The One Big Beautiful Bill Act Explained: A Detailed Review of Key Changes for the Healthcare Industry

Introduction

To offset the cost of other provisions in the bill, the One Big Beautiful Bill Act (OBBBA) includes significant reforms to Medicaid, Medicare, and Affordable Care Act (ACA) premium tax credits that are expected to result in millions of people losing federal healthcare coverage and reduced expenditures by more than $ 1 trillion over a decade. Collectively, the OBBBA’s healthcare provisions amount to the largest changes to healthcare programs since the ACA.

The majority of OBBBA’s healthcare reforms relate to Medicaid and chiefly consist of both eligibility reforms and funding rollbacks. The eligibility reforms include new work requirements for Medicaid, more frequent eligibility reviews, and other provisions to require states to proactively ensure that the program’s application is limited to eligible individuals. The funding rollbacks include both direct rollbacks of the ACA’s Medicaid expansion, in certain aspects, and reforms to mechanisms that states may used for financing their share of Medicaid spending, i.e., reducing permissible provider taxes currently used by states to finance Medicaid.

The OBBBA’s reforms to Medicare and ACA premium tax credits are similar in that both will now be limited in coverage to U.S citizens, lawful permanent residents (green card holders), Cuban or Haitian entrants, and Compact of Free Association Migrants. Coverage for ACA premium tax credits is also eliminated for lawfully present immigrants who would be eligible for Medicaid but for their immigration status.

While the OBBBA largely consists of reforms to reduce expenditures, the OBBBA does contain a few provisions to increase healthcare funding. Most prominently, the OBBBA contains a $50 billion rural health relief fund that will be available to rural hospitals. Additionally, there is a temporary 2.5% adjustment to the 2026 Medicare PFS payment rate.

1. Medicaid

A. Reducing fraud and improving enrollment processes

Sec. 71101. Moratorium on implementation of rule relating to eligibility and enrollment in Medicare Savings Programs:

Section 71101 prohibits the Secretary from implementing, administering, or enforcing certain provisions stemming from part one of a two-part final rule aimed at simplifying processes for eligible individuals to enroll and retain eligibility in the Medicare Savings Programs (MSPs) until October 1, 2034.¹ As background, MSPs are part of state Medicaid programs that help individuals cover the costs of Medicare Part A and Part B premiums. The 2023 Eligibility Final Rule sought to solve “unnecessary administrative burden,” “barriers to enrollment,” and “no regulations to facilitate enrollment in the MSPs.”²

The 2023 Eligibility Final Rule made several regulatory updates of which certain provisions have been halted by Section 71101 until October 1, 2034. The affected provisions include:

• Individual enrollment: There are three primary MSP eligibility groups, one of which is the Qualified Medicare Beneficiary (QMB). For the QMB, Medicaid pays all of an individual’s Medicare Parts A and B premiums and assumes liability for most associated Medicare cost-sharing charges for people with income that does not exceed 100% of the federal poverty level. In the 2023 Eligibility Final Rule, CMS sought to “codify existing policy that individuals who reside in group payer States and enroll in actual or conditional Part A during the [general enrollment period] can obtain QMB as early as the month Part A entitlement begins.”³The compliance date was set to take effect on April 1, 2026 to “allow States more time to implement this provision.”⁴

• Procedures for determining eligibility for the MSP groups: The 2023 Eligibility Final Rule newly defined “family size” for purpose of MSP eligibility to “include at least the individuals included in the definition of ‘family size’ in the [Medicare Part D Low-Income Subsidy (LIS)] program.”⁵ The Medicare Part D LIS program is described in further detail below. This definition includes the applicant, the applicant’s spouse, and all other individuals living in the same household who are related to and dependent on the applicant or applicant’s spouse.⁶ The compliance date was set to take effect on April 1, 2026.

