This story was reported and written by VPM News.
Virginia hospitals will lose out on $26 billion over 14 years under changes to the Medicaid program in President Donald Trump’s tax and spending law, according to new state estimates.
The new federal law — legislation once known as the “One Big Beautiful Bill” that Trump signed on July 4 — is expected to slash federal funding for Medicaid, the government-backed program providing health care coverage for eligible low-income adults, families, children, pregnant people and people with disabilities.
It will bring new requirements for Medicaid members and restrictions on taxes levied on hospitals. The nonpartisan Congressional Budget Office estimates it will lead to 10 million fewer people with health insurance in 2034.
In Medicaid expansion states like Virginia, the law also calls for Medicaid managed care organizations to reduce payments to health care providers by 10% each year starting in 2028 until it’s 100% of the Medicare rate.
This change to state-directed payments is estimated to cause a $26 billion reduction over 14 years because MCOs in Virginia pay providers well over the Medicare rate, according to Chris Gordon, the chief financial officer of Virginia’s Department of Medical Assistance Services.
Gordon told lawmakers last week that modeling shows such a loss in funding would have significant ramifications for the state’s economy.
The cuts will create “a macroeconomic financial shock, not just to the hospitals, but also for the state writ large,” Gordon told the General Assembly’s Joint Subcommittee for Health and Human Resources Oversight in a presentation on July 15.
Gordon added: "There will be a reduction in labor force participation — because the quickest thing to do is reduce head counts when you're faced with something like that — as well as population, as people move to try and migrate out to do jobs elsewhere.”
A spokesperson for Gov. Glenn Youngkin called Gordon’s remarks into question, writing in a statement last week that the “comments were not based on an official DMAS analysis.”
“Any economic impacts should be evaluated by individuals with specific expertise in hospital finance,” Youngkin spokesperson Peter Finocchio added.
DMAS provided a similarly worded statement Tuesday: “These speculative comments were not based on an official DMAS analysis. Any economic impacts should be evaluated by individuals with specific expertise in hospital finance and economics.”
The department did not respond to questions on who in Youngkin’s administration approved the presentation and if the department stands by the estimates. It also did not provide the modeling Gordon referenced.
Finocchio did not respond to follow up questions on if Youngkin has been briefed on the DMAS estimate and whether the governor has concerns over the potential reduction and reports showing Virginians will lose their coverage. Instead, he touted new requirements that able-bodied Medicaid recipients engage in 80 hours a month of work, community service, education or a combination thereof.
“Medicaid was originally formed as a safety net for people who otherwise couldn't go to work, but today there are an estimated 40,000 to 50,000 able-bodied people currently not going to work who should,” Finocchio said in a Monday statement. “The Medicaid reforms in the One Big Beautiful Bill will provide accountability for those abusing the system while ensuring that individuals who are truly disabled, have dependents, or are elderly still have access to the benefits they rely on. That’s something the vast majority of Americans and Virginians fully support.”
Finocchio cited a 2018 state study from the nonpartisan Joint Legislative Audit and Review Commission that estimated 7% of the Medicaid expansion population would be “deterred from enrolling or leave the Medicaid program” due to proposed work requirements when Virginia expanded coverage to eligible low-income adults.
An Urban Institute study from June found 69% of Medicaid expansion enrollees do work or go to school, with only 2% reporting a lack of interest in a job as their reason for not working.
Critics of such requirements have pointed to estimates and reports finding they don’t lead to an increase in employment, arguing they instead create barriers that will increase the number of uninsured people.
Gordon, who as DMAS CFO has overseen Virginia Medicaid’s financial operations since February 2019, and other state officials outlined the potential effects of the new law to the subcommittee.
The new law calls for phased-in reductions to the provider taxes that covers Virginia’s share of Medicaid expansion costs and draws down federal dollars for Medicaid supplemental payments.
For Virginia’s Medicaid expansion population, the federal government covers 90% of the annual costs. The state pays the rest through a 6% coverage assessment tax it levies on patient revenue at 63 private acute care hospitals.
The new federal law requires Virginia to lower that tax by half a percentage point each year starting in October 2027 until it hits 3.5% in 2032. (That timeline is based on federal fiscal years, which run from Oct. 1 to Sept. 30; Virginia’s fiscal year runs from July 1 to June 30.)
The private provider tax generates $1 billion a year that the state combines with federal dollars to make supplemental Medicaid payments to hospitals in an attempt to close the reimbursement gap. (Medicaid agencies already pay providers less than the cost of the services they provide.)
