U.S. House Committees Advance Budget Reconciliation Bill, Major Impact on Healthcare

The U.S. House Energy and Commerce Committee (E&C) and the Ways and Means Committee this week held marathon sessions respectively, advancing a Republican budget reconciliation bill containing multiple healthcare provisions along party-line votes, including significant cuts to Medicaid.

The bill could still be adjusted when it goes to the full House or Senate for consideration. Republican lawmakers welcomed the advancement of this "big, beautiful bill." The legislation combines extensions of tax cuts from former President Donald Trump's first term with other conservative priorities, including cracking down on illegal immigration and eliminating clean energy programs.

However, to cover the bill's costs, Republicans had to include significant funding cuts, including in healthcare. The most aggressive reforms target the safety-net program Medicaid: E&C provisions total $625 billion in savings, but according to preliminary estimates from the Congressional Budget Office (CBO), this would cause approximately 8 million Americans to lose insurance.

Patient advocacy groups and healthcare providers condemned the legislation for weakening federal support for health insurance programs, saying it would disproportionately impact low-income Americans, women, immigrants, and people with disabilities. Democrats also attacked the bill for cutting services to the poor to fund tax cuts for the wealthy—with the largest share of tax cuts flowing to the highest-income American families—but ultimately failed to weaken its content before it left the committees.

E&C passed its text by a vote of 30 to 24 after more than 26 hours of deliberation; the Ways and Means Committee advanced its provisions by a vote of 26 to 19 after 17 hours. The bill now goes to the House Budget Committee, which will merge the two parts into one overall package. Republicans have set a goal of House passage by Memorial Day and Senate passage in early July. Senate Republicans are more cautious about cuts to health and social welfare programs and may make moderating changes to the bill.

Here are the main healthcare provisions of the legislation.

Medicaid

E&C approved the largest Medicaid overhaul in the program's sixty-year history. If the bill passes as currently drafted, it would significantly change the eligibility and funding structure of Medicaid and its sister program for children (which together cover nearly 80 million low-income Americans).

Republicans passed the first federal work requirement in Medicaid's history for beneficiaries. The policy requires able-bodied adults to work, volunteer, or attend school at least 80 hours per month to continue receiving Medicaid coverage. Republicans say the goal is to reduce "free-riding" in Medicaid and refocus the program on those truly in need.

"We don't apologize for prioritizing Americans in need over illegal immigrants and those who are able-bodied but choose not to work," E&C Chairman Brett Guthrie, a Kentucky Republican, said during the committee session Tuesday.

However, research shows that the vast majority of Medicaid members are already employed or qualify for exemptions. Many may instead lose coverage due to difficulties reporting their eligibility status to their states. In the few cases where work requirements have actually been implemented, the policy has also proven costly for states to administer and monitor, and it has not increased employment rates.

The work requirement would not take effect until 2029. This delay has frustrated some hardline Republicans who want the policy to start sooner. However, the delay pushes the requirement past Trump's departure from office and current lawmakers' reelection campaigns, shielding Republicans from voter backlash—a common trend with other unpopular policies in the bill.

The bill also requires Medicaid beneficiaries with incomes at or above the federal poverty line to pay higher costs for certain care, a reversal for a program that typically does not include cost-sharing. The bill would also increase paperwork burdens for enrollees, add eligibility verification requirements, and require states to verify the eligibility of their Medicaid expansion population twice a year instead of once. States would also need to more frequently verify beneficiaries' addresses and whether they have died.

The legislation would also shorten Medicaid's retroactive coverage period from three months after an individual applies to one month.

Notably, E&C also moved to limit taxes that states impose on healthcare providers, which allow states to draw down more federal Medicaid funding. These taxes are popular with states and providers because they can raise low Medicaid rates, but critics argue they are a financial maneuver that unfairly inflates the federal government's share of Medicaid costs.

The bill would freeze provider taxes at current levels and prevent states from creating new taxes. The bill also limits supplemental payments states can make to certain providers, capping them at Medicare payment rates—a significant cut compared to the current practice of capping them at commercial rates.

The legislation also eliminates the 5% federal Medicaid matching rate increase for expansion states established during the COVID-19 pandemic.

"We are being asked to sit in this room today and pretend that cutting Medicaid is some necessary evil, a difficult decision made in the name of fiscal responsibility. But that is not the case. This is a political choice my colleagues on the other side have chosen to make," New York Democratic Rep. Yvette Clarke said during the E&C session Tuesday.

Affordable Care Act (ACA)

The package says little about the ACA, possibly signaling that Republicans are reluctant to challenge the popular Obama-era law again. Since its passage in 2010, Republican lawmakers have repeatedly attempted to repeal the statute, without success.

Most notably, the Republican bill does not include extending the more generous ACA subsidies—which are seen as the reason for the surge in marketplace plan enrollment. Allowing the subsidies to expire at the end of 2025 is expected to save the government about $340 billion, but according to CBO estimates, about 4 million people would lose health insurance.

Congress still has time to act before the end-of-year deadline. But "this is an opportunity. There are a lot of provisions in the budget reconciliation package. This should be one of them," Wisconsin Democratic Sen. Tammy Baldwin said Wednesday at an Axios event.

"We believe the Senate could still write the enhanced premium tax credits into the text," Jefferies analyst Brian Tanquilut wrote in a research note on the draft.

The E&C bill would codify certain eligibility and income verification requirements for enrollees that the Trump administration proposed earlier this year, including tightening enrollment windows and subsidy eligibility checks, and limiting automatic renewals. The Ways and Means text also prevents auto-renewing enrollees from claiming subsidies for their coverage and blocks low-income individuals who join ACA plans during income-related special enrollment periods from receiving tax credits.

