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County officials warn HR 1 will cut Medicaid funding, urge early mitigation
Summary
County consultants and staff told the Health and Hospital Committee that HR 1’s changes to Medicaid, provider taxes and state-directed payments pose near- and longer-term budget risks; the committee received the verbal report and asked staff to return with follow-ups.
Santa Clara County officials told the Health and Hospital Committee that federal legislation known as HR 1 will significantly reduce Medicaid support for public hospitals and other providers and that early mitigation planning is needed.
Consultant Bert Margolin, of the Margolin Group, told the committee, “Since the last health and hospital committee meeting, HR 1 became law, and we are now facing the harsh reality of the largest reduction in Medicaid funding in the history of the program.” He cited a Congressional Budget Office estimate that as many as 16,000,000 people nationwide could lose coverage and described three categories of change that particularly affect counties: work requirements, a cap/changes on state-directed payments, and limits on provider taxes that reduce state ability to draw down federal matching funds.
Why it matters: County staff and the consultant said some consequences begin immediately and others are phased in. The report identified immediate impacts this fiscal year from frozen provider tax revenues and reduced directed payments, and larger reductions in 2026–2028 unless Congress or regulators act. County leaders said early steps — including local revenue measures and federal engagement — are needed to protect safety-net services.
County finance and health staff added detail on local impacts. A county official said the freeze to directed payments tied to region-joining activity will reduce expected funds this year by about $50,000,000, a component of an earlier projection that put the current fiscal-year impact in the low hundreds of millions. Staff also noted that the end of enhanced premium tax credits for people buying coverage on exchanges will raise premiums and out-of-pocket costs, which the CBO estimates will cause additional coverage losses.
Margolin and county staff urged planning even before specific federal regulations appear. Margolin said regulation and federal guidance are necessary to craft mitigation strategies: “In order though to to do this analytical work, it would be helpful, in fact, I would argue essential, that we have regulations and guidance from the federal government as to how these cuts are gonna be implemented.” County staff said they expect regulatory guidance in coming months but that some programmatic changes are already effective.
The committee discussed a local response already underway: staff noted Santa Clara County’s proposal to place a sales-tax measure on the November ballot to preserve services potentially at risk from HR 1. Members also discussed federal budget uncertainty, the potential for a second reconciliation bill, and other possible federal regulation changes (for example restrictions on use of intergovernmental transfers).
Action taken: The committee voted to receive the verbal reports on federal and state policy and budget landscape (items 5a and 5b). Vice Chairperson Abekova voted “Aye.” Chairperson Otter Lee voted “Aye.” The reports were received.
What’s next: Staff told the committee they will return with updated budget projections and mitigation options as federal rules and further details become available. The committee emphasized the need for monthly or frequent updates as state and federal guidance is issued.
Sources and attribution: Remarks summarized above are drawn from the consultant presentation by Bert Margolin and follow-up exchanges with county staff and committee members during the Health and Hospital Committee meeting.