• Medicare Part D LIS program leads data: The Medicare Part D LIS program is administered by Social Security Administration (SSA) and pays Medicare Part D prescription drug premiums and cost-sharing. Most LIS enrollees are deemed eligible for LIS by virtue of their enrollment in Medicaid. Others apply for the benefit by completing an application and submitting it to SSA. Section 113 of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) requires SSA to transmit data from LIS applications, i.e., “leads data”, to State Medicaid agencies and that the electronic transmission from SSA ‘‘shall initiate’’ an MSP application. “MIPPA also requires States to accept leads data and act upon such data in the same manner and in accordance with the same deadlines as if the data constituted’ an MSP application submitted by the individual.”⁷ The 2023 Eligibility Final Rule recognized that not all states initiated an MSP application upon receipt of leads data from SSA and sought to codify in regulation “the statutory requirements for States to maximize the use of leads data to establish eligibility for Medicaid and the MSPs.” To that end, the 2023 Eligibility Final Rule established a new definition of “Low-Income Subsidy Application data (LIS leads data)” at 42 C.F.R. § 435.4 and a process by which the State Medicaid agency must accept and treat received LIS leads data “as an application for eligibility under the [MSP]” at 42 C.F.R. § 435.911(e). The compliance date was set to take effect on April 1, 2026 to allow “for States to come into full compliance with all the provisions in new § 435.911(e) to facilitate MSP enrollment through LIS leads data[.]”⁸

• Determining eligibility for MSPs: The 2023 Eligibility Final Rule set forth in regulation streamlined eligibility and verification processes for individuals applying for MSPs, specifically that the State Medicaid agency “must accept attestation (either self-attestation by the individual or attestation by an adult who is in the applicant's household, as defined in § 435.603(f), or family, as defined in section 36B(d)(1) of the Internal Revenue Code, an authorized representative, or, if the individual is a minor or incapacitated, someone acting responsibly for the individual) of the following income and asset information without requiring further information (including documentation) from the individual.”⁹ The regulation provides further instruction for “income and interest income,” “non-liquid resources,” “burial funds,” and “life insurance policies.” The compliance date was set to take effect on April 1, 2026.

Sec. 71102. Moratorium on implementation of rule relating to eligibility and enrollment for Medicaid, CHIP, and the Basic Health Program.

Section 71102 prohibits the Secretary from implementing, administering, or enforcing certain provisions stemming from part two of a two-part final rule aimed at simplifying the eligibility and enrollment processes for Medicaid, the Children’s Health Insurance Program (CHIP), and the Basic Health Program until October 1, 2034.¹⁰ The 2024 Eligibility Final Rule sought to address “unnecessary administrative burden” and “barriers to enrollment and retention of coverage for eligible individuals” by implementing “policies designed to address these and other gaps, thereby streamlining Medicaid and CHIP eligibility and enrollment processes[.]”¹¹

The 2024 Eligibility Final Rule made several regulatory updates of which certain provisions have been halted by Section 71102 until October 1, 2034. The affected provisions include:

• Determination of Eligibility: The 2024 Final Eligibility Rule updated the regulatory text of this provision to include § 435.916, which refers to regularly scheduled renewals of Medicaid eligibility. The text reads: “For each individual who has submitted an application described in § 435.907 or whose eligibility is being renewed in accordance with § 435.916 and who meets the non-financial requirements for eligibility (or for whom the agency is providing a reasonable opportunity to verify citizenship or immigration status in accordance with § 435.956(b)) of this chapter, the State Medicaid agency must comply with the following[.]”¹²

• Establish maximum timeframes for redetermination of eligibility: The 2024 Final Eligibility Rule provided States with adequate time to redetermine eligibility while also ensuring timely completion of renewals and changes in circumstances. This provision applies to CHIP through a cross reference at 42 C.F.R. § 457.340(d)(1). The 2024 Final Eligibility Rule provides a detailed table of the new timeframes.

