Illinois hospitals fear massive cuts under Trump domestic policy law
[July 11, 2025]
By Peter Hancock
SPRINGFIELD — Hospital officials in Illinois say they will have to make
some difficult decisions in the next few years that could involve laying
off staff, cutting back services and even closing some facilities
entirely.
That’s the expected result of federal funding cuts built into the
recently passed domestic policy bill that President Donald Trump signed
into law July 4, a law that will cut federal spending on Medicaid by
more than $1 trillion over the next 10 years.
A.J. Wilhelmi, CEO of the Illinois Health and Hospital Association said
in an interview with Capitol News Illinois that the financial pressures
will fall heaviest on hospitals that serve rural areas, where a larger
share of the population is covered by Medicaid.
“The hospitals in these communities are already on the brink, based on
some of the increases in labor, drug and supply costs coming out of
COVID, a continuation of claim denials by payers and relatively flat
reimbursement rates,” Wilhelmi said. “So, all of that is creating
significant pressures. And when you add these Medicaid cuts to an
already challenging situation, we know that there are several hospitals
that close because of these changes.”
Enrollment, reimbursement reductions
The new law contains provisions that are expected to reduce the number
of people enrolled in Medicaid, particularly in states like Illinois
that expanded eligibility for the program under the Affordable Care Act,
the 2010 law commonly known as Obamacare.
Those include work requirements for people who enrolled through the
expansion as well as requirements that they verify their continued
eligibility for the program twice a year instead of annually.
But the law also includes changes in aspects of the program that most
people outside the health care industry never see. Those mechanisms –
known as provider taxes and directed payments – affect the way states
finance their share of the cost of Medicaid and the way they direct
additional payments to certain health care providers such as hospitals.
Like many states, Illinois levies special taxes on certain health care
providers, including hospitals. The money those taxes generate is used
to draw down additional federal matching funds, then is paid back to the
providers in the form of directed payments to increase their overall
reimbursement rate and to reward them if they meet certain performance
or quality standards.
Currently, IHA estimates the hospital tax generates about $2 billion a
year in revenue. This past session, lawmakers passed a bill to increase
the assessment in order to fund a 54% increase in hospital payments,
subject to federal approval of the state’s plan. But state lawmakers
passed that bill before Congress passed Trump’s domestic policy bill,
dubbed the “One Big Beautiful Bill Act.”
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A.J. Wilhelmi, CEO of the Illinois Health and Hospital Association,
testifies before a legislative committee in March about impending
cuts in federal Medicaid spending. (Capitol News Illinois photo by
Peter Hancock)
Prior to passage of the new federal law, the tax rate states could levy
was effectively capped at 6% of a hospital’s net patient revenue. But
under the new law, for states like Illinois that expanded Medicaid under
the ACA, that cap will gradually be lowered by half a percentage point
each year starting in 2028 until it reaches 3.5% in 2032.
In addition, Wilhelmi said, the new law imposes a cap on the directed
payments that expansion states like Illinois can send to hospitals so
that the total does not exceed the maximum allowed under Medicare – the
federal health insurance program for seniors, which has a lower
reimbursement rate than Medicaid.
“And that will result in a significant reduction in Medicaid
reimbursements for hospitals,” Wilhelmi said. “It means literally
hundreds of millions of dollars in less reimbursement to hospitals.”
$48 billion impact over 10 years
According to the nonpartisan health policy research organization KFF,
federal Medicaid spending in Illinois is expected to be reduced by about
$48 billion over 10 years under the new legislation. That includes an
estimated $6.73 billion in spending cuts in rural parts of the state.
Democratic Gov. JB Pritzker has been harshly critical of the new law,
and particularly the Medicaid cuts contained in it.
“Donald Trump isn’t just cutting health care — he’s also closing
hospitals in Illinois and across the country with his latest scheme,”
Pritzker said in one social media post while the bill was moving through
Congress. “Hard-working Illinoisans will spend more time in overcrowded
waiting rooms and lose access to life-saving care.”
Wilhelmi, meanwhile, said there is still time before the cuts begin to
take effect, and he is urging state officials to begin work immediately
to develop strategies to adapt to the changes.
“I think the state will need to work with stakeholders like IHA and our
hospitals, other provider groups, to identify creative options to ensure
that the Medicaid program can continue to be that lifeline for
vulnerable patients and communities,” he said. “And that will include
identifying options to fortify those programs and services, as well as
identify working with our congressional delegation on ways to mitigate
or further delay these changes.”
Capitol News Illinois is
a nonprofit, nonpartisan news service that distributes state government
coverage to hundreds of news outlets statewide. It is funded primarily
by the Illinois Press Foundation and the Robert R. McCormick Foundation.
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