Trump budget could devastate red states by shutting 'loophole' used to boost Medicaid cash

Republicans in Congress are considering a new way to stealthily cut Medicaid to fund President Donald Trump's "big, beautiful bill" on tax cuts, energy deregulation, and border security, reported The New York Times on Tuesday — and it would turn off a "loophole" that is heavily used by Republican-controlled states to game the system into getting extra funding.

Specifically, the process involves states levying taxes on hospitals and nursing homes, then giving the money right back to them and counting it twice for the purposes of the government giving matching funds to Medicaid.

It's a tactic first developed in New Hampshire by Republican Gov. Judd Gregg in the 1980s, and now almost all states do it to some degree — but red states in particular.

"What started as creative budgeting in New England has, over four decades, snowballed into a mainstay of financing Medicaid, the insurance program for the poor that covers 72 million Americans. Every state but Alaska has at least one such tax. In some states, provider taxes and related payments bring in more than a third of overall federal funding for the program," wrote Margot Sanger-Katz and Sarah Kliff.

"Long after these taxes have become entrenched, congressional Republicans are now considering curtailing or ending them as one way to achieve the steep federal spending reductions proposed in the House budget."

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Despite red states being so reliant on this accounting trick, many right-wing think tanks are on board with abolishing it, calling it "money laundering" and projecting the federal government could save $600 billion by eliminating it, already most of the way to the GOP's goal of $880 billion in health-related cuts.

Republicans have struggled to navigate the issue of how to cut Medicaid as a number of GOP lawmakers, even some who previously tried to abolish the Affordable Care Act like Sen. Josh Hawley (R-MO), now balk at the idea of taking money away from their own constituents. Other proposals have included simply reducing the federal match for the ACA Medicaid expansion, or setting per-capita caps on the program's future spending growth.

All of this comes as Republicans try to cram as much of their agenda as possible into Trump's budget framework, including a long-stymied proposal to give Congress summary veto over health and safety regulations, and slapping exorbitant new fees on migrant asylum that could effectively end the program for the poor.