Impact of New Legislation on Island Health's Medicaid and Medicare Patients

Island Health's CEO, Elise Cutter, recently engaged with U.S. Representative Rick Larsen to discuss healthcare policy matters, with a specific focus on Affordable Care Act subsidies and impending Medicaid changes. This conversation took place on October 4, 2025, in Anacortes.

A new bill introduced in the House could significantly impact Island Health's financial performance by enabling it to cover expenses for its Medicare and Medicaid patients, who comprise the majority at 78% of the patient base. Currently, the hospital encounters financial strain due to fixed reimbursements that cover approximately 82% of the costs for Medicare beneficiaries.

In addition, 13% of Island Health's patients use TRICARE, which serves military personnel and their dependents, while 10% utilize Medicaid. On May 21, Representatives Larsen and Dan Newhouse introduced the Ensuring Rural Health Care Access for Military and Tribal Families Act. This legislation aims to support rural hospitals, including Island Health, as they face escalating healthcare costs, ensuring continued service provision to military members.

The proposed legislation seeks to modify criteria in the Social Security Act, allowing Island Health to achieve designation as a critical access hospital by the U.S. Centers for Medicare and Medicaid Services (CMS). This status would permit reimbursement based on actual care costs, instead of fixed amounts. However, current regulations require that critical access hospitals be 35 miles from the nearest facility, whereas Island Health is only 17 miles from Skagit Valley Hospital. The bill suggests new criteria related to TRICARE patient revenue, providing alternative qualification pathways.

CEO Elise Cutter highlighted that the hospital, which facilitated over 400 births in 2025, serves a significant number of military families from the nearby Naval Air Station Whidbey Island. Representatives Larsen and Newhouse are acknowledged for prioritizing this legislative effort to ensure the continuation of essential healthcare services, including care for military families.

With the state legislature's recent passage of a bill enabling full Medicaid reimbursement upon securing critical access status, such a designation would also provide access to the 340B drug pricing program, reducing medication costs for the hospital. Previously, attempts by Newhouse and Larsen to include a provision in a defense spending bill to enable this status were unsuccessful, leading to the creation of this standalone bill. If passed, the legislation would allow Island Health to apply for critical access status by 2027, coinciding with a regulatory change expected to affect approximately 30% of Medicaid enrollees.

For further inquiries, contact Nicholas Johnson at njohnson@goanacortes.com or 360-732-1753.