On May 22, the U.S. House of Representatives passed the One Big Beautiful Bill Act (OBBBA) by a vote of 215 to 214. While the bill does not include structural changes to Medicaid, i.e., implementing per capita caps or rationalizing the federal matching rate for the expansion population, nor does it expand Medicare site-neutral payments, it does include significant changes to Medicaid eligibility, enrollment, and funding mechanisms that will have a profound impact on healthcare organizations if enacted.
The OBBBA next goes to the Senate for consideration, where the bill will likely be amended. While it is not guaranteed the OBBBA will become law, healthcare organizations should understand and prepare for the potential implications, including increases in the number of uninsured and reductions in federal funding for Medicaid.
Impact on Medicaid Funding & Uninsured
The Congressional Budget Office (CBO) estimates the bill’s changes to Medicaid will reduce the federal deficit by $803 billion over 10 years. In addition, the CBO estimates the bill’s changes to Medicaid and the health insurance exchanges will increase the number of uninsured individuals by 8.6 million. These estimates are likely understated, as they are based on a draft of the legislation that included a later start date for Medicaid work requirements. The impact will vary considerably by state, as we explore further below.
The OBBBA’s impact on Medicaid spending and the uninsured is primarily the result of revised eligibility and enrollment requirements and limitations on funding mechanisms states use to support safety net providers. Below is a summary of the major provisions. Please note this is not intended to be an exhaustive summary of the OBBBA’s Medicaid or healthcare provisions.
Work Requirements
By December 31, 2026, states would be required to verify individuals between the ages of 19 and 64—excluding certain individuals—are working for at least 80 hours per month or participating in other qualifying activities as a condition of receiving Medicaid benefits. This provision also appears to bar those who do not meet work requirements from receiving subsidies in the exchange. The CBO projects this provision would save $280 billion over 10 years.
Although work requirements are the largest source of Medicaid savings in the bill, they may not result in a significant increase in uncompensated care costs for hospitals and health systems given that pregnant women and individuals with disabilities, among other groups, would be exempt. Instead, the biggest impact of this provision will likely be on Medicaid managed care organization enrollment.
Eligibility & Enrollment
The OBBBA includes provisions that would delay implementation of Biden administration rules streamlining enrollment (effective on enactment; saves $167 billion over 10 years), require Medicaid eligibility redeterminations at least once every six months for the expansion population (effective December 31, 2026; saves $53 billion over 10 years), require state address verification to prevent enrollment in multiple states (effective October 1, 2029; saves $17 billion over 10 years), and reduce retroactive coverage from three months to one month (effective December 31, 2026; saves $6.4 billion over 10 years).
Provider Taxes
Effective on enactment, the OBBBA would prohibit the establishment of new provider taxes or increasing existing tax rates. Like the recently proposed Medicaid rule, the bill also revises the circumstances under which the requirements that taxes be broad-based and uniform can be waived. If the bill is passed, current tax programs in several states would no longer be permissible. States may have a transition period of up to three years to correct impermissible arrangements, which is a softer landing than contemplated in the proposed rule. These two provisions would save $123 billion over 10 years.
State-Directed Payments
Upon enactment, the OBBBA would cap the state-directed payment rate for inpatient and nursing facility services in Medicaid expansion states at the Medicare rate. For non-expansion states, state-directed payments would be capped at 110% of the Medicare amount. Existing state-directed payment models that pay the average commercial rate are grandfathered. State-directed payments for non-expansion states that subsequently expand Medicaid after enactment of the OBBBA would be capped at the Medicare amount, even if they had prior approval. This provision would save $73 billion over 10 years.
FMAP Reduction for States That Cover Undocumented Individuals
Effective October 1, 2027, the bill would lower the Federal Medical Assistance Percentage (FMAP) from 90% to 80% for expansion states if Medicaid or other state-run programs provide health coverage for immigrants who aren’t eligible for certain public benefits, unless they’re a child or pregnant woman. This provision would save $11 billion over 10 years.
Implications for Healthcare Organizations
Analysis from the Kaiser Family Foundation (KFF) estimates the federal Medicaid cuts in the OBBBA would reduce state spending by 20% per beneficiary on average.1 However, the impact on per-beneficiary spending would vary widely based on state policy choices that predate the legislation. These range from a low of 6% to a high of 50%. Not surprisingly, the bill’s impact on state-level uninsured rates tends to be correlated with spending cuts.
