What Fragile Financing Reveals About Our Medicaid Future

Every so often, someone writes something that quietly reframes the conversation...

John Corlett’s new paper, “Fragile Financing,” does just that. On its face, it’s about Medicaid dollars—provider taxes, state-directed payments, and the complicated machinery that allows Ohio to keep $43 billion flowing through our health-care system each year. But read between the lines, and it’s really about something deeper: how we’ve learned to sustain big public systems through improvisation instead of intention.

John knows this terrain better than almost anyone. He is the Senior Visiting Fellow with the Center for Community Solutions and previously served as Ohio’s Medicaid Director during the Great Recession, when the state first leaned heavily on provider franchise fees to stabilize the program. His perspective carries both experience and warning: the same ingenuity that saved Medicaid then may be what makes it vulnerable now.

Ohio’s Medicaid program has long been a study in creativity. When state budgets got tight, we found ways to draw down federal funds—taxing hospitals, nursing facilities, and managed-care plans; moving money through contracts; and routing payments that kept the system upright. Those tools worked. They even became a point of pride: proof that Ohio could manage its Medicaid program “smarter” than Washington.

But creativity has a cost.

What John’s analysis exposes is that we’ve built a structure that works brilliantly until the rules change.

And the rules are changing. New federal limits on how states tax providers and cap payments under Medicaid are about to test every assumption that’s held this system together for more than a decade.

Medicaid is the single largest payer for health care in Ohio, covering more than three million residents and accounting for roughly five percent of our economy. Yet most of the state’s “share” doesn’t come from state tax dollars at all. Rather, it comes from these provider taxes and complex managed-care payment arrangements. Together, they raise the state’s matching funds and then cycle much of that money back to hospitals and plans through state-directed payments. That closed loop has become the financial backbone of Ohio’s Medicaid program.

Now, the federal government is tightening the bolts on that system. The new CMS rules cap Medicaid payment rates at Medicare levels, require states to prove that payments are actuarially sound, and limit how much can be spent under each approved contract. At the same time, the federal budget law known as H.R. 1 imposes new restrictions on provider taxes, ending the long-standing flexibility to charge higher rates on Medicaid services than on commercial ones. The state’s managed-care franchise fee, which raises nearly $900 million per year, may have to be completely redesigned before the federal transition period expires in 2028.

That’s not just bureaucratic fine print. It’s a fiscal risk measured in billions. John estimates that if these restrictions take full effect, Ohio could lose between $6.5 and $13 billion in Medicaid funding over the next decade—roughly $650 million to $1.3 billion every year. Those are dollars that keep hospitals open, pay for nursing-home care, and stabilize managed-care plans.

When that kind of funding is at stake, this stops being a technical debate and becomes a question of political will and public values.

So yes, I take fiscal concern. But I also see a leadership challenge. For years, Ohio has managed its Medicaid program through short-term ingenuity. That ingenuity has served the state well—it helped maintain coverage during recessions, built political consensus around difficult budgets, and avoided deep cuts when the economy faltered. But ingenuity and integrity aren’t the same thing.

Ingenuity gets you through a crisis. Integrity gets you through change.

The federal government is now forcing a reckoning that’s been a long time coming. Ohio—and many other states—must decide whether to keep patching a fragile system or to build a stronger one. That doesn’t mean abandoning what works; it means confronting what’s unsustainable. If we know that the rules underpinning our financing model are shifting, then the question isn’t how to protect the current structure—it’s how to design one that’s transparent, durable, and worthy of public trust.

That’s where John’s paper feels especially relevant. He reminds us that even as Ohio’s system became increasingly complex, it also became increasingly opaque. CMS is now requiring states to publish far more information about how these dollars flow and to justify their impact. Transparency is no longer optional, it’s the new currency of credibility.

In my view, that’s a good thing. A stronger, more accountable financing framework doesn’t weaken Medicaid—it protects it. It invites policymakers, providers, and advocates to focus on the fundamentals: what we’re paying for, why it matters, and how to make it sustainable. The next few years will test whether Ohio’s leaders can meet that challenge with foresight rather than fear.

John Corlett has done the state a real service by pulling back the curtain on a system most people never see. His report is a warning, yes—but also an opportunity. Because fragility isn’t a flaw in the design. It is the design. And that’s something we can still choose to change.

Thanks for reading,

~ Shannon

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Learn About John & This Report:

John Corlett Senior Visiting Fellow at The Center for Community Solutions

Read John's Analysis Here >

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