• Aligning MAGI and Non-MAGI Renewal Requirements: The 2024 Final Eligibility Rule sought to make the same streamlined renewal procedures available to all beneficiaries – both MAGI and non-MAGI. Prior to the 2024 Eligibility Final Rule, eligibility was to be renewed once every twelve months and no more frequently for MAGI-based beneficiaries only. At renewal, states must provide MAGI-based beneficiaries with (1) a prepopulated renewal form; (2) a minimum of 30 calendar days to return form; and (3) a minimum 90 calendar day reconsideration period. The 2024 Eligibility Final Rule requires the same renewal processes for all Medicaid beneficiaries, except as specifically allowed under statute. Moreover, 42 C.F.R. § 435.907 set forth timeframes for applicants to respond to requests for additional information when eligibility cannot be determined based on available information.

• Acting on changes in circumstances: Where the existing regulations were silent on expectations for processing redeterminations based on changes in circumstances, the 2024 Eligibility Final Rule established mandatory steps for States when redetermining Medicaid and CHIP eligibility based on changes in circumstances. This included: (1) requiring a minimum of 30 calendar days to respond to requests for information; (2) providing 90 a calendar day reconsideration period; and (3) prohibiting procedural terminations when verifying eligibility for additional benefits. The 2024 Eligibility Final Rule also required states to take proactive steps to update beneficiary address information.

• Facilitate transitions between Medicaid and CHIP: Under the 2024 Eligibility Final Rule, Medicaid and CHIP agencies are required to transfer accounts of individuals disenrolled from Medicaid or separate CHIP for procedural reasons if available information indicates the individual is potentially eligible for Marketplace or BHP coverage.¹³ Moreover, the 2024 Eligibility Final Rule revised the regulations to specify that combined notices must be sent by Medicaid and CHIP agencies when a child is transitioned between these two programs.¹⁴

• Exceptions from advance notice: Section 1902(a)(3) of the Social Security Act requires that a State plan provide an opportunity for a fair hearing to any person whose claim for assistance is denied or not acted upon promptly. Under 42 C.F.R. § 431.211, states generally are not permitted to terminate an individual’s Medicaid eligibility sooner than ten days after providing notice that the individual is no longer eligible for Medicaid. Section 431.213 provides for a series of exceptions to the requirement to provide advance notice. The 2024 Eligibility Final Rule explained that then-current § 431.213(d) permits a State to send notice of an adverse action not later than the date of the action when a beneficiary’s whereabouts are unknown and the post office returns mail with no forwarding address. It also refers to current § 431.231(d) for the procedure for when beneficiaries whereabouts become unknown. The 2024 Eligibility Final Rule revises and redesignates this subsection, explaining that § 435.919(f)(4) establishes procedures if the beneficiary’s whereabouts become known. ¹⁵

• Types of acceptable documentary evidence for citizenship: A State must verify an applicant’s U.S. citizenship under § 1902(a)(46)(B) of the Social Security Act. When a State is unable to verify an applicant’s U.S. citizenship through an electronic data match with the SSA, it must verify the applicant’s U.S. citizenship using alternative methods described under §§ 435.407 and 435.956(a)(1). The amendments under § 435.407 in the 2024 Eligibility Final Rule “simplify eligibility verification procedures by considering verification of birth with a State vital statistics agency or verification of citizenship with DHS SAVE as stand-alone evidence of citizenship.”¹⁶Additionally, separate verification of identity will not be required.

• Limitations on premiums and cost sharing: Under § 447.56(a)(1)(v), States may exempt from premiums and cost-sharing ‘‘individuals under age 19, 20, or age 21, eligible under § 435.222,” which—as renamed by the 2024 Final Eligibility Rule—is optional eligibility for reasonable classifications of individuals under age 21 with income below a MAGI-equivalent standard in specified eligibility categories.¹⁷ The 2024 Final Eligibility Rule explains that 42 C.F.R. § 435.223 (other optional eligibility for reasonable classifications of individuals under age 21) is derived from the same statutory provisions that supports § 435.222. Accordingly, CMS made a technical amendment to § 447.56(a)(1)(v) to add ‘‘and § 435.223’’ after ‘‘42 CFR 435.222.’’

