Recent Changes
Medicaid policy has been much in the news since the passage of the latest federal budget bill. While the Medicare and Medicaid programs were formed in 1965 as part of President Johnson’s Great Society, the two ended up quite different. As a national healthcare program, Medicare has been known for its consistent national payment and claims adjudication policies. Medicaid, by contrast, represents unique state approaches to providing healthcare to the poor, all of which have resulted in a vast diversity of rates and policies. In California, for example, the program is called Medi-Cal and not Medicaid. As outlined below, new policy provisions will make this diversity even more challenging.
On July 4, 2025, a major budget reconciliation bill was signed into law that significantly reduces federal Medicaid spending. The legislation cuts federal Medicaid expenditures by an estimated $1.035 trillion over ten years—approximately 15%. The largest reductions affect states that adopted the ACA Medicaid expansion, accounting for about $526 billion of the total. As a result, up to 11.8 million enrollees nationwide may lose coverage.
Impact on Payments
Most billing staff will tell you that Medicaid claims are the most difficult to process and collect. There are two primary reasons for this. First, Medicaid programs often have highly specific and plan-dependent submission requirements, requiring claims to be prepared precisely according to each plan’s rules. Second, verifying a patient’s eligibility for the exact date of service requires careful and thorough review of coverage details. There are also unique requirements for sterilization claims with very specific dates and signatures mandated.
In addition, the number of patients covered by Medicaid is expected to decline for several reasons, including changes to state eligibility requirements. This is particularly evident within managed Medicaid plans. The impact of these legislative and administrative adjustments is expected to become more apparent into 2026.
The number of patients covered by Medicaid varies by market (city versus suburb) and by facility type, with most hospital practices historically seeing between 5–15% of their cases with Medicaid plans. Although Medicaid claims are paid at discounted rates, the accounts receivable is booked at gross rates. A meaningful backlog in Medicaid claims can result in a significant increase in the total accounts receivable (AR), when in fact the resolution of the Medicaid AR would not yield such an increase in cash flow. Often a review of AR metrics is skewed by the Medicaid numbers.
The result of all these factors can make it very difficult to assess the true impact of Medicaid on the practice.