The Senate Budget Committee met to examine the financial structure and operational performance of Medicaid, a joint federal-state health program covering over 66 million Americans.

The hearing examined the fiscal sustainability of Medicaid, federal-state matching fund mechanisms, program integrity, and the underlying drivers of health spending growth. Lawmakers and witnesses evaluated the policy effects of recent legislative changes made under Public Law 119-21 (commonly referred to as H.R. 1 or the One Big Beautiful Bill Act), as well as state-level utilization of provider taxes and intergovernmental transfers.

Program Financing and State Mechanisms Brian C. Blase, Ph.D., President of the Paragon Health Institute, testified that Medicaid's open-ended federal reimbursement structure creates incentives for states to maximize federal payments rather than focus on program value. Blase argued that state practices such as provider taxes and intergovernmental transfers (IGTs) act as financial maneuvers that draw down federal matching dollars without requiring genuine state contributions. He stated that these arrangements shift health costs to the federal government, raise commercial healthcare prices, and weaken state incentives to scrutinize costs or reduce waste.

Andy Schneider, J.D., Research Professor at Georgetown University, argued that recent actions by federal authorities to defer matching funds or alter provider tax rules go beyond statutory requirements and reduce resources needed to care for low-income populations. Schneider noted that spending growth in areas such as home- and community-based services (HCBS) and behavioral health reflects deliberate, bipartisan statutory choices by Congress to shift care away from institutional settings rather than evidence of fraud.

Program Integrity vs. Improper Payments Blase testified that Medicaid eligibility errors represent a significant integrity challenge, estimating that improper enrollment in the Affordable Care Act's expansion population reached approximately 9.2 million individuals in 2024. He cited research indicating that full eligibility audits reveal error rates exceeding 25 percent, arguing that dollars spent on ineligible enrollees reduce funds available for traditional beneficiaries.

Schneider disputed the characterization of improper payment rates as direct measures of fraud, citing Government Accountability Office (GAO) definitions. He testified that 77.2 percent of Medicaid improper payments in Fiscal Year 2025 were caused by insufficient administrative documentation rather than fraudulent claims. Schneider stated that the actual Medicaid improper payment rate in 2025 was 6.1 percent, which is comparable to Medicare Fee-for-Service and Medicare Part C error rates.

Impact of Recent Legislative Cuts and Enrollment Trends Schneider testified that Medicaid enrollment among children dropped by 2.3 million between January 2025 and mid-2026. Citing Congressional Budget Office (CBO) projections, Schneider noted that statutory changes in Public Law 119-21 will reduce federal Medicaid spending by nearly $1 trillion over ten years, leading to an estimated 7.5 million fewer Medicaid enrollees and an overall increase of 10 million in the nation's uninsured population by 2034.

Blase argued that Public Law 119-21 was a necessary step toward fiscal sustainability. He stated that even with the enacted reforms, CBO projects federal Medicaid outlays will continue to grow annually, albeit at a reduced growth rate of roughly 3 percent rather than 5 percent. Blase testified that the lower federal match rate for traditional populations relative to expansion adults had historically incentivized states to prioritize enrollment for able-bodied adults over low-income children, seniors, and individuals with disabilities.

No procedural votes or formal committee actions occurred during this hearing record.

Federal policy decisions and statutory revisions regarding Medicaid directly alter the level of matching funds delivered to state health budgets. Changes to federal eligibility standards, state financing mechanisms, and administrative requirements impact overall coverage rates, hospital operating revenues, and the availability of rural health services. Understanding these testimony-level arguments provides context for future federal budget negotiations and potential state legislative adjustments.