• CHIP-specific review process: The 2024 Final Eligibility Rule required States to “ensure the opportunity for continuation of enrollment and benefits pending the completion of review” for a suspension or termination of enrollment and a failure to make a timely determination of eligibility at application and renewal.¹⁸Additionally, § 457.1180 set forth notice requirements in such situations and as set forth at 42 C.F.R. § 457.1130 (Program specific review process: Matters subject to review).

Sec. 71103. Reducing duplicate enrollment under the Medicaid and CHIP programs.

Section 71103 requires states to implement measures to reduce duplicate enrollments across Medicaid and CHIP by cross-checking with other state and federal data systems. By January 1, 2027, each State plan must provide for a process to regularly obtain address information for enrolled individuals. The Act identifies reliable data sources that must be consulted for address information, with the option for States to utilize additional sources of information. As a part of this data, managed care entities with State contracts must transmit enrollee address information to the States beginning January 1, 2027.

By October 1, 2029, the Secretary must establish a system to prevent an individual from being enrolled in the State plan for multiple states. The system must allow states to submit information about enrollees, and to use that information to send information back to the states about whether an individual enrolled or seeking to be enrolled in a state plan is also enrolled in the plan of another state. In connection with this to-be-created system, by October 1, 2029, the States must submit to the social security number of each enrollee and any other information determined by the Secretary in future rulemaking. The information must be submitted at least monthly, and during any determination of eligibility. This information is intended to be used to determine whether an individual is enrolled in multiple states. If the system identifies an individual enrolled in multiple states, whichever state the enrollee does not live in must disenroll the individual.

The OBBBA appropriates $10 million for FY2026 for the purpose of establishing the eligibility system. The Act also appropriates $20 million beginning in FY2029 for the purpose of maintaining the system.

Sec. 71104. Ensuring deceased individuals do not remain enrolled.

Section 71104 requires States to verify, at least on a quarterly basis, that no individuals enrolled under the State plan have deceased by reviewing the Death Master File or any successor system. If an individual is determined to be deceased due to their listing on the Death Master File, that individual shall be disenrolled from the State plan and the State shall discontinue any payments made on behalf of that individual. If any individual is disenrolled in error, that individual shall be reenrolled immediately upon detection of the error with an effective date retroactive to the date of the erroneous disenrollment. These requirements take effect January 1, 2027.

Sec. 71105. Ensuring deceased providers do not remain enrolled.

Beginning on January 1, 2028, states must check the Death Master File during both the initial enrollment and subsequent enrollment of Medicaid providers to ensure that deceased providers do not remain enrolled in Medicaid, codifying current CMS regulations. States must also check the Death Master File at least quarterly during the time that a Medicaid provider is enrolled, to determine whether the provider is deceased.

Sec. 71106. Payment reduction related to certain erroneous excess payments under Medicaid.

Federal law previously directed CMS to recoup federal funds for erroneous payments made for ineligible individuals and overpayments for eligible individuals if the state’s eligibility error rate exceeds 3 percent. CMS was permitted to waive the recoupment if the Medicaid agency has taken steps to demonstrate a good faith effort to get below the 3 percent allowable threshold.

Section 71106 expands the definition of erroneous payments to include payments where insufficient information is available to confirm eligibility. This Section also puts a cap on the amount that may be waived for a good faith showing. This Section takes effect in FY2030.

Sec. 71107. Eligibility redeterminations.

Section 71107 tightens eligibility redetermination rules for Medicaid expansion enrollees. Beginning January 1, 2027, States must conduct eligibility redeterminations for ACA Medicaid expansion enrollees every 6 months, instead of annually. States must continue to conduct annual eligibility review for all other Medicaid enrollees. The Act appropriates $75 million in FY2026 for implementation.