The first-order impacts of the Medicaid provisions in the OBBBA are clear: providers will experience increased uncompensated care, Medicaid managed care plans will experience lower enrollment, and there will be fewer dollars to provide supplemental and/or state-directed payments to support long-term care facilities and safety net providers. Beyond these first-order impacts, there will be hospitals currently on the eligibility threshold for Medicare Disproportionate Share Hospital (DSH) payments and the 340B program that may lose access to both programs. For hospitals that continue to qualify for Medicare DSH, traditional DSH reimbursement will likely decrease. The impact on uncompensated care DSH reimbursement is more complicated given that the available pool is based on the CMS Actuary’s estimate of traditional DSH, which will decrease. However, the percentage of the pool distributed will increase with the uninsured rate.
How Should Healthcare Organizations Respond?
Our Healthcare Market Point of View provides a framework to help healthcare organizations plan their response to these changes based on five core capabilities necessary to thrive in the current environment. Below, we explore important considerations within each capability to help healthcare organizations plan their responses to the potential changes included in the OBBBA.
Financial Discipline: Generating the margins necessary to thrive by securing and maintaining market relevance. Key considerations include:
- Cost Structure Efficiency: Continue to seek performance improvement opportunities in labor and non-labor cost areas.
- Negotiated Managed Care Rates: Utilize available price transparency data to benchmark negotiated rates relative to competitors to understand rate improvement opportunities.
- Revenue Cycle Excellency: Provider organizations can no longer afford an underperforming revenue cycle. In addition to reducing denials and leakage to realize contracted rates, it is important for revenue cycles to connect individuals who have lost Medicaid with other sources of coverage or financial assistance for those who qualify.
Strategic Agility: Calibrating strategic direction as conditions demand and opportunities present. Key considerations include:
- Increased Focus on Strategic Planning: Our Mindsets 2025 Healthcare Executive Leadership Report finds that nearly 40% of healthcare executives report spending less than 10 hours per month on strategic planning. Given the increased uncertainty and risk of payment cuts, executives should increase the time dedicated to strategic planning and execution. This will support the continued alignment of activities and investments with the organization’s goals and objectives. For example, organizations may consider developing a process for reviewing proposed efforts to reduce expenses to help prevent these efforts from detracting from investments necessary to achieve strategic goals.
Aligned Growth: Pursuing strategic investments, integration activity, and partnerships across the healthcare value chain. Key considerations include:
- Integration Opportunities: Particularly for organizations with strong balance sheets, passage of the OBBBA will create opportunities to integrate with other organizations seeking the scale necessary to continue serving their communities. Organizations should consider proactively developing a framework to evaluate potential integration opportunities to determine if they support aligned growth strategies.
Regulatory Excellence: Understanding the rapidly evolving regulatory environment and acting strategically within it. Key considerations include:
- Traditional Medicare: Given the anticipated loss of Medicaid coverage and increase in uninsured, hospitals need to capture all Medicaid days for DSH and 340B eligibility (if applicable). Hospitals that have access to the 340B program may need to consider additional strategies to remain eligible. Beyond DSH, hospitals should explore strategies to help capture additional allowable Medicare bad debt, optimize their wage index, and expand access to IME/GME funding.
- Medicare Advantage (MA): Given the revenue cycle challenges providers are experiencing, organizations should review their portfolio of MA contracts to determine if the relationships continue to meet their strategic objectives.
Talent Optimization: Building exceptional teams and equipping them to succeed in executing mission-aligned business and care delivery models.
- Workforce Alignment: Organizations should focus on aligning their workforce with their care delivery models. This is particularly true of the physician enterprise, given that many organizations have opportunities to better align compensation and staffing with their overarching strategic objectives to improve outcomes and the efficiency of care delivery. For example, as employed advanced practice providers increase as a percentage of the provider workforce, organizations need to develop a skills-based approach to hiring and a career matrix to deploy these resources effectively and efficiently.
How Forvis Mazars Can Help
Our professionals at Forvis Mazars are committed to helping healthcare organizations develop the core capabilities necessary to understand and adapt to the impact of evolving federal policies and congressional legislation. If you have questions about upcoming policy changes and how they may affect your organization, please reach out to a professional on our team.
- 1“State-Level Context for Federal Medicaid Cuts of $625 Billion and Enrollment Declines of 10.3 Million,” kff.org, May 16, 2025.