State-Level Impacts of Key Medicaid Provisions in the One Big Beautiful Bill Act

Issue

The One Big Beautiful Bill Act (OBBBA) is a far-reaching budget reconciliation package (Pub. L. 119-21, 2025). OBBBA contains many provisions that affect Medicaid, the state and federally financed health insurance program for people with low incomes or disabilities. These changes could have implications for financing, eligibility, and access to care. Although the Congressional Budget Office (CBO) has scored each provision (Congressional Budget Office, 2025), CBO's focus is on the federal budgetary and coverage implications. We built estimates of the expected impacts of a set of key provisions on Medicaid and state budgets, both provision by provision and overall. We also estimated the expected effect on Medicaid enrollment. A key contribution of this analysis is that we developed estimates for each state, typically drawing on state-specific data, documentation, and other materials.

Approach

We modeled the impacts of the following provisions (drawn from the law's sections as indicated):

• Sec. 71103 (address verification): This section requires states to collect enrollee addresses, an approach intended to reduce duplicative enrollment across states.
• Sec. 71106 (good faith waiver): This section limits the federal government's ability to waive recoupment of funds provided for certain types of erroneous Medicaid payments, sometimes known as a “good faith” waiver.
• Sec. 71107 (redetermination): This section requires states to conduct eligibility redeterminations for Medicaid expansion adults every six months (as opposed to the previous requirement of every 12 months).
• Sec. 71109 (eligibility restrictions for immigrants): This section limits Medicaid eligibility for lawfully present immigrants to green card holders and certain other groups. Refugees and asylees are no longer eligible.
• Sec. 71110 (emergency Medicaid): This section reduces federal matching assistance percentage (FMAP) contributions for certain Medicaid-ineligible immigrants who seek emergency care.
• Secs. 71115 and 71117 (provider taxes): These sections limit the ability of states to use provider taxes (i.e., taxes for which at least 85 percent of revenue comes from health care providers [Social Security Administration, undated]) to increase FMAP claims and impose greater restrictions on Medicaid-expansion states than on non-expansion ones. This provision curtails a common practice of imposing provider taxes alongside Medicaid payment increases, drawing down FMAP on the payment increases and simultaneously benefiting both states and providers at the expense of the federal government.
• Sec. 71116 (state-directed payments [SDPs]): In certain circumstances, states can require Medicaid managed care plans to pay providers a specified amount. Previously, these payments could be as high as the average commercial rate; this section of OBBBA restricts payments for certain provider categories to 100 percent of average Medicare rates for expansion states and to 110 percent for non-expansion states.
• Sec. 71119 (work requirements): With some exceptions, this section of the law requires non-disabled adults to be working, looking for work, or volunteering to qualify for Medicaid.
• Sec. 71120 (cost-sharing): This section requires states to impose cost-sharing of up to $35 for certain health care services for non-disabled adults.
• Sec. 71121 (home- and community-based services [HCBS]): This section expands states' ability to offer HCBS via Section 1915(c) waivers. Currently, Section 1915(c) of the Social Security Act allows states to waive certain Medicaid requirements in order to provide HCBS services to people who require an institutional level of care (Centers for Medicare & Medicaid Services, undated-b). This provision allows states to offer HCBS to people who do not need an institutional level of care if waivers meet other necessary criteria.
• Sec. 71401 (Rural Health Transformation Program [RHTP]): This section provides $50 billion in funding for certain activities, such as promoting healthy behavior and paying for health care services. The funding is available to all states, though some of the criteria used to allocate the funding favor rural states.

For ten of the 12 provisions that we modeled, we created customized approaches. For each approach, we relied on publicly available data on Medicaid enrollment and spending at the state level available from the Data.Medicaid.gov website (Centers for Medicare & Medicaid Services, 2025c) and from the Medicaid and CHIP Payment and Access Commission (undated). We then used enrollment and spending projections from the National Health Expenditure Accounts (Centers for Medicare & Medicaid Services, 2025a) to project estimates to future years. For many of the analyses, we used data from such sources as the American Community Survey (ACS) (U.S. Census Bureau, 2025), the Medicaid Budget and Expenditure System (MBES) (Centers for Medicare & Medicaid Services, undated-a), and the Centers for Medicare & Medicaid Services' Healthcare Cost Reporting and Information System (Centers for Medicare & Medicaid Services, 2025b). We also reviewed state laws and documentation, reports published by state or federal agencies, aggregated data sources, and academic literature. For the remaining two provisions, we allocated the CBO estimates to states (Congressional Budget Office, 2025).

Key Findings

We estimate that impacts of the provisions will vary by state, but most states will see reductions to their state Medicaid funds as a result of the OBBBA provisions that we studied. Key findings from our analyses include the following:

• In total, state Medicaid funds will be reduced by $679 billion over the 2025–2034 period.¹ State general funds will be reduced by $82 billion over the same period.
• The federal savings amount to $724 billion, similar to the $709 billion in federal savings for these provisions projected by CBO (Congressional Budget Office, 2025).
• Expansion states with substantial use of SDPs and provider taxes—Arizona, Iowa, and Nevada—stand to see reductions of more than 15 percent of their Medicaid funds (a combined impact of reduced federal and state spending). California and New York similarly have substantial use of SDPs and provider taxes and see the largest dollar-value reductions to Medicaid funds, on the order of $112 billion and $63 billion, respectively.
• As a non-expansion state without substantial use of SDPs or provider taxes, Florida sees minimal budgetary impacts of the OBBBA provisions we studied (a <0.5-percent change to its Medicaid fund). Some expansion states, such as North Dakota and Nebraska, that similarly do not rely heavily on SDPs and provider taxes will also see minimal budgetary impacts of the provisions we studied because the expected gains from the RHTP are likely to offset the majority of the losses from other provisions.
• A few states, such as Wyoming and South Dakota, will see increases in Medicaid funds of close to 10 percent and 2 percent respectively; these states have small populations (and therefore smaller Medicaid funds overall), so they stand to gain substantially in percentage terms from the RHTP and see little to no impact from other provisions.
• There is variation across states in which provisions have the greatest budgetary impact (e.g., Michigan, California, and Colorado all see the largest impacts from provider taxes; Texas, Tennessee, and Mississippi are more affected by SDPs).
• We estimate a joint impact across the provisions we modeled of 7.6 million fewer Medicaid enrollees in 2034.

Policy Implications & Limitations

• Many states will see substantial reductions to Medicaid funds, with 26 states expected to see reductions of 5 percent or more.
• Some of the policies, such as work requirements and more-frequent redetermination, are expected to have direct impacts on Medicaid enrollment by adding eligibility criteria and increasing administrative requirements to remain enrolled. These policies reduce Medicaid spending for both states and the federal government.
• Other provisions related to provider taxes, emergency FMAP, and the good faith waiver for erroneous payments essentially reduce federal funding without inherently reducing the size of the Medicaid program, requiring states to either find other funding sources to bridge the gap or reduce Medicaid spending by reducing eligibility, covered services, provider payment rates, or some combination of those.
• There could be broader impacts of OBBBA provisions on access to care and uncompensated care that states might wish to address; the RHTP could at least partially address some of these issues, although the impact will vary substantially across states, with smaller states standing to gain more than larger states.
• We note that our findings rely on a number of assumptions related to state responses to these provisions, expected population growth and expected health care spending inflation. Therefore, our results should be interpreted as the expected outcomes provided these assumptions hold. Although we believe that these assumptions are reasonable, uncertainty is inherent to work projecting future outcomes. Should actual behavior vary from our assumptions for any given state, our estimates may not be applicable for that state.