On Tuesday the Senate passed an FY 2026 budget reconciliation bill by a vote of 51-50, with Vice President Vance casting the tie-breaking vote.

The bill cuts $1 trillion in Medicaid spending and keeps most of the Medicaid provisions included in the version released by the Senate Finance Committee in mid-June.  The bill passed by the Senate creates a fund for rural providers of $50 billion over five years.

The major Medicaid provisions in the bill include:

  • A freeze on the size of Medicaid provider taxes, phased down reductions of current taxes toward a new, lower limit for many states, and heightened uniformity requirements to ensure that a tax is not considered to be generally redistributive.  These requirements mirror a proposed rule issued by CMS on May 12.
  • New limits on the use of Medicaid state directed payments so they eventually will not exceed 100 percent of Medicare payments in Medicaid expansion states and 110 percent of Medicare payments in non-expansion states.
  • A “community engagement” requirement, typically work but with some alternatives, for most Medicaid participants but with some exceptions to the requirement.
  • More frequent eligibility redetermination for Medicaid participants in Medicaid expansion states.
  • Cost-sharing for Medicaid expansion participants whose income exceeds 100 percent of the federal poverty level.
  • A limit of 30 days of retroactive eligibility for newly approved Medicaid and CHIP participants.
  • Limits on eligibility for marketplace premium tax credits for Medicare and Medicaid for some non-legal residents and reduced federal Medicaid matching funds for states that enroll such individuals in their Medicaid programs.
  • Reduced federal Medicaid matching funds for Medicaid-covered emergency services for non-legal residents.
  • More frequent income verification for those seeking marketplace premium tax credits.

The bill passed by the Senate also includes a 2.5 percent Medicare payment increase for physicians for calendar year 2026.  The Senate bill did not include relief from scheduled cuts in Medicaid disproportionate share (Medicaid DSH) payments that the House bill included.

The bill is now with the House, where it faces potentially significant opposition:  moderate Republicans oppose the extent of the Senate’s cuts to Medicaid provider taxes and state-directed payments while the House Freedom Caucus opposes the bill’s cost.  Disagreements also go beyond health care, including provisions addressing energy, the deductibility of state and local taxes, and changes in the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps).

If the House makes changes to the bill it will have to go back to the Senate for approval from that chamber.

House Speaker Johnson and President Trump want the bill to pass by July 4 but President Trump has acknowledged that may not happen.

Find the text of the bill here.