ICHRA

Among the Ways and Means Committee's lengthy tax provisions are several aimed at codifying the existence of Individual Coverage Health Reimbursement Arrangements (ICHRAs). These arrangements allow businesses to provide employees with monthly allowances to purchase health insurance on ACA exchanges. The first Trump administration expanded ICHRAs in a 2019 rule.

Such policies have grown steadily since then, though they still represent a small share of the ACA market. The proposal is a gift to the growing ICHRA industry and the emerging companies and large national insurers investing in these plans.

The Ways and Means legislation would rename ICHRA plans as "Customized Health Options and Individual Care Expenses" (CHOICE) arrangements, also allow employers to reimburse employees' exchange plan premiums through pre-tax payroll deductions, and create a tax credit for small businesses offering CHOICE coverage.

The bill also expands Health Savings Accounts (HSAs), allowing more Medicare seniors, participants in direct primary care arrangements, and enrollees in bronze and catastrophic ACA plans to contribute to HSAs, and allowing the accounts to be used for more services.

Pharmacy Benefit Managers (PBMs)

The legislation does not include the comprehensive top-down PBM reforms Congress has pushed for in the past, but it does include several smaller policies aimed at adjusting some of the more controversial business practices of these powerful drug middlemen.

The E&C bill would ban spread pricing by PBMs in Medicaid, a policy with broad bipartisan support. Spread pricing occurs when PBMs pay pharmacies less for dispensing drugs than health plans pay the PBM, pocketing the difference as profit. The policy was included in the stopgap funding legislation at the end of last year but was removed after billionaire Elon Musk, a close friend of the president, criticized the package.

The new Republican bill would also prohibit PBMs from being compensated based on a drug's list price, instead limiting their compensation to "fair market fees for actual services rendered." Essentially, the policy requires PBMs to pass on 100% of any savings they negotiate from drug manufacturers to their payer clients. This "100% pass-through" model is increasingly popular, with large PBMs pledging to increase use of such arrangements amid criticism that they retain large rebates as profit. Preventing PBMs from retaining rebates also appeared in year-end appropriations legislation but was removed before the bill reached then-President Joe Biden's desk.

The E&C bill would also force PBMs participating in the Medicare prescription drug benefit to disclose more information about their business practices to payer clients, including formulary decisions and prescription drug coverage.

Financial Relief for Hospitals and Healthcare Providers

The E&C legislation would, starting in 2026, tie Medicare's annual payment update for physicians to a medical cost inflation measure called the "Medicare Economic Index." This is a major victory for physician groups who argue Medicare reimbursement has not kept pace with rising business costs. A congressional advisory panel said late last year that the policy would bring physicians greater financial stability.

The Republican bill would also delay billions of dollars in Medicaid cuts to disproportionate share hospitals (DSH, hospitals serving large numbers of vulnerable patients) until 2029. Hospital groups have criticized these cuts, saying they would add financial pressure to DSH facilities, many of which already operate on thin margins.

Additionally, the legislation would delay until 2035 the implementation of nursing home staffing standards established by the Biden administration to ensure quality of care. The staffing requirement was strongly opposed by nursing homes, which argued they could not afford the compliance wage costs. The standard was originally set to begin phasing in in 2026, but a judge struck down the mandate earlier this year.

Artificial Intelligence

The E&C bill would prohibit states from enforcing any AI-related laws or regulations for 10 years. Although not specifically targeting healthcare, the proposal would affect several state laws regulating industry AI applications, including bans on payers using algorithms to deny patient care and requirements that providers inform patients when AI is used.

States have filled the void left by Congress—which has failed to pass any major AI legislation despite the surge in AI applications and their real impact on patient care. The ban suggests Congress may intend to pass national AI legislation. But in the meantime, the moratorium is a gift to tech companies—which complain about the difficulty of complying with a patchwork of state laws—and it removes what is almost the only external check on the industry.

Earlier this year, Trump reversed Biden's directive for HHS to regulate AI applications in healthcare, instead taking a hands-off approach that allows AI developers to operate largely unconstrained. However, the administration has embraced AI as a tool to dramatically reshape federal programs, with top health regulators touting the technology as a means to improve health research, access, and affordability.

The Ways and Means legislation would also allocate $25 million to HHS to contract with AI companies to track and recover overpayments in Medicare.

Culture Wars

Through the legislation, Republicans are also cutting healthcare programs and funding for specific groups that are perennial targets of MAGA Republicans, including transgender people and immigrants, as well as specific services such as abortion care.

The E&C text would prohibit Medicaid from paying for gender-affirming care for transgender individuals under 18 and prohibit gender-affirming care from being a benefit that ACA insurers must cover in their plans. The legislation also prohibits Medicaid from funding nonprofit family planning organizations that provide abortion care—namely Planned Parenthood. As a result, according to Colorado Democratic Rep. Diana DeGette, 1 million Planned Parenthood patients who rely on Medicaid could lose access to medical services such as cancer screenings and health checkups.

The E&C bill would also cut federal funding to states that allow immigrants without proof of citizenship to enroll in Medicaid. If implemented, the policy would affect a few Democratic-governed states such as California and New York. Similarly, the Ways and Means legislation would make large numbers of immigrants—including those granted asylum or with temporary protected status—ineligible for Medicare or premium tax credits to purchase ACA coverage. Noncitizen immigrants with incomes below the poverty line who are awaiting Medicaid coverage (even if legally present in the U.S.) would also no longer receive credits.