How Medicaid cuts threaten rural hospitals

The nonpartisan Congressional Budget Office estimated that the One Big Beautiful Bill Act passed by Congress on July 3 will cut federal spending on Medicaid and Children's Health Insurance Program benefits by $1.02 trillion, due in part to eliminating at least 10.5 million people from the programs by 2034.

With new federal limits on Medicaid eligibility likely increasing the number of uninsured, along with other provisions that restrict states' ability to raise revenue to fund their Medicaid programs, states will have to reevaluate their budgets to either supplement the spending or cut services.

In addition to that, the Idaho Department of Health and Welfare cut Medicaid reimbursement rates for all provider types and services by 4% on Sept. 1. That followed Idaho Gov. Brad Little's order to all state agencies in August to cut budgets mid-year by 3% ahead of an $80 million projected shortfall.

The Medicaid cuts are meant to reduce rapidly rising Medicaid costs, and more could come, state officials said. About 354,000 Idahoans are enrolled in Medicaid, a public assistance program that provides health insurance for people with low incomes, disabilities, children, pregnant moms and some seniors.

With that backdrop, the Post Register spoke with AJ McWhorter, IDHW public information officer, and officials from three rural hospitals in eastern Idaho about what these changes mean for medical care.

According to McWhorter, all services are affected by the 4% cut to provider reimbursement rates, including hospitals, clinics, long-term care and behavioral health services.

"DHW is still working with contracted managed care organizations to determine how the 4% reduction will be applied either to provider rates or service reductions," he said.

One top concern is how can the department ensure continued access to care, particularly in rural and underserved areas.

"DHW values our provider network and access to care for participants," McWhorter said. "Federal regulations require Idaho Medicaid to submit an access analysis and monitoring plan for review and approval by the Centers for Medicare & Medicaid Services following a period of public comment on this change.

"We appreciate the support from the governor’s office and the division of financial management to take a proactive approach to address rising costs in Medicaid. Had we waited until the session in January 2026 to take action, the rate reductions would be considerably higher."

According to McWhorter, the timeline for providers to receive payments should remain the same.

"We continue to have discussions with CMS concerning operationalizing the rate adjustments," he said. "Providers continue to be paid as usual."

McWhorter also discussed how the department evaluates any future cuts in the Medicaid program.

"In addition to decreasing coverage of optional benefits, the state could pursue changes to limit eligibility," McWhorter said. "For example, the state could limit the number of people who participate in home and community-based services or change income eligibility for certain groups.

"We continue to monitor the Medicaid growth trend and will produce updates through required budget reporting to the Division of Financial Management and the Legislative Services Office. Should we see continued growth in areas, we will examine necessary options in coordination with these offices with the goal to continue to provide accessible care to Medicaid-covered individuals."

McWhorter also outlined how DHW's supplemental budget request for Medicaid interacted with Little's 3% holdbacks for state agencies.

"Medicaid’s FY 2026 supplemental budget request of $60 million in general funds already accounts for the 3% holdback pursued through the 4% rate reductions," he said. "It also accounts for $3,875,600 requested from the Medicaid stabilization fund. Without the 3% holdback, Medicaid’s FY 2026 supplemental budget request would have been $93,429,200."

McWhorter said the DHW has a strategy to retain its provider network and mitigate the risk of an access-to-care crisis.

"The monitoring plan required by CMS will support efforts to maintain the provider network," McWhorter said. "Medicaid will also continue to offer customer service to help find providers in the participant’s area."

DHW will continue to monitor the effects of the cuts on patient health outcomes and access to critical services.

"DHW will follow CMS standards for analyzing and monitoring access," McWhorter said. "We are working with them to identify detailed requirements."

The Medicaid cuts will also impact Idaho residents who are dually eligible for both Medicare and Medicaid.

"DHW is still working with contracted managed care organizations to determine how the 4% reduction will be applied either to provider rates or service reductions," McWhorter said. "More information on these rate updates will be shared in the coming weeks as it takes a bit longer to work through managed care capitation payment updates and corresponding changes to provider rate and services."

