What Should Hospitals Expect from the Medicaid Cuts Proposed in the One Big Beautiful Bill Act?
On July 3, 2025, the House of Representatives approved the One Big Beautiful Bill Act (OBBBA). President Donald J. Trump signed the bill into law on July 4, 2025.
The OBBBA proposes a nearly $1 Trillion cut to federal Medicaid spending over the next 10 years. The Congressional Budget Office (CBO) estimates that these cuts will cause 16 million people to lose health insurance. But it’s not just enrollees and state programs that will be affected; so will hospitals and other healthcare providers.
To better understand how this will impact your entity, it’s important to first understand how Medicaid cuts will affect your patients, and your state’s Medicaid program. Here’s what we will discuss in this article:
- How will Medicaid cuts affect Medicaid enrollees?
- How will Medicaid cuts affect state Medicaid programs?
- How will Medicaid cuts affect healthcare providers?
What are the provisions in the final version of OBBBA?
House and Senate versions initially differed significantly. The key provisions in the final version were as follows:
– Provider Tax Provision: OBBBA imposes an immediate moratorium on new or increased provider taxes, whether through rate or tax basis increases.
– Additional State Directed Payment (SDP) restrictions, such as stricter CMS Approval Standards, limitations on payment amounts, disproportionate draw down of federal funds.
– Work requirements for abled body recipients, particularly in expansion states.
– Reduction of Affordable Care Act (ACA) marketplace subsidies.
How will Medicaid cuts affect Medicaid enrollees?
Here are a few of the changes in the OBBBA that directly affect individuals who became eligible for Medicaid through the ACA expansion:
- Reduced Medicaid Coverage: If states are unable to replace federal Medicaid funding, Medicaid enrollees may have less access to healthcare, either by losing coverage, reduced acceptance of Medicaid, denial of medical procedures.
- Work requirement: The OBBBA introduces an 80 hour/work requirement for eligibility. Individuals who have difficulty to prove they are meeting minimum work requirements per month (like gig workers), or those who have difficulty keeping a job may lose coverage as a result.
- More frequent eligibility checks: The bill increases the frequency of eligibility redeterminations, which could put enrollees experiencing short-term job loss at risk of losing healthcare coverage, even as they are actively searching for work.
- Cost sharing: The OBBBA includes a cost-sharing requirement, which could be as much as 5% of the Participants income.
- Health destabilization: The lack of preventative care and higher cost of healthcare will likely result in adverse health consequences for patients.
Some of these changes will affect Medicare expansion enrollees, but other Medicaid enrollees will be affected, too. The OBBBA repeals a rule that simplifies the Medicaid eligibility and renewal process. Individuals that struggle to follow the new, more complex renewal process, like seniors or those with poor financial literacy, could lose eligibility.
The bottom line is that because of these provisions, far fewer people will be eligible for Medicaid. Insurance through the ACA Marketplace is not a viable option for many low-income families— provisions in the OBBBA (like the expiration of ACA tax credits) will make ACA insurance unaffordable.
The most likely scenario is that millions of more Americans will find themselves without medical insurance under the provisions of the OBBBA.
How will Medicaid cuts affect state Medicaid programs?
If Medicaid funding is cut, states would have a hard decision to make. They would have to either replace the difference from state funds to maintain existing coverage, or they would have to lower program costs. Here are their options:
- Raise taxes:
States could increase taxes — like income, sales, or property taxes — to make up for the loss in federal Medicaid funding. (The OBBBA restricts states from raising provider taxes.) Doing this would help states maintain existing Medicaid services. - Reduce benefits:
By law, states are required to offer certain benefits to Medicaid enrollees. But many states choose to offer additional benefits to make Medicaid more valuable. With less funding from the federal government, states may choose to eliminate optional benefits. - Restrict eligibility: States may choose to cover fewer people under Medicaid programs. For example, undocumented immigrants are generally ineligible for federally funded Medicaid coverage, but many states pay to extend coverage to those populations. States could choose to tighten eligibility to reduce program costs.
How will Medicaid cuts affect healthcare providers?
Healthcare providers will have to carry much of the burden. The proposed cuts to Medicaid will affect hospitals and other providers in more ways than one.
Increased Costs
As a result of the cuts to Medicaid are now written into law, an estimated 16 million people by 2034 will lose health coverage and become uninsured. Medicaid cuts remove Medicaid coverage of 7.8 million people, 4 million will be impacted by marketplace cuts, and 4.2 million people lose coverage because premium tax credit enhancements are not extended. While these measures may decrease Medicaid spending, it does not decrease healthcare spending. In fact, uninsured patients will lead to:
- More uncompensated care: People will require access to healthcare, irrespective of their insurance status. Uninsured patients , will result in a higher number of uncompensated patient interactions, and hospitals will bear the financial burden.
- Higher use of emergency services: Uninsured individuals are more likely to neglect preventive services and maintenance visits, resulting in chronic issues. Patients with exacerbated health issues are more likely to require treatment in an emergency department, at higher costs o the provider.
- Higher administrative costs for payment recovery: Additional CMS documentation requirements will result in more administrative burden when billing for services provided. Further, payment recovery efforts will increase, and bill to collection cycles (AR turnover) will increase.
Reducing Medicaid costs does nothing to reduce overall healthcare costs. In reality, a cut to Medicaid is a cost-shifting measure, moving the burden away from the government into the hands of healthcare providers.
Changes to State Directed Payments
State Directed Payments (SDPs) are mechanisms states use to funnel additional funding to healthcare providers that treat Medicaid enrollees. (Please refer to our Medicaid article Part 1).) Currently, some states have SDPs that reach far above what Medicare reimburses, some bringing reimbursement as high as average commercial insurance rates. The OBBBA revises the payment limit for certain SDPs. New SDPs will be capped at the total published Medicare payment rate in Medicaid expansion states, or 110% of the Medicare rate in non-expansion states.
Hospitals that receive this level of SDP funding will see an immediate drop in reimbursement, restricting future rate reimbursement hikes.
Which providers are expected to be impacted the most?
Georgia, Louisiana, Mississippi, and Texas are expected to see a 6% increase, while Florida residents are expected to see a 9% increase in uninsured rates. Medicaid cuts will impact each provider differently, but providers that are likely to struggle the most are:
- Those with a high number of Medicaid or low-income patients
- Those that currently operate at a negative margin
- Rural hospitals, smaller hospitals, and trauma centers (which tend to have lower margins)
What should providers do to prepare for OBBBA?
The OBBBA is creating a difficult environment for providers to navigate. Providers should prepare their Organization for changes as follows:
- Carefully review the provisions in the final OBBBA version.
- Understand the patient mix and model the impact of Medicaid (and Medicare) changes on your organization.
- Proactively educate your community and in particular the Medicaid population impacted by OBBBA changes.
- Provide education to your billing and finance personnel on a providing required medical documentation and voiding denials.
- Contact your political and professional representation to act in your best interest
Your Organization might be forced to make some tough decisions — about what services you offer, what patients you serve, or how your entity is funded. We can better predict the impact on your financial future now that the OBBBA is finalized and written into law. Reach out to your LaPorte Advisor for more information about the OBBBA.