Cuts to Medicaid Would Hurt Rural & Safety-Net Hospitals

Medicaid has emerged as a central flashpoint in the tax reform debate as Republican leaders look to cleave $880 billion from the program to partially offset tax cuts. With 72 million Americans on the program—including children, seniors, pregnant and postpartum women, those with low-incomes, and people with disabilities—there is widespread concern that Republican cuts would decimate access to care. Those concerns are absolutely warranted, but there’s another issue that’s gotten far less attention: cuts to Medicaid would also hurt rural and safety-net hospitals.¹

In this memo, we highlight how Medicaid is an essential funding stream for rural and safety-net hospitals. We also break down how broad cuts to Medicaid would be disastrous for those providers and suggest smarter health care savings that won’t hurt patients.

Medicaid Is an Essential Funding Stream for Rural and Safety-Net Hospitals

Medicaid is a crucial source of funding for the US hospital system. Hospitals serving patients in lower-income and rural communities especially rely on Medicaid to stay open and provide critical services. Here are the key facts:

All hospitals depend heavily on Medicaid funding.

• Medicaid spent $283 billion in 2023 on hospital care.
• Hospital care accounts for nearly 1-in-3 total Medicaid dollars.
• Each year, 19% of total US spending on hospital care is through Medicaid.

Rural hospitals are already struggling—Medicaid cuts would exacerbate these challenges. 

• More than 60 million Americans live in rural areas, yet 100 rural hospitals have closed recently; 700 more are struggling financially and facing closure.
• Each closure leaves rural patients, on average, an additional 20 miles farther from access to inpatient care.
• Rural hospitals are closing at higher rates in states that haven’t expanded Medicaid as part of the Affordable Care Act, demonstrating the importance of Medicaid funding to rural hospitals.

Safety-net hospitals that serve high rates of Medicaid patients are at particular risk.

• Hospitals with higher shares of revenue from Medicaid also have, on average, lower profit margins than other hospitals.
• Low patient volume and higher rates of uncompensated care contribute to financial insecurity.
  • Higher uninsured rates due to significant Medicaid cuts would worsen both of those challenges, intensifying the financial strain on already at-risk, safety-net hospitals.

Broad Cuts to Medicaid Would Be Disastrous

The most disastrous proposal Republicans are considering is a cap on spending per person in the Medicaid program, known as “per capita caps.” This policy would cut the Medicaid program by up to $890 billion, with $300 billion in cuts to hospitals, by capping federal funding to states at a fixed rate per Medicaid enrollee. If this happens, states would be forced to cut benefits and eligibility, decreasing revenue for hospitals that rely on Medicaid payments to operate. House Energy and Commerce Chairman Brett Guthrie is a longtime supporter of this policy.

Another Republican proposal involves establishing work requirements for certain enrollees. These requirements would cut the program by an estimated $110 billion, with $37 billion in cuts to hospitals due to patients losing coverage and forgoing treatment. But work requirements have proved to be highly problematic: state-level attempts to implement work requirements have led to people losing coverage without producing increases in employment rates.

Other significant cuts to Medicaid could come from arbitrary federal caps on Medicaid spending, which would decrease federal matching to states. These would create barriers to enrollment, meaning hospitals have less patients to care for. This approach would also see uncompensated care increase, leading to cuts in essential services, staff reductions, and even closures. As current enrollees lose coverage, uninsured populations will increase, resulting in less preventive care and leading to more emergency room visits and uncompensated care for hospitals. Hospitals that service higher proportions of patients covered by Medicaid would be impacted the most. 

An Alternative Approach: Smarter Savings in Health Care

Republicans are pursuing cuts to Medicaid as a means of offsetting their tax and spending priorities. But cutting Medicaid is the wrong approach. If policymakers are looking for savings, there are numerous other options that would lower costs for patients and benefit the health care system overall.

Before the reconciliation process began, committees circulated a long list of potential offsets, some of which would target waste and abuse in health care. Below is a list of offsets and their savings that would fulfill President Trump’s promise not to touch Medicare and Medicaid—while improving health care affordability.  

Ideally, the policies above would be enacted in stand-alone legislation and would expand access to coverage. The American health care system isn’t perfect—rural and safety-net hospitals struggle while large hospital systems consolidate and overcharge patients. Some of the reforms above would correct these disparities without risking widespread loss of health coverage for vulnerable Americans.

Conclusion

Protecting Medicaid means protecting hospitals and patients.

Enacting so-called reforms that would cut the Medicaid program would devastate already struggling hospitals in rural and low-income communities, leaving millions without access to care. Lawmakers should reject proposals that harm rural and safety-net hospitals and patients and, instead, pursue smarter reforms that lower costs without reducing coverage. Protecting Medicaid isn’t just about funding—it’s about ensuring that rural and underserved Americans have a hospital to turn to when they require care.