Dr. Rachel Gonzales, CEO at Madison Memorial Hospital in Rexburg, Leianne Everett, interim CEO/CFO at Teton Valley Health Hospital in Driggs, and Jake Erickson, CEO of Bingham Healthcare which operates Bingham Memorial Hospital in Blackfoot, discussed how rural hospitals are impacted by the changes.

"The recent changes to Medicaid, including reduced reimbursement rates and the elimination of Healthy Connection payments, are projected to reduce our operating margin by 1.2%," Gonzales said. "This reduction puts increasing pressure on us to find operational efficiencies and effectively manage our expenses."

In Idaho, the Healthy Connections program previously offered benefits by providing care coordination and enhanced primary care services for Medicaid participants, but it is being replaced by a managed care model due to recent legislation.

The core benefits of the original program included better access to primary care, referrals to specialists, wellness visits, and, for higher tiers, 24/7 provider availability, telehealth and patient outreach, though these enhanced services may be lost in the transition. The shift introduces a potential gap in care coordination between the program's end and the new managed care system's launch, expected around 2029.

Rural hospitals must all tread carefully.

"We are an organization that runs on very thin, and sometimes negative, margins," Everett said. "The 4% Medicaid reimbursement reduction implemented on Sept. 1 and the upcoming loss of the Healthy Connections program reimbursement on Jan. 1 inevitably cause us to look for expenses we can reduce or eliminate.

"It is difficult to do, but even more difficult for the patient who has benefitted from the care coordination funded by Healthy Connections that have been proven effective at decreasing the overall cost for care by navigating patients to resources outside of the emergency room."

"The recent 4% Medicaid cuts and the elimination of the Medicaid Healthy Connections program has had a big impact on our financials," Erickson said. "As a rural, critical access hospital, we typically hover around the 1-3% margins each year. These are already very thin profit margins and any significant change from one year to the next can have a devastating effect on our operating budget. These cuts represent a possible reduction of reimbursements of nearly $750,000 annually for our organization. That represents almost 30% of our annual margin. This will very much negatively impact the bottom line on an ongoing basis.

"We will continue to see and serve the Medicaid population in our communities, accruing the same amount of cost, or in most cases costs have gone up, and will have to figure out how to make ends meet given this drastic reduction in reimbursements," Erickson said. "At a time where inflation costs have skyrocketed in the healthcare sector, most of which as an organization we have no control over, reductions in reimbursements instead of increases to keep up with inflation will not be sustainable long term."

All three hospitals do not yet know how the the Rural Health Transformation (RHT) Program will function. The program, administered by CMS, is a federal initiative providing $50 billion in funding to states over five fiscal years (FY 2026-2030) to improve healthcare access, quality and outcomes in rural areas. The program aims for system-wide change through state-developed plans addressing challenges like workforce shortages, financial stability of providers and infrastructure gaps.

"The impact of the federal Rural Health Transformation Program, as included in the One Big Beautiful Bill, on Madisonhealth is still to be determined," Gonzales said. "Much will depend on how “rural” is ultimately defined and how these funds are distributed. Our hope is that Idaho’s Legislature embraces these federal dollars and channels them into strengthening healthcare access across the state.

"At Madisonhealth, we are preparing to submit ideas that align with the program’s intent," Gonzales said. "While we would welcome and make meaningful use of direct funding, our greater priority is ensuring these resources serve the broadest good for Idahoans. Basic healthcare access must be secured first and foremost. For many in our communities, that means support not only in treatment, but also in navigating a complex healthcare system and addressing the social determinants of health that often drive poor outcomes.

"In addition, Idaho faces an urgent workforce challenge. For example, we rank 50th in the nation in physician supply. Federal support could help us recruit, retain and re-recruit the providers who are essential to caring for our growing population. Ultimately, these funds present an opportunity: to reduce barriers, strengthen our healthcare workforce and move Idaho closer to sustainable, equitable health for all."

Everett is hopeful about the program.

"We are cautiously optimistic about the help we hope to get from the Rural Health Transformation Program," Everett said. "We are applying for these funds, and we have innovative ideas for how these one-time funds will be used to help people living in the Teton Valley receive more of their care close to home and secure our organization’s long-term viability."

