The One Big Beautiful Bill Act (OBBBA) signed into law on July 4, 2025, represents one of the most significant reductions in federal Medicaid spending in recent history. This legislation will fundamentally alter how Medicaid in funded across the United States, with varying impacts depending on each state's policies and expansion status.
The Congressional Budget Office estimates that OBBBA will reduce federal Medicaid spending by $911 billion (accounting for overlapping provisions of the law) over the next decade while increasing the number of uninsured Americans by up to 11 million. These cuts were designed to meet the threshold of the prescribed tax cuts, and their implementation will reshape healthcare access nationwide.
OBBBA's $911 billion reduction in federal Medicaid spending represents 14% of total projected federal Medicaid expenditures over a ten-year period. The cuts are not distributed evenly over time—over three-quarters (76%) of the reductions occur in the final five years, from 2030 through 2034.
The legislation affects multiple aspects of Medicaid funding, from eligibility requirements to state financing mechanisms. States will face difficult decisions about whether to replace reduced federal funding with their own resources or dramatically reduce enrollment and benefits.
The majority of OBBA's Medicaid savings stem from five major provisions, which together account for $851 billion—86% of the total gross savings:
Work Requirements for ACA Expansion Adults ($326 billion)
Adults eligible for Medicaid through ACA expansion must now meet work and reporting requirements. This provision alone accounts for nearly one-third of all Medicaid savings under OBBBA.
Provider Tax Restrictions ($191 billion)
The legislation establishes a moratorium on new or increased provider taxes and requires reductions in existing provider taxes in expansion states. This limits states' ability to generate revenue for their Medicaid programs.
State-Directed Payment Limits ($149 billion)
New restrictions on state-directed payments to hospitals, nursing facilities, and other providers reduce states' flexibility in supplementing provider reimbursements.
Eligibility Rule Prohibitions ($122 billion)
OBBBA prohibits implementation of Biden Administration rules that simplified Medicaid eligibility and renewal processes, making it harder for eligible individuals to enroll and maintain coverage.
Increased Redetermination Frequency ($63 billion)
The ACA expansion group must undergo more frequent eligibility redeterminations, from annually to twice a year, increasing administrative burden and likelihood of coverage loss.
States that expanded Medicaid under the Affordable Care Act (ACA) face disproportionate cuts. Provisions affecting only expansion states account for $526 billion—over half of the total federal spending reductions.
If your hospital or health system resides in one of the 39 Medicaid expansion states, expect a more significant impact.
Wisconsin (through its 1115 waiver) presents a unique case as a non-expansion state whose adult coverage through a Medicaid waiver could still be subject to work requirements.
The remaining non-expansion states—Alabama, Florida, Georgia, Kansas, Mississippi, North Carolina, South Carolina, Tennessee, Texas, and Wyoming—face smaller reductions, primarily from provisions affecting all states.
While all states will experience some reduction in federal Medicaid funding, the impact varies significantly. As it stands currently, four states face the most severe cuts, with reductions of 19% or more over the ten-year period:
Louisiana: Among the most heavily affected due to its recent expansion adoption and reliance on provider taxes
Illinois: Faces substantial cuts from work requirements and provider tax restrictions
Nevada: Experiences significant impact from multiple provisions affecting expansion states
Oregon: Heavily affected by the combination of work requirements and state-directed payment limits
OBBBA's implementation creates unprecedented challenges for state Medicaid programs. States must decide whether to compensate for reduced federal funding through increased state spending or adjust their Medicaid program, affecting millions of enrollees.
The legislation's complexity means impacts will vary based on each state's current policies, provider tax structures and administrative capabilities. States should begin analyzing their specific exposure to each provision and developing strategies to minimize disruption to patients and healthcare organizations.
Healthcare stakeholders, policymakers and advocacy groups must closely monitor implementation to understand the full scope of these changes and the effects on vulnerable populations across the country.
FinThrive is committed to assisting healthcare organizations in navigating this transformation by providing insights, tools and expertise to manage risk and lead through change.
Want to learn more about how you can simplify OBBBA compliance for you and your team? Watch "The OBBBA Snapshot Webinar: What's Changing and Why It Matters."
The content provided by FinThrive is intended solely for informational purposes, based on details known at this time and should not be construed as legal advice. For specific legal guidance, please consult an attorney.