Sec. 71108. Revising home equity limit for determining eligibility for long-term care services under the Medicaid program.

The home equity limit is the maximum value of homes that a Medicaid applicant can own without the homes counting towards the asset limit when calculating financial eligibility under Medicaid. Currently, states may set a home equity limit, and the home equity limit is updated annually to account for inflation. Effective January 1, 2028, the maximum home equity limit becomes $1 million regardless of inflation. States may implement different home equity limit requirements for agricultural homes.

Sec. 71109. Alien Medicaid eligibility.

Section 71109 shortens the list of eligible immigrant populations whose care can be covered by Medicaid. Prior to the enactment of the OBBBA, hospitals could receive Medicaid payments from the federal government for emergency care provided to a number of qualified immigrant groups, including lawful permanent residents (green card holders); asylees and refugees; Cuban/Haitian entrants; battered non-citizens, spouses, children, or parents; members of federally recognized Indian tribes or American Indians born in Canada; victims of human trafficking; and DACA recipients, among others. Even among these qualified immigrant groups, many lawfully present immigrants have been subject to a five-year waiting period before they could enroll in Medicaid. (States are permitted to waive the five-year wait for children and pregnant individuals.) Some states cover undocumented immigrant groups through programs funded solely by those states.

Under the OBBBA, fewer immigrant groups will qualify for Medicaid. Section 71109 prohibits Medicaid payments to States for medical assistance to individuals unless they fall into one of four categories: (1) U.S. citizens and U.S. nationals; (2) certain U.S. lawful permanent residents (excluding, tourists, visitors, diplomats, and students temporarily in the U.S.); (3) Cuban and Haitian entrants; and (4) individuals in the U.S. under a Compact of Free Association with the Marshall Islands, Micronesia, and Palau. The same restrictions apply to CHIP eligibility. Thus, the OBBBA excludes previously eligible populations—refugees, asylees, DACA recipients, and abused spouses and children—from Medicaid coverage going forward. Hospitals and providers will not be able to receive federal Medicaid reimbursement for care furnished to these populations.

The OBBBA provides $15 million in funding for FY 2026 for the CMS administrator to implement the new eligibility requirements. Section 71109 goes into effect on October 1, 2026.

Sec. 71110. Expansion FMAP for emergency Medicaid.

Section 71110 limits Federal Medical Assistance Percentage (FMAP) payments for emergency care furnished to immigrants who qualify for Medicaid coverage. Before the OBBBA, states that enrolled in Medicaid expansion under the ACA would be eligible to receive a higher percentage of Medicaid reimbursement for the costs of emergency care provided to immigrants who would qualify for Medicaid except for their immigration status. (Federal law requires hospitals to provide such emergency care.) The OBBBA caps FMAP payments to the state’s regular FMAP for emergency care provided to immigrants not eligible for Medicaid coverage. In other words, the higher Medicaid reimbursement percentage under the ACA for emergency care provided to immigrants who would qualify for Medicaid except for their immigration status is no longer available.

These modifications to FMAP payments will likely lead to lower Medicaid payments to states, requiring them to make larger contributions to maintain current reimbursement levels. The FMAP reductions could also result in lower reimbursement to providers.

The OBBBA provides $1 million in funding for FY 2026 for CMS to implement the new eligibility requirements. Section 71110 goes into effect on October 1, 2026.

B. Preventing wasteful spending

Sec. 71111. Moratorium on implementation of rule relating to staffing standards for long-term care facilities under the Medicare and Medicaid programs.

Section 71111 imposes a ten-year moratorium on the implementation, administration, or enforcement of the final rule issued by CMS on May 10, 2024, titled “Medicare and Medicaid Programs; Minimum Staffing Standards for Long-Term Care Facilities and Medicaid Institutional Payment Transparency Reporting” (89 Fed. Reg. 40876). The rule aimed to set federal minimum staffing standards for nursing homes that participate in Medicare and Medicaid, by amending 42 C.F.R. §§ 483.5 and 483.35.

