Fiscal office warns HR1 changes and subsidy expirations could shrink state health funding

Nolan, a fiscal office analyst, told the committee on April 23 that recent federal shifts — the expiration of enhanced premium tax credits and provisions in a federal bill referred to as HR1 — are already reshaping the individual market and could materially reduce state revenue used to draw Medicaid federal match.

Nolan framed his presentation as a high‑level refresher, noting gaps in federal reporting but pointing to early market data and technical estimates that indicate meaningful change. "We saw the QHP enrollment in aggregate decreased by 2400 people in the individual market," he said, and later summarized external technical estimates that the loss of federal subsidies could be roughly $65 million (with other estimates approaching $75 million). Those figures are uncertain, Nolan added, because the federal government holds much of the enrollment and subsidy data.

Why it matters: states routinely use provider taxes on hospitals and other providers to raise state dollars that are then matched with federal Medicaid funds (FMAP). Nolan said HR1 prohibits new provider taxes and phases down the safe‑harbor cap on existing provider taxes from 6% to about 3.5% between 2028 and 2032. Because hospitals account for the majority of the provider tax base in the state, that change is likely to be the primary driver of revenue loss.

Nolan presented state estimates showing a possible drop in general‑fund revenue beginning in FY2028 of about $60 million that could compound in subsequent years; under some assumptions he said cumulative exposure could reach roughly $130 million by 2032. He emphasized that those totals depend on FMAP, program definitions and legislative policy choices.

The briefing went through how premiums and enrollment changed after enhanced tax credits expired: subsidies that previously lowered out‑of‑pocket caps for many households reverted to pre‑ARPA levels, producing stories of large premium increases for individual enrollees. Nolan also reviewed enrollment buckets in exchange data: some people appear to have moved from federally subsidized coverage into the no‑subsidy category or to become uninsured.

Committee members pressed for clarity about which numbers represent only state general‑fund changes and which include federal match. Nolan repeated a distinction made throughout the presentation: some figures represent the general‑fund gap the state must fill to preserve buying power, while larger figures reflect the combined effect of lost state revenue and the federal match that revenue drew.

Policy options discussed were familiar tradeoffs: raise alternative general‑fund revenue, cut services or accept lower federal match and reduced Medicaid spending. Nolan flagged new and existing federal programs that could offset some impacts — for example, a federal rural health transformation grant program ($10 billion nationwide from 2026–2030) that states must apply for annually — but he cautioned that those grants are competitive and depend on approved applications.

What happens next: Nolan recommended additional analysis and closer monitoring of enrollment reports to refine the fiscal estimates. He also urged that the legislature and agency staff identify policy levers now (revenue choices, program priorities, and administrative capacity for increased redeterminations) because some changes begin in 2027 (eligibility, redetermination cadence) with provider‑tax phase‑downs starting in 2028.

Nolan's direct observation that summarizes the fiscal concern: "starting in 2028, we could see as much as a $60 million decrease in general fund," a figure that, he said, could compound in later years depending on federal match and policy decisions.

The committee did not take any formal votes; staff said they will return with more detailed modeling and that further legislative deliberation will be needed to decide whether and how to replace any lost revenue or to protect programmatic priorities.