open the government again, and we all get looped into it,” said Kelly Lavin Delmore, health policy adviser and chair of government relations at Hooper Lundy Bookman.

State of play: 

Safety-net hospitals face an $8 billion cut to Medicaid add-on payments in the absence of a government funding package.

• The cuts to so-called disproportionate share hospital payments originate from the Affordable Care Act.
• Congress has postponed the pay reductions more than a dozen times, but the most recent delay expired on Tuesday and Congress hasn’t signaled if or when it will step in.

The add-on payments are made quarterly, so hospitals may not feel immediate effects, even if Congress doesn’t further delay the cuts, according to the American Hospital Association. But state Medicaid agencies could let the cuts take place if they think lawmakers’ standoff will continue indeterminately, per AHA.

• The uncertainty “really impacts that predictability and reliability as it relates to funding,” said Leonard Marquez, senior director of government relations and legislative advocacy at the Association of American Medical Colleges.
• If the cuts do take effect, it would significantly hamper hospitals’ ability to care for their communities, Beth Feldpush, senior vice president of advocacy and policy at America’s Essential Hospitals, told Axios in a statement.

Additionally, two long-running programs that give pay bumps to rural hospitals expired on Wednesday.

• One program adjusts Medicare payment upward for rural hospitals that discharge relatively few patients.
• The other gives increased reimbursement rates to rural hospitals that have at least 60% of patients on Medicare.
• They were designed to keep care available in communities that might otherwise not be able to support a hospital.
• Both programs have expired in the past, only to be brought back to life with claims paid retroactively.

Zoom out: 

Hospital industry groups have also been urging Congress to extend enhanced Affordable Care Act tax credits, which have become a flashpoint in the shutdown fight. Democrat lawmakers have so far refused to pass GOP-led funding proposals that don’t include a full extension of the subsidies.

What they’re saying: 

AHA is urging Congress to find a bipartisan solution and reopen the government, a spokesperson told Axios.

• “Patient care doesn’t go away with the loss of coverage and the loss of funding,” said Lisa Smith, vice president of advocacy and public policy for the Catholic Health Association.
• “I just don’t know how long that’s going to be sustainable for our facilities that are really already operating on the margins.”

https://www.visualcapitalist.com/mapped-health-insurance-as-a-share-of-median-income-by-u-s-state/

Health Insurance as a Share of Median Income by U.S. State

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

Key Takeaways

• Vermont tops the list, with insurance costing 19.6% of median income.
• New Hampshire residents spend just 4% of their income on health insurance, the lowest in the nation.

Americans pay wildly different amounts for health insurance depending on where they live. This map shows which states pay the most (and least) when health insurance costs are measured as a share of median income.

The data for this visualization comes from WalletHub. It analyzed silver-tier health plan premiums in all 50 states and compared them to local median incomes to determine cost burdens.

Vermont and West Virginia Lead in Cost Burden

In Vermont, residents spend 19.6% of their monthly income on health insurance, the highest share in the country. West Virginia follows closely at 18.8%.

The South and Mountain West Feel the Pinch

Many Southern and Mountain West states, like Mississippi, Wyoming, and Louisiana, also rank high in insurance cost burden. These regions tend to have poorer health outcomes and lower median incomes, exacerbating affordability issues. As Brookings notes, Medicaid expansion status and rural demographics heavily influence insurance markets in these areas.

New Hampshire and the Northeast Are Least Burdened

New Hampshire residents spend just 4% of their income on health insurance, the lowest in the nation.

Massachusetts, Maryland, and Minnesota also enjoy low cost burdens. These states often have robust state-run exchanges, higher incomes, and broader Medicaid expansion, all of which help reduce costs.