A Tough Road Ahead: WSMA 2026 Budget Priorities

By Rita Colorito

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As the truncated 2026 legislative season gets underway this month, Washington state faces an ever-increasing and severe budget deficit, fueled by sluggish tax revenue and looming massive federal cuts to the state’s Medicaid program, known as Apple Health. How the Washington State Legislature has responded, or plans to respond, creates serious repercussions for patients and physicians.

Despite the fiscal mountain ahead, the WSMA remains committed to advancing and addressing several key budget priorities for the 2026 legislative session:

• Business and occupation tax mitigation.
• Medicaid reimbursement rates.
• H.R. 1 federal cuts and policies (the 2025 One Big Beautiful Bill Act).

“Access to care remains at the core of the WSMA’s legislative agenda,” says Bridget Bush, MD, FASA, WSMA president for 2025-2026.

“The overall fiscal priority for the WSMA is financial stability for physician practices,” says Jennifer Hanscom, WSMA CEO.

Mitigate the B&O tax increase

Tax increases are one of the ways the Legislature has tried to mitigate the state’s projected budget deficit (at least $903 million through 2029). The billions in tax increases Gov. Bob Ferguson has already signed into law are the largest in state history, according to the National Federation of Independent Businesses.

For physicians, tax increases, so far, have come primarily in the form of additional B&O tax rate hikes. In the last six years, most physician practices have seen their B&O tax rates increase by 40%: In 2019, the Legislature imposed an approximately 20% increase via House Bill 2158; with HB 2081 in 2025, it imposed an additional 20% increase.

“Mitigating the B&O tax increase is a huge priority,” says Hanscom. “If we’re not immediately able to get more revenue in the door, we have to lessen the revenue that’s going out the door.”

Physicians may feel the impact more acutely and sooner than other professions. What legislators often don’t realize is that physicians do not set their own reimbursement rates. They’re set by the state and federal government or subject to contracting with commercial insurance carriers.

“There’s no way for a physician organization to offset the impact of a B&O tax increase in the way that businesses in other industries do, which is by increasing their prices,” says Sean Graham, WSMA senior director of government affairs and policy.

Meanwhile, other sectors charge physician practices more to offset their own costs. “Everything is increasing, as far as business expenses,” says Anna McKeone, MD, who heads an emergency medicine practice in Olympia. “It’s just very hard as an independent medical practice to stay in business.”

The WSMA is hoping to get a health care carve-out from the B&O tax increase to mitigate the impact on physicians. “We’ll also look specifically at where other taxes will hurt physicians and advocate private carve-outs, or against them entirely, to protect physicians against further tax increases,” says Dr. Bush.

“The B&O tax particularly hits physicians hard, especially in light of decreasing reimbursements,” says Dr. Bush. “We’re getting pinched on both sides.”

Increase Medicaid reimbursement rates

Over the last few years, the WSMA and physician community have prioritized increasing Medicaid reimbursement rates. During the 2025 legislative session, the WSMA scored a major victory through passage of the Medicaid Access Program, WSMA-priority legislation that reflected years of hard work by the association and its partners in the physician community.

The core of this bill included the enactment of a new “provider tax,” a covered lives assessment, to increase reimbursement. Recent developments through federal H.R. 1 make it unlikely that the program will be implemented as authorized.

“H.R. 1 effectively blocks the implementation of the law by prohibiting the imposition of new provider taxes,” says Jeb Shepard, WSMA’s director of policy. It also ramps down existing provider taxes, of which there are several already in Washington state, from 6% to 3.5% of net revenue by 0.5% per year beginning in 2028, according to the Washington State Health Care Authority.

“Before any future cuts on these state- directed payments take effect, we need to find a solution to further our goal of making sure that Medicaid payments are at the same level as those in Medicare,” says Hanscom.

Washington is already one of the lowest-reimbursed Medicaid states in the nation, with rates often well below the cost of providing care. H.R. 1 puts added financial pressure on physicians, says Hanscom. “Our priority this year is to try to find a way to work around the federal prohibition in order to secure dollars to help with Medicaid payments.”

“Emergency medicine is likely to first feel the brunt of the perfect storm of tax increases and cuts to Medicaid reimbursement. It’s the canary in the coal mine,” says Graham. While most physician groups can contract with insurance plans with adequate reimbursement rates, under federal law, emergency departments must assess and stabilize anyone who walks in the door, regardless of their ability to pay.

Emergency physicians already have little margin to absorb financial shock. A recent Rand report found Medicare and Medicaid payments to emergency department physicians fell 3.8% from 2018 to 2022. Reductions for commercially insured patient visits were much steeper, dropping 10.9% for in-network and 48% for out-of-network visits.

“Our patients already suffer from lack of primary care and specialty availability,” says Dr. McKeone, who also serves as the legislative advocacy lead for the Washington Chapter of the American College of Emergency Physicians. “If Medicaid was reasonably reimbursed and we could get these people access to primary care and specialty care through the appropriate channels, they would have less morbidity and less mortality. And it would actually end up costing the system quite a bit less.”

The WSMA is considering multiple strategies to address Medicaid funding levels. One approach is to move away from state-directed payments and create a new source of funding that the federal government can’t regulate. “As long as the state is able to generate state dollars dedicated to Medicaid reimbursement, we can get the two-for-one match at the federal level,” says Hanscom.

The WSMA will also continue to pursue the Medicaid Access Program as passed. “We’re not taking MAP totally off the table, in case Congress reverses their decision or the Centers for Medicare and Medicaid Services changes their rulemaking,” says Hanscom. “Should there be an opening in the future to revisit that, we want the flexibility to bring it forward.”

