TrustWorks On Call: The Big Bad Bill

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“Big Beautiful Bill” becomes law, including over $1T of healthcare cuts

On Friday, July 4, President Trump signed H.R. 1, the One Big Beautiful Bill Act (OBBBA), into law. This administration’s signature piece of legislation is headlined by $4.5T of tax cuts and almost $1.2T of healthcare spending cuts.

The OBBBA is estimated to reduce federal Medicaid spending by about $940B over ten years, through the following key provisions:

Work Requirements: To receive Medicaid benefits, able-bodied individuals must verify that they spend at least 80 hours a month on work, education, training, or community service, with limited exceptions for certain hardships, for children under 19 years old, and for parents of children under 13 years old. States must implement this policy no later than January 1, 2027.
State Provider Taxes: All states face stronger limits on passing new provider taxes, and Medicaid expansion states must cut existing provider taxes down from 5.5 percent of net patient revenues in 2028 to 3.5 percent by 2032.
State-Directed Payments: Instead of being capped at average commercial rates, Medicaid directed payment programs must limit their payments to providers at 100 percent of Medicare rates in expansion states and 110 percent in non-expansion states, with limited exceptions and a gradual implementation period beginning on January 1, 2028.
Cost-Sharing: Starting October 1, 2028, Medicaid expansion enrollees with incomes above the federal poverty line will now face copays of up to $35 per service, excluding some services like primary care, mental health, and substance-use disorder treatments.
Eligibility Verification and Enrollment: States must limit most automatic enrollment processes effective immediately, conduct eligibility verification every six months for expansion enrollees starting in 2027, reduce retroactive coverage for new enrollees from three months to one starting in 2027, and conduct more frequent checks to ensure no one deceased or enrolled in multiple Medicaid programs remains on their rolls by 2029.
FMAP Sunset: States that choose to expand Medicaid after January 1, 2026, will no longer be eligible for the enhanced Federal Matching Assistance Percentage (FMAP) introduced by the American Rescue Plan Act of 2021.
Coverage for Immigrants: Starting October 1, 2026, immigrants with legal status who don’t have green cards, including most refugees and asylum seekers, will no longer be able to receive Medicaid coverage; undocumented immigrants, already ineligible for most Medicaid coverage, can no longer receive Medicaid coverage for emergency services.
Payments to Prohibited Entities: Effective immediately for only one year, states are barred from making Medicaid payments to “prohibited entities,” defined as 501(c)(3) nonprofit organizations primarily engaged in family planning, reproductive healthcare, and abortion services, which specifically targets the Planned Parenthood Federation of America.

The OBBBA also makes changes to the Affordable Care Act (ACA) marketplaces, totaling about $227B in cuts by 2034, such as:

Subsidies for Immigrants: Starting January 1, 2027, legal immigrants without green cards, such as many refugees and asylum seekers, will be ineligible to receive premium tax credits for purchasing ACA exchange plans.
Eligibility Verification and Enrollment: Starting January 1, 2028, exchange subsidy recipients, especially those with zero-premium plans, will face new verification tests; premium tax credits will not be available during special enrollment periods.
Enhanced Subsidies: Although not scored as an explicit cut in the bill, the enhanced premium tax credits for ACA plans introduced during COVID are still set to expire at the end of 2025.

Finally, the OBBBA made several changes to Medicare and other federal healthcare programs that don’t fit cleanly into the previous categories:

Rural Hospital Fund: The Rural Health Transformation Fund will distribute $50B over five years to rural health facilities, including hospitals, Federally Qualified Health Centers (FQHCs), and other healthcare clinics; states must submit applications detailing how they will use these funds to improve rural healthcare access, outcomes, and facilities by December 31, 2025.
Medicare Physician Pay: Physicians will see a 2.5 percent increase in Medicare reimbursements for 2026, but this one-time provision does not tie future updates to the Medicare Economic Index.
Medicare and DSH cuts: Because the bill increases the federal deficit, it will trigger mandatory (but deferrable) Medicare spending cuts in future years; it also does not delay $16B of Medicaid disproportionate share hospital (DSH) payment cuts over the next three years.
Nursing Home Staffing: The Biden-era nursing home minimum staffing rule, already struck down by the courts, now faces a ten-year statutory moratorium.