"We are absolutely applying for the funds," Erickson said. "At this time there are a lot of unknowns regarding how we will be receiving these funds, who they go to, and what the qualifications and award criteria are currently. We are grateful for this opportunity and will follow the directions given to us in order to be as competitive as possible to be able to receive some of these funds.

"However, these awards will most certainly not cover the losses we are now going to incur from the Medicaid cuts. It can be a help, but it will not protect the organization from the reductions in reimbursements we are going to experience."

Many rural hospitals in Idaho operate with low cash reserves and negative operating margins. Specific services, such as Obstetrics or Behavioral Health, may be at risk of being cut or closed.

"We feel the financial pressures that rural hospitals face, and we understand why services such as obstetrics and behavioral health are often seen as being at risk," Gonzales said. "At Madisonhealth, however, we do not plan to close these essential services. They are too critical to the wellbeing of our community. We see these services not as expendable lines on a budget, but as lifelines for the people we serve."

Erickson said Medicaid cuts impact more than a hospital.

"When Medicaid cuts force the closure of a service line, like Obstetrics or Behavioral Health, it doesn’t just affect Medicaid patients, it affects the entire community," he said. "With these cuts to the Medicaid reimbursements, the most likely service lines that would be at risk of being closed down would be those that have a high Medicaid payor mix. Those areas are Pediatrics, Obstetrics, Behavioral Health, Long-term Care services, and Urgent Care services."

According to Everett, no specific services are in danger at Teton Valley.

"We haven’t considered discontinuing any services, including Behavioral Health services, currently," she said. "Our goal is to find ways to sustainably offer services without sacrificing quality. Unfortunately, Obstetrics is a service our community needs that is heavily reliant on Medicaid. However, Medicaid reimbursement cuts push our ability to ever offer those services further out of reach."

Maintaining Medicaid patients' access to care is already difficult.

"Medicaid is a lifeline for many of the families we serve," Gonzales said, "so any reduction in spending or changes to eligibility ripple quickly through our community. We are already seeing patients who have lost coverage delay care or struggle to navigate the process of re-enrollment. That creates unnecessary barriers and, ultimately, leads to poorer health outcomes and higher costs down the road.

"For Madisonhealth, these changes also add financial pressure. When patients lose Medicaid coverage, hospitals like ours see an increase in uncompensated care. But our mission does not change — we will continue to serve everyone who comes through our doors, regardless of their ability to pay.

"What we need, and what we continue to advocate for, is stability and clarity in Medicaid policy," Gonzales said. "Predictable, adequate funding helps us sustain essential services and ensures that patients don’t fall through the cracks. At the end of the day, access to care should not be determined by shifting eligibility rules, but by the needs of the people of Idaho."

Everett is concerned about the loss of Medicaid for Teton Valley patients.

"Comparing our patient mix to other hospitals in the State of Idaho, the percentage of our community that relies on Medicaid is relatively small," Everett said. "However, Medicaid has never fully covered the cost of the care being provided. But partially covering the cost of care is preferred over no payment for services.

"These lives now covered by Medicaid will likely have no medical coverage in the future and less likely to have the financial means to pay for their care. This will result in an increase in our uncompensated care and bad debt."

Erickson said visits to the emergency room will increase.

"With the changes to the Healthy Connections program and the Medicaid cuts, access to care will most definitely be impacted for our patients," he said. "Private practice providers will most likely decide not to see Medicaid patients moving forward. This then forces those patients to find providers who do accept Medicaid and that is typically the community hospitals who are required to see everyone.

"With no care coordination from the Healthy Connections program, it will be more and more difficult to access the specialists and other services their current primary care provider assisted them in their care. It will also result in many Medicaid patients utilizing the emergency room for their primary care needs.

"This will flood the ER with non-emergent care, which will then result in making it very difficult for providers and staff to care for the true emergencies in a timely manner," Erickson said. "This will also end up costing the state more as the ER is the highest cost center of any site to receive care. Those costs will then still need to be covered by the state Medicaid budget which will likely be passed on to taxpayers or additional cuts to reimbursements to the providers in the state resulting in a cost shift instead of a savings to the overall Medicaid budget.

