Hospital leaders warn federal, state budget moves could cut Medicaid funding and squeeze rural hospitals

A guest policy expert and hospital association representatives told the Tahoe Forest Hospital District board on June 2025 that pending federal and state budget actions could sharply reduce Medicaid funding and create immediate financial pressures for rural hospitals.

The briefing came from Ryan Wits, executive director of the District Hospital Leadership Forum, who reviewed developments in Sacramento and Washington, D.C. and told the board: “We are gonna start our tour tonight, in California, and then we will go to DC” to explain how recent budget choices and reconciliation proposals are evolving quickly.

Wits said the state budget deal for 2025–26 includes measures that reverse or delay previously anticipated provider funding tied to last year’s ballot measure. “We are not anticipating any provider rate increases in 2025–26,” he said, describing moves that effectively sweep $1.3 billion previously earmarked for provider investments. He also noted reinstatement of a Medi‑Cal asset test and changes that will affect coverage and benefits for some undocumented adults beginning in 2026 and 2027.

Wits also explained the Office of Health Care Affordability’s spending targets and early market effects: the office set five‑year health spending growth targets (starting at 3.5 percent, phasing to 3 percent), and “we're already starting to see…spending targets show up in payer‑provider negotiations and rates of reimbursement,” he said.

On the federal front, Wits summarized the reconciliation package work in Congress — frequently called the “big beautiful bill” in the presentation — and warned it could include deep Medicaid financing cuts if passed in current forms. He quoted a Congressional Budget Office estimate for the House bill and California‑specific projections: the house bill’s CBO estimate would cut Medicaid spending by roughly $864 billion nationwide over 10 years and is projected to cause millions to lose coverage; Wits said California could face roughly $30 billion a year in reduced Medicaid funding under the House projections.

Board members pressed Wits on local impacts. Ted Owens, executive director for governance and business development at Tahoe Forest, asked what rural systems should watch most closely. Wits replied that enrollment freezes, benefit changes and lower provider revenue would be the primary levers that create local revenue shortfalls and could increase uncompensated care and emergency‑room visits.

Board members emphasized the district’s high share of independent rural hospitals. Board member Johanna Koch asked whether leaders have an estimate of hospitals in Representative Kevin Kiley’s district that could “markedly reduce services or close.” Wits said he did not have a district‑level count but reiterated that many small hospitals are already financially distressed: “there are a lot of hospitals today who are not doing well financially, who are on the brink already.” He described likely first responses to major revenue losses as reductions in service lines such as labor and delivery before any full closures.

The board discussed continued advocacy steps. Wits urged providers and constituents to contact members of Congress and described the association’s ongoing engagement with members’ staff. Ted Owens and other board members said the hospital system would continue outreach to local congressional staff and stressed that community advocacy is an important lever.

Why it matters: Tahoe Forest and other rural hospitals operate on thin margins; both state budget choices and potential federal Medicaid changes could materially affect staffing, the availability of services such as obstetrics and the district’s ability to keep facilities open. The board did not take action during the presentation; it treated the item as discussion and an advisement to maintain active advocacy.