TrustWorks Take: This exhausting and (nearly) exhaustive list is the result of a broken legislative process. Laying out all these policy provisions next to each other helps illustrate the disregard our legislators feel toward the millions of people who will lose coverage and the thousands of providers who care for them. Despite opposition from all major hospital associations and medical organizations, as well as most voters, including 71 percent of independents, this bill not only successfully progressed through Congress into law, but it also became worse along the way. Compared to the House bill, the Senate bill added $140B in Medicaid cuts and $1T more to the national debt, in exchange for more tax cuts. One sign that many Republican lawmakers know this is bad policy is that most of the controversial provisions, such as Medicaid work requirements and cost-sharing, won’t kick in until after the 2026 midterm elections, although refugees getting kicked off Medicaid one month before the election is a notable, and likely cynical, exception.

While this law does not exactly repeal the ACA (commercial insurance protections for preexisting conditions and against preventive care cost-sharing remain untouched), its signature coverage-expansion achievements will be significantly unwound. Thanks to Medicaid expansion and marketplace coverage gains, the number of uninsured people in this country dropped from 44.8M in 2012 to 25.3M in 2023, a difference of 19.5M. Between the passage of this bill and the likely expiration of enhanced ACA subsidies, an estimated 17M people will become uninsured in the next decade, erasing over 85 percent of the progress we’ve made since 2012. The ACA has never been more popular or effective, and experimentations with ICHRA and other exchange-based solutions that may have proven to be tomorrow’s answers to today’s problems are now put on hold.

Beyond the Whiteboard

Visualizing key trends from the healthcare industry

The Direct and Indirect Consequences of Medicaid Cuts

As estimated by the Congressional Budget Office, the OBBBA’s $1.2T of federal healthcare savings can be broken down into roughly five buckets: $375B from state provider tax and spending restrictions, $326B from Medicaid work requirements, $217B from all other Medicaid changes combined, $120B from ACA marketplace restrictions for migrants, and $107B from the other marketplace changes. As a direct result of these policy changes, over 10M Americans, disproportionately the working poor and refugees, will become uninsured, but that’s only the tip of the iceberg.

The impact will be felt by those who lose insurance first; followed by their providers, whose Medicaid revenues will be replaced with service cutbacks and rising uncompensated care costs; followed by commercial payers, onto whom providers, especially hospitals, will try to shift some of their uncompensated costs; ultimately resulting in commercially insured patients facing higher premiums, cost-sharing, and deductibles so that payers can maintain their margins. For rural areas, these effects will be magnified, as $50B rural health fund is overshadowed by the projected $70B funding loss for rural hospitals triggered by this bill. Finally, there’s the non-healthcare side of the equation. These healthcare cuts have been described as spending offsets for tax cuts, but most of the bill relies on deficit spending, resulting in an estimated $3.4T added to the national debt by 2034. Ballooning the national debt comes with a host of consequences, including higher interest rates in the near term and limits on future policymaking. Faced with higher interest rates, households and businesses are more likely to save than spend or borrow, undermining the economic growth assumptions traditionally used to justify tax cuts. This law appears to be, in both an economic and a moral sense, an unnecessary, self-inflicted wound to this country.

Dialing In

Sharing insights from our work with clients

Medicaid Strategy: Now or Never
As the “Big Beautiful Bill” has made its way through Congress, I have found the most opportunities in years, at least since the expansion debates were all the rage, to talk with clients and colleagues about many physicians’ least favorite payer: Medicaid. Not that any physicians I’ve spoken to have voiced support for these cuts, they just wish Medicaid was better funded and paid more. (Medicaid physician fees only average about 75 percent of Medicare rates.)

The more relevant divide in these conversations has been between physicians who see lots of Medicaid patients and those who see them rarely if ever. One study found that 25 percent of primary care physicians listed in Medicaid managed care network directories provided 86 percent of patients’ care. Those physicians who rely on Medicaid have been following the bill’s progress very closely, and their care businesses now face an existential threat.

Now that the bill has become law, and before all its policies go into effect, it is crucial to rethink how providers and carriers engage with Medicaid. While the immediate implications seem dire, there is an opportunity for health systems, physician groups, community-based organizations, and FQHCs to work together to safeguard access and build more resilient care networks through intentional strategy and collaboration. Using innovative partnerships, patient advocacy, or educational and administrative programs that support coverage continuity and work requirement navigation, there is a possibility to mitigate the bill’s impact and potentially pioneer improved care models despite the challenging landscape. A strategic plan for Medicaid is no longer optional, and it will take a village to solve for the access challenges and funding shortfalls introduced by this law.

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The Big Bad Bill