CMS Proposed $510 Billion More in Medicaid Cuts. States and Hospitals Are Already Bracing.

The Centers for Medicare and Medicaid Services formally proposed an additional $510 billion in Medicaid cuts earlier this month - coming on top of the approximately $900 billion already enacted through the One Big Beautiful Bill Act.

What You Should Know

The CMS proposal targets provider taxes, directed payments, and supplemental payment arrangements that states have used to maximize their federal Medicaid dollars. Eliminating or capping those mechanisms would force states to either cover the difference with their own funds, reduce Medicaid payments to hospitals and nursing homes, or cut enrollment.

The OBBBA’s existing cuts are already straining state budgets. S&P Global Ratings warned the combined reductions place ‘significant pressure’ on state credit profiles. A second round of federal cuts would arrive before states have finished absorbing the first.

The Money Trail

Hospitals in rural Republican states would face the steepest losses. The OBBBA included a $50 billion rural hospital relief fund over five years - but the Georgetown Center for Children and Families estimates that covers only about one-third of projected rural Medicaid losses over the same period. CMS’s proposed $510 billion in additional cuts is not offset by any comparable rural relief provision.

The American Hospital Association called the CMS proposal ‘deeply troubling’ and warned that cuts at this scale would force hospital closures, particularly in high-Medicaid states. More than 44 percent of rural hospitals were already operating at negative margins in 2023.

The Receipts

The CMS proposal was published in the Federal Register. Georgetown’s analysis confirmed the $50 billion relief fund covers roughly one-third of rural losses. S&P Global Ratings’ warning was reported by Bloomberg on June 3. The AHA statement was issued in response to the CMS publication.

What Happens Next

The proposal is in the comment period. Final rules would follow. Congressional Republicans in high-Medicaid states are under pressure from hospital systems and governors to block implementation. Whether this CMS proposal proceeds, stalls, or is modified will be one of the defining Medicaid fights of the second half of 2026.

References: Health Affairs | Georgetown CCF | Bloomberg