Section 71111 prohibits CMS from taking any action to implement, enforce, or administer any aspect of the staffing rule from the date of enactment through September 30, 2034. In effect, it blocks the rollout of staffing mandates and related reporting requirements that were a key part of the Biden administration’s broader nursing home reform initiative. Supporters of the moratorium have cited concerns about workforce shortages and compliance costs for facilities, while critics argue it undermines efforts to improve patient safety and care quality in long-term care settings.

Sec. 71112. Reducing State Medicaid costs.

Section 71112 amends Section 1902(a)(34) of the Social Security Act (42 U.S.C. § 1396a(a)(34)) to modify the rules governing retroactive Medicaid eligibility by shortening the period during which states must cover care received before an individual formally applies. Under current law, states are required to provide up to three months of retroactive coverage if the applicant would have been eligible during that time. The amended provision establishes two distinct rules based on eligibility category:

• For individuals enrolled under the ACA Medicaid expansion group (42 U.S.C. § 1396a(a)(10)(A)(i)(VIII)), retroactive coverage is limited to one month prior to the month of application.
• For all other Medicaid applicants, retroactive coverage may extend back no more than two months prior to the month of application.

Section 71112 also amends Section 1905(a) of the Social Security Act (42 U.S.C. § 1396d(a)) to align the definition of “medical assistance” with the revised retroactive eligibility timeframes. In addition, it amends Section 2102(b)(1)(B) (42 U.S.C. § 1397bb(b)(1)(B)) to apply similar limits under CHIP. Specifically, states that elect to provide retroactive CHIP coverage for child health or pregnancy-related services may not cover services furnished earlier than the second month prior to the month of application, even if the individual would have been eligible during that time.

These changes take effect for applications submitted on or after January 1, 2027. Congress has appropriated $10 million to CMS to support implementation. By shortening the retroactive eligibility period, the provision is intended to reduce Medicaid spending by limiting states’ obligation to reimburse for services provided before an individual is formally enrolled.

Sec. 71113. Federal payments to prohibited entities.

Section 71113 prohibits federal Medicaid funds that constitute “direct spending” from being used to pay certain entities—defined as “prohibited entities”—for services furnished during the one-year period beginning on the date of enactment. The ban applies not only to direct payments to such entities but also to any payments made through contracts or arrangements between a state and a “covered organization,” such as a managed care entity or prepaid health plan.

A “prohibited entity” is defined as any organization (and its affiliates, subsidiaries, successors, or clinics) that:

• Is a 501(c)(3) nonprofit tax-exempt entity;
• Qualifies as an essential community provider under 45 C.F.R. § 156.235 and is primarily engaged in family planning services, reproductive health, and related care;
• Performs abortions, except in cases of rape, incest, or where the life of the pregnant individual is endangered as certified by a physician; and
• Received more than $800,000 in total federal and state Medicaid reimbursements in FY 2023—whether directly or through a provider network.

“Direct spending” has the meaning given under the Balanced Budget and Emergency Deficit Control Act of 1985, referring generally to mandatory federal expenditures not subject to annual appropriations. The Section also defines “covered organization” to include Medicaid managed care entities, prepaid inpatient health plans, or prepaid ambulatory health plan, as defined in the Social Security Act.

Congress appropriated $1 million for FY2026 to support implementation of this provision. The one-year ban may significantly disrupt access to reproductive health services for Medicaid beneficiaries in states that rely heavily on providers affected by the restrictions.

C. Stopping abusive financing practices

Sec. 71114. Sunsetting increased FMAP incentive.

