By Melissa Davlin, Idaho Reports

When the Idaho Department of Health and Welfare announced a 4% reduction in Medicaid reimbursement rates, Robert Vande Merwe’s first reaction was, “This is going to devastate Idaho.” 

The Aug. 22nd letter from DHW director Juliet Charron cited rising Medicaid costs, and said the reimbursement changes will go into place on Sept. 1. The rate reductions affect nearly every Medicaid service, including behavioral health, home and community-based services, treatment at hospitals, most pharmaceuticals, and nursing care. That means hospitals, dentists, mental health professionals, home-based care providers, and more will receive less money for providing the same services to patients on Medicaid.

Vande Merwe, executive director of the Idaho Health Care Association, told Idaho Reports that members of his organization, which include nursing facilities, assisted living facilities, and intermediate care facilities, faced widespread hardship and closures from the COVID-19 pandemic. The recent announcement on rate reductions left them “terrified.”

“We have been in non-stop conversations since (the announcement),” Vande Merwe wrote in an e-mail to Idaho Reports. 

The rate reduction won’t just affect those on Medicaid. Toni Lawson, vice president of advocacy and external relations at the Idaho Hospital Association, told Idaho Reports that the rate cuts could cause healthcare costs to go up for everyone, including those on private insurance.

“The more money they lose on Medicaid, the more ways they have to find to make up for those losses, which, you know, means the cost of care for others goes up,” she said. 

And if a hospital has to stop offering certain services, it affects the entire community. “If a labor and delivery service closes, it doesn’t just close for Medicaid patients,” she said. 

Lawson said many Idaho hospitals currently operate within a 1% margin financially, and some have a larger percentage of patients on Medicaid than others. 

“Our hospitals are going to have to make tough decisions,” Lawson said. “Are they going to have to cut services? Are they going to have to streamline their workforce? But we’re already having workforce shortages.”

About 67% of nursing facility care is Medicaid, with a bit more in Idaho’s rural areas, Vande Merwe said. “Private pay and Medicare certainly compensate for lower Medicaid reimbursement in Idaho nursing facilities. Costs have increased dramatically in the last 6 years but the state’s budget has been flat,” he wrote. “I am certain these cuts will cause providers to accept fewer Medicaid clients, or none at all. Nursing facilities will face the same decision.”

Randy Johnson, Idaho Government Relations Director of the American Cancer Society Cancer Action Network, said in a statement that he is also concerned about a weakened Medicaid provider network, especially in rural areas. 

“For cancer patients especially, timely access to care is critical and these cuts could make it even harder to find providers willing and able to treat them,” Johnson said. 

“Every Idahoan approaching retirement should be concerned,” Vande Merwe wrote. “Hopefully they have saved for retirement, but have they considered the cost of routine care after a stroke or a diagnosis of dementia? Almost everyone in those situations, except the very wealthy, will run out of money and will rely on Medicaid.  Responsible Idahoans such as veterans, teachers and police officers deserve better.”

“DEATH BY A THOUSAND CUTS”

The announcement from IDHW comes as healthcare professionals are already bracing for other financial stresses. 

During the 2025 legislative session, Idaho lawmakers passed significant Medicaid reforms in House Bill 345. Included in that was a transition from the current fee-for-service model to a managed care model. Under the fee-for-service model, the state Medicaid program paid providers for each individual service, while with a managed care model, the state will pay private companies – known as managed care organizations, or MCOs – to handle healthcare payments and services for Medicaid clients. 

The managed care model means lower payments for providers compared to fee-for-service models, Lawson said. To help offset those financial losses for healthcare providers, Idaho would have been able to establish something called state-directed payments, which would provide more money to supplement the lower baseline Medicaid reimbursements. 

But the budget reconciliation bill that Congress passed in May, two months after House Bill 345 passed in Idaho, included a freeze on state-directed payments. 

“Idaho ended up really caught in the middle,” Lawson said. “We’re ending our regular fee-for-service and other payments, but we haven’t yet implemented the new state directed payments piece.” Per the reconciliation bill, any state-directed payment Idaho puts into place will be capped at 100% of Medicare rates, which won’t be enough to make up for the reduced payments, Lawson said. 

Another factor that will affect healthcare costs: At the end of this year, enhanced tax credits for the state insurance exchange will expire. That means more people will struggle to afford private health insurance, Lawson said. If the Legislature repeals Medicaid expansion, as some lawmakers have long considered to rein in costs, even more Idahoans may end up uninsured, Lawson said. 

Not only do hospitals have to figure out how to treat more uninsured patients, but with higher premiums, they have to budget more for insurance for their own employees. 

“It’s kind of like death by a thousand cuts,” Lawson said. “I don’t think we’re going to see a hospital close tomorrow, but once you start closing service lines, it’s hard to thrive.”

MORE TO COME?

When the 2025 legislature first set the Medicaid budget for the upcoming fiscal year, lawmakers were operating on a forecasted growth trend of 8%. That forecast is now 19%. 

AJ McWhorter, public information officer for the Idaho Department of Health and Welfare, pointed out that Idaho isn’t alone in skyrocketing Medicaid costs. Both Washington and North Carolina announced Medicaid rate reductions earlier this year. But this week, North Carolina’s legislature ordered its Health and Human Services department to suspend plans to cut Medicaid reimbursement rates by 3%. Washington state plans to reduce its reimbursements by just 1%, though some providers may see disproportionate hits. 

Still, it could have been worse, McWhorter said. “Had we waited until the session in January 2026 to take action, the rate reductions would be considerably higher,” McWhorter wrote in an e-mail to Idaho Reports. And the 4% rate reduction may not be the end of cost-saving efforts by IDHW, either in the Medicaid program or elsewhere in the department, McWhorter wrote in an e-mail to Idaho Reports. On Aug. 15, Gov. Brad Little ordered nearly all state agencies to reduce spending by 3%.

“DHW is evaluating potential general fund reductions agency-wide across all divisions and programs, with the focus on little to no impact to services for Idahoans,” he said.

The Legislature’s interim Medicaid Review Panel will meet on Wednesday, Sept. 3 in Twin Falls. DHW is also hosting a listening session for Medicaid members and stakeholders from 10 am-noon at the Herrett Center at College of Southern Idaho, with an additional listening session from 6-7:30 pm for Medicaid providers. 

The Idaho Department of Health and Welfare is also accepting public comment through Sept. 28 on how the reimbursement changes will affect providers and Medicaid recipients. Those comments can be submitted to MCPT@dhw.idaho.gov, or callers can leave a message at 208-364-1887

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