Nursing Homes Anxious as Republicans Ponder Deep Medicaid Cuts

The nursing home industry is in full fret mode over the possibility of deep Medicaid funding cuts by the Trump administration and congressional Republicans.

As Republicans weigh a plan to enact at least $4.5 trillion in tax cuts, the House budget resolution directs the Energy and Commerce Committee to cut the federal deficit by $880 billion over 10 years. With Medicare cuts off limits, Medicaid would likely bear the brunt of the potential reductions, the Congressional Budget Office found.

Possible Medicaid cuts could take many forms, but all would likely have the same effect: forcing states to either raise taxes, cut other services, reduce Medicaid coverage, or trim program reimbursement rates for providers, like nursing homes.

“The concern, clearly, is that reductions will put pressure on the need to cut rates,” said Clif Porter, president and CEO of the American Health Care Association, which represents about 14,000 US nursing homes. The association wants a congressional requirement that Medicaid payment rates fully meet the cost of care with regular inflation updates.

The budget plans are still very much up in the air, and some Senate Republicans are already working to change the potential Medicaid cuts in the House proposal.

The industry’s revenue lifeline, Medicaid is the primary payer for 63% of the estimated 1.3 million US nursing home residents. But, on average, the payments only cover about 82% of actual care costs.

Facilities use higher rates from private payers and short-term Medicare residents to offset the shortfall. Further Medicaid cuts would only worsen the under-funding problem and increase the risk of closures, which could create access problems in low-income areas.

The looming crisis comes as 4 million aging baby boomers are set to reach the 80-and-older population group by 2030, Porter said, with another 4 million expected by 2035. “This is a service and a need that is exploding, so we need more capacity not less,” Porter said.

High Closure Risk

Nursing homes with large Medicaid populations face the highest closure risk if the anticipated cuts materialize.

“A lot of nursing homes would likely go under. Their margins are already tight,” said Edward Miller, who chairs the gerontology department at the University of Massachusetts Boston.

Small and large providers, both urban and rural, are feeling the pressure.

At the Lisner-Louise-Dickson-Hurt Home in Washington, D.C., 45 of its 60 residents are on Medicaid, which only covers about 85% of their cost of care. Further Medicaid cuts would “bring us to our knees,” said Ward Orem, CEO of the nonprofit facility.

In the past, the nursing home could tap its endowment to cover operational shortfalls, but that money now funds the renovation of its low-income assisted living units, Orem said. And the market for higher-paying private residents is limited because of its charitable mission to serve low-income seniors—and because 83% of long-term care residents in Washington are on Medicaid.

Depending on how Medicaid cuts are implemented, “we might, unfortunately, be forced to close our doors,” after 85 years, said Sue Hargreaves, the facility’s administrator and executive director.

Threat to Rural Facilities

Rural nursing home closures are a concern for Nate Schema, president and CEO of Good Samaritan, the nation’s largest nonprofit nursing home and senior living provider.

The society operates 105 nursing homes in eight states that serve about 10,000 residents. In more than a dozen of its rural facilities, about 70% of residents are Medicaid beneficiaries, Schema said. It’s about 80% in their facility in Blackduck, Minn., a town of about 800.

“My greatest fear is family members are going to have to drive 25, 30, 50 miles” to find a facility, if Medicaid cuts cause them to close rural nursing homes, Schema said. “For most seniors in rural America, Medicaid isn’t just an option, it’s the only way they get the care they need.”

The cuts could come via reductions in the program’s federal matching rates, or a switch to block grant or per capita cap funding, said Miller, of UMass Boston. Reducing the 90% federal matching rate for states’ Medicaid expansion population under the Affordable Care Act is another possibility, he said.

Big Part of Budgets

As a mandatory benefit under Medicaid, nursing home coverage is a large, inescapable part of most states’ Medicaid budget.

While they could reduce nursing home payment rates in the face of Medicaid cuts, doing so would leave facilities with less resources to meet their costs, staff at sufficient levels, and provide quality care, Miller said.

States could restrict Medicaid eligibility for nursing home coverage to only the poorest and sickest patients, leaving unskilled family members to care for those who lose access, Miller said. But in that situation, “people are going to die. Probably sooner than they would have otherwise,” Miller said.

If the Trump administration repeals or weakens the Biden-era nursing home staffing mandate, as expected, facilities may trim staff to help weather the Medicaid cuts, said Rachel Werner, executive director of the Leonard Davis Institute of Health Economics at the University of Pennsylvania. But nursing homes would become less safe for residents and staff as a result, Werner said.

The aftermath could trigger a crisis similar, in proportion, to the industry devastation created by the Covid-19 pandemic, Werner said.

“I think that nursing homes are going to really struggle,” in the face of Medicaid cuts, Werner said. “Quality of care is going to be terrible. It’s going to harm residents most of all,” but staff would also feel the pain.

“Staff are either going to get pay cuts, or fired. There’s going to be job losses, and no one’s going to be happy. There’s lots of outcomes here that are really terrible.”