With the law capping state-directed payments at the Medicare reimbursement rate, private acute care hospitals in Virginia are estimated to see a $24.8 billion funding reduction over 14 years, and the VCU Health System and UVA Medical Center will lose out on $1.2 billion, according to the DMAS presentation.
Analysts and health system leaders have warned of the possible ripple effects of the law’s impact on Medicaid, including potential hospital closures, health care service reductions and job losses.
Democrats on the subcommittee raised concerns about hospitals and health care facilities being able to operate and the risk of closures without the funding.
State Sen. Adam Ebbin (D–Alexandria) asked Gordon to clarify whether it was a federal government directive or if the state was getting less federal money.
“The federal government is directing us to tax the hospitals less and to reduce the amount we're paying them above Medicare. So, it's both,” Gordon said.
“So, in spite of inflation or medical inflation, they expect these private acute hospitals to provide the same level of care with $26 billion less, while cost would go up normally?” Ebbin asked.
“Yes,” Gordon responded.
Julian Walker, vice president of communications with the Virginia Hospital and Healthcare Association, said VHHA estimates show the law’s Medicaid provisions will cost Virginia hospitals $2 billion a year.
State-directed payments account for 16% of net revenue for hospitals, Walker told VPM News, and it’s more than 20% for some that serve higher shares of Medicaid patients.
“It is difficult to imagine a scenario in which any organization, whether a hospital or something outside of health care, because of a policy decision, eventually loses 15, 20, 25, 30% of revenue, and that organization continues to function and exist in the same fashion it did prior to absorbing that very significant financial hit.”
One major focus has been the potential impact on rural hospitals, which already face financial struggles and are at risk of joining others that have shut down.
If the funding cuts happen, Walker said they will make an “already very challenging situation” for rural facilities worse. He noted that rural hospitals serve a higher share of patients covered by Medicaid and Medicare, and struggle with recruiting and retaining staff.
A June analysis by the Center for Healthcare Quality and Payment Reform found seven rural hospitals in Virginia are at immediate risk of closing, including Southern Virginia Regional Medical Center in Emporia and VCU Health Community Memorial Hospital in South Hill.
In a June 12 letter, US Senate Minority Leader Chuck Schumer (D–N.Y.) and other Democrats raised concerns on the bill’s impact on rural hospitals to Trump and Republican congressional leaders.
The letter states that six rural hospitals in Virginia are at risk of closing, citing information provided by the Cecil G. Sheps Center for Health Services Research at the University of North Carolina.
Since at least last week, webpages for the North Carolina Rural Health Research Program at the Sheps Center, which gets federal funding, have been under review; some information is still offline. The Sheps Center did not respond to messages seeking comment.
The law includes a rural health transformation program grant that will offer $100 million in funding that Virginia can apply for, with additional future competitive grants for states. The $50 billion fund is roughly a third of the estimated federal Medicaid funding loss in rural areas, per The Kaiser Family Foundation.
Before Trump signed the bill July 4, state Democrats raised concerns over congressional reports estimating that nearly 323,000 Virginians could lose their health insurance. Republicans have claimed that figure is too high, with Youngkin telling reporters last week that the number was “literally made up.”
“For weeks, Youngkin has dismissed warnings from Democrats as exaggerated and ‘made up.’ But now, with these sobering estimates coming from his own administration, denial is no longer an option,” David Toscano, an attorney who was previously a Democratic state delegate and mayor of Charlottesville, wrote in an op-ed in the Richmond Times-Dispatch. “The damage may not be immediate, but it will be deep.”
In June, before the Senate made changes to the bill, a Commonwealth Fund analysis projected that 13,200 health care jobs — and 26,100 total jobs — in Virginia would be lost due to the Medicaid provisions.
US Rep. Rob Wittman (R–1st) voted to pass the legislation, despite previously signing a letter with other GOP lawmakers saying they wouldn’t back a final bill that reduces “Medicaid coverage for vulnerable populations.” A spokesperson for Wittman did not respond to a request for comment prior to publication.
Another concern Walker raised is the potential strain on emergency departments. Virginians who lose coverage could delay care and rely mostly on emergency departments, he said, creating a higher demand for beds.
Lawmakers on the oversight subcommittee agreed to next meet on Sept. 10 because they could be in Richmond then for a special session to respond to federal cut impacts.
DMAS Director Cheryl Roberts is set to give an update on federal Medicaid money to the Joint Commission on Health Care on Wednesday. On Tuesday, Roberts told lawmakers that the true impact of the bill is still unclear as the state awaits federal guidance on work requirements and other provisions.