There’s still a silver lining to all this. “Passage of the Medicaid Access Program reflected a shared commitment by physicians and legislators to increase Medicaid reimbursement,” says Graham. “We need to maintain the momentum that we have on this issue.”

Respond to H.R. 1’s sweeping cuts and policies

H.R. 1, the budget reconciliation bill signed into law by President Donald Trump on July 4, spans numerous federal budget and policy considerations that impact health care. Of immediate fiscal and financial concern are draconian cuts and limitations to Medicaid, known as Apple Health in Washington state.

The Congressional Budget Office estimates that the reconciliation package would reduce federal Medicaid spending by $911 billion over a decade. Some states, such as North Carolina, have already cut physician reimbursement in response to federal cuts. But those states already reimbursed physicians at a higher rate, so they have more wiggle room to make cuts.

“We have a lot less space to work with,” says Shepard. “Washington state has struggled with Medicaid rates that don’t cover the cost of delivering care and H.R. 1 will make that gap even harder to close. All of this will put significant pressure on our state budget as the demand for care grows.”

The state’s 2025-27 operating budget directs the Health Care Authority to reduce managed care organization rates by 1% (approximately $90 million) in calendar year 2026, in accordance with federal rules. In October, the agency released guidance on how the cuts would be implemented, which target reimbursement for health care practitioners.

The Health Care Authority anticipates “significant administrative changes and new state costs associated with implementation” of Apple Health. It estimates 620,000 Washingtonians are at risk of losing or delaying coverage because of new work requirements and changes to Medicaid redeterminations (to now take place every six months instead of every 12). (Note: Undocumented immigrants in Washington have never been eligible for Medicaid.)

Some 217,000 Washingtonians also rely on the federal enhanced premium tax credits to afford health coverage through the insurance marketplace, according to the Washington Health Benefit Exchange. The credits are critical for older and rural residents, small business owners, and self- employed people. With subsidies set to expire at the end of 2025 (at press time no compromise had yet to be reached in Congress), the Health Benefit Exchange estimates 80,000 people will face such steep price increases they may drop coverage altogether.

“Cutting patients’ access to primary care and specialty care is not the answer because it drives up the costs for everyone when they’re utilizing the emergency department for those needs,” says Dr. McKeone. “This is going to really cause catastrophe for patients.”

All of these onerous fiscal policies are putting the viability of independent health practices at risk.

“The hourly rate that we can offer employees or partnership-track people is much lower than a lot of the rest of the nation. So, it’s hard for us to stay competitive and recruit quality candidates,” says Dr. McKeone. “We’re also being very careful about hiring, because we don’t want to get in a position where we can’t pay someone that we hire. It’s putting a huge strain on us.”

Approximately 28% of Washington state’s budget consists of federal investments, according to the governor’s office. The governor’s office predicts the state’s 4.8% uninsured rate, once the lowest in the country, could double as a result of federal cuts.

As Washington state eyes spending cuts to address its budget shortfall, there’s also real concern that health care could be on the chopping block. “What’s tricky is that health care spending in Washington state is discretionary,” says Shepard. “When policymakers in Washington need to make budget cuts, health care is one of those areas where they’re permitted to do it.”

Most of the federal cuts and provisions related to Medicaid aren’t slated to take effect until after the midterm elections. Overall, the Health Care Authority projects a reduction in billions in federal funding from 2025-2034. “It’s like a slow-moving train wreck that we’re watching,” says Shepard.

Playing offense and defense

As states brace for the impact, the WSMA is working with coalitions statewide to help all residents retain access to essential health care services and to support the health care system broadly against these draconian federal cuts, says Graham.

As always, the WSMA will engage with other stakeholders, including the Washington State Hospital Association, to advocate on behalf of patients and physicians. “We recognize the health of our hospitals is crucial for the health of our workforce and physicians in the state,” says Dr. Bush.

The WSMA is also participating in the Health Defense Unity Table. This forum for information sharing and strategizing on advocacy across interest groups was first convened as H.R. 1 was being considered in Congress. It includes groups representing health care organizations, patients, and other entities that advocate for patients’ access to care.

For now, the WSMA is doing what it can to secure any federal health care funding available. To that end, the WSMA has been working with the governor’s office and the Health Care Authority on their application for the Rural Health Transformation Program-a last-minute addition by Republicans to garner support from GOP holdouts to pass H.R. 1. It sets aside $50 billion over the next five fiscal years to be distributed among eligible states to support patient access to care and rural health care systems across the country.

In early November, Washington state submitted its application for the fund, requesting the maximum state allotment of $200 million per year to support investments across the rural health care continuum. The WSMA engaged extensively in the development of the application, meeting with state policymakers, submitting feedback on where funding should be directed, and lending formal support to the state’s application. The WSMA will have representation on the advisory committee that will help implement the program.

“It’s not as rosy as it’s being made out by proponents,” says Shepard. “The money that the program gets that needs to be divided up among the states is a drop in the bucket compared to what’s being cut. But right now, it’s the only thing we can work on. And so we are.”

At press time, H.R. 1 provisions had not yet been fully defined through federal rulemaking. “Our role is to make sure that Washington’s physician community and patients are heard throughout the process,” says Shepard. “We will do our best to make sure that implementation decisions don’t further destabilize our fragile health care system.”

The WSMA will stay engaged every step of the way with its federal and state partners. “It’s not only playing defense but also engaging in creative thinking that we need to bring to these discussions in order for us to have success-meaning that patients have access to care in Washington state and physicians can afford to see them,” says Hanscom.

Rita Colorito is a freelance writer specializing in health care.

This article was featured in the January/February 2026 issue of WSMA Reports, WSMA’s print magazine.