"This all results in limited access care and does not incentivize future physicians to come and practice primary care in Idaho. We already rank 50th in the nation in per capita primary care providers and these cuts and changes to the program will not help us in our quest to recruit and retain more primary care providers to our state."

This creates competing priorities of controlling costs versus maintaining access to essential, but often unprofitable services.

"Our goal and mission is to provide all of the necessary medical services to the communities in which we serve," Erickson said. "We take pride in the high quality and compassionate care we provide to hundreds of thousands of patients annually throughout our system.

"However, we do acknowledge that some of these service lines currently operate in the red but are necessary and essential services to be provided in the community. With the high inflation costs and the cuts to reimbursements to the Medicaid program, we will have to enter into serious discussions and plans in order to decide which services will continue and which ones we will need to cease offering to our communities.

"We have always attempted to control our costs to the services we provide," Erickson said. "However, we are not in control of the effects of inflation, rising labor costs, rising supply cost and skyrocketing pharmaceutical costs. We are getting creative and working every angle possible to find savings and cut costs, but there is only so much that can be cut in a service line before we cannot logically continue to provide that particular service."

"At Madisonhealth, we view cost control and community access not as opposing priorities, but as responsibilities we must balance with care," Gonzales said. "Many of the essential services our community depends on — such as Obstetrics, Behavioral Health, and emergency care — do not generate strong margins. Yet these services are foundational to the health, safety and vitality of our region."

Teton Valley Health Care faces the same issues.

"As a non-profit hospital serving our community, we are a mission-driven organization," Everett said. "We must continually evaluate what services we provide and the model with which we deliver the services. These evaluations need to identify sustainable pathways to continue providing much needed care to our community.

"With a growing community, we believe we can add capacity to treat more patients, develop profitable service lines to supplement important, non-profitable services and become more efficient with our current services. Through that, we should be able to find the right balance of margin that supports our mission."

Recruiting and retaining healthcare providers is also a key topic for all rural hospitals.

"We do not predict that the Medicare and Medicaid policy changes will affect our ability to recruit and retain providers in the near future," Gonzales said. "The prolonged impact of changes could affect our ability to maintain various service lines, which would then in turn affect our ability to retain those providers."

How much it costs to live in Driggs is an issue at Teton Valley.

"The cost of living in our valley is often prohibitive for a large percentage of our applicants for all positions in our organization," Everett said. "We have done the best we can to offer temporary housing at a reasonable price, but there is a limit to what we can afford. When the housing challenges along with inflating costs in so many needs like childcare, gas, food, etc., it is very difficult for our staff to make ends meet. Any reduction in reimbursement has a negative effect on our ability to respond to our staff’s needs and adds difficulty to the prospect of attracting and retaining staff."

Bingham Memorial also faces a competitive labor market.

"We have to be competitive in pay for all positions in our organization, including the physicians," Erickson said.

"Reimbursement rates most definitely play a major factor in our ability to be competitive in this current labor market. As our reimbursement rates get cut, our ability to generate the necessary revenue to pay our staff and physicians becomes very challenging. The ability to retain our current staff, who are very skilled and dependable, becomes difficult as well due to the ever-increasing offers they constantly receive to work in other sectors of healthcare.

"We have continued to invest in our staff with annual wage increases to try and keep up with inflation and demand, but cuts in reimbursements will play a major role in not being able to continue to offer those benefits to our employees."

Everett emphasized a couple of thoughts related to changes in reimbursement and the law to close the discussion.

"First, Idaho needs to come up with a replacement for Healthy Connections," she said. "The effort that is made by healthcare providers to guide patients to less costly care is huge, and it does bring down the cost of care to the state.

"The other is with the premium tax credits being removed for those who have been able to gain insurance coverage on Your Health Idaho, a significant number of people are going to find themselves uninsured," Everett said. "Not being insured makes it nearly impossible to pay hospitals when services are needed. If hospitals like ours are unable to collect on services we render, it becomes very difficult for us to survive."