The American Rescue Plan Act of 2021, passed during the COVID-19 Public Health Emergency, allowed non-expansion states to receive a five-percent increase to the traditional FMAP for eight quarters should those states expand Medicaid under the ACA. Specifically, to qualify for the enhancement a non-expansion state would have to cover those who are under 65 years of age, not pregnant, not entitled to Medicaid benefits and whose income does not exceed 133 percent of the federal poverty level.¹⁹

Section 71114 heavily restricts this incentive by imposing a narrow window for non-expansion states to become eligible. Though Section 71114 does not remove this incentive outright and does not diminish the FMAP enhancement for states that are currently eligible for the enhancement, Section 71114 does set a limit on when state governments need to expand their Medicaid programs to qualify. However, a non-expansion will only be eligible for this enhancement if the state covers the full expansion population by January 1, 2026. Though it is possible that this may put slight pressure on states to expand their Medicaid programs prior to January 1, 2026, the more likely effect of Section 71114 is that it will eliminate the FMAP incentive outright as states will be unable to meet this deadline.

Sec. 71115. Provider taxes.

Section 71115 made substantial changes to how states can finance the state share of their Medicaid programs, specifically, by reducing states’ flexibility to employ provider taxes. As of 2018, state governments used “health care provider taxes” to generate approximately 17 percent of the “Nonfederal Share of Medicaid Payments[.]”²⁰

Some state governments favor provider taxes as a method for financing Medicaid over general revenue not only because that frees up the states’ “general funds,” but from the implicit fairness of hospitals financing programs that generally benefit hospitals. For a provider tax to contribute to the state share of Medicaid expenditures and count towards federal matching, it must clear the statute’s “hold harmless” requirement. Section 71115 adjusted the “hold harmless threshold” to 6 percent instead of 5.5 percent of net patient revenue, but as of 2028, states that expanded their Medicaid programs will gradually have their hold harmless amount reduced 0.5% year over year until reaching 3.5% in 2032 and onwards – though this phase down does not appear to be the case for states that did not expand their Medicaid programs. Effectively, this appears to lightly penalize states that expanded their Medicaid programs by lowering the amount they are allowed to assess hospitals to support Medicaid programs, requiring those states to finance a greater share of their programs through general revenue funds and Intergovernmental Transfers (IGTs) by units of government. However, because Section 71115 delineates between expansion states and non-expansion states based on the date of enactment, even if states wound back their Medicaid programs, they likely would not be able to avoid these reductions.

One limit that Section 71115 implements for both expansion states and non-expansion states is that, as of enactment, states that do not have provider taxes in place for a given class of providers will have their “hold harmless threshold . . . set to 0 percent” for those classes of hospitals; however, should a provider tax already be in effect for a class of providers prior to enactment, that tax can [generally] remain in effect.

The state most obviously affected by this provision is Alaska; as of 2024, Alaksa was the only state with no provider taxes at all. Arguably the states even more affected are those that expanded Medicaid, as their hold harmless threshold is getting wound down from the present 5.5 percent to only 3.5 percent in 2026. This places a significant restriction for those states currently assessing providers near that 5.5 percent limit, as they would need to either reduce their Medicaid spending or find alternative revenue sources to cover that lost revenue. Expansion states and non-expansions states alike may have some provider taxes in place but not necessarily applied to the full range of providers eligible to pay them. Section 71115 restricts their ability to impose taxes on further classes of providers, rendering inaccessible significant untapped financing.

Sec. 71116. State directed payments.

Though Medicaid often reimburses providers at substantially below even the cost of providing services, this was not the case for some providers due to additional state directed payment programs. In 2024, MACPAC found that 72 percent of all directed payment spending was attributable to only 29 directed payment arrangements that not only paid providers above cost and the Medicare payment rates, but for 11 of the 29 programs, reimbursed Medicaid providers at “90 percent of the average commercial rate, or the average rate that providers negotiate with private payers.”²¹

Generally, under CMS’s regulations, the average commercial rate is the upper payment limit that providers can receive for Medicaid services even after state directed payments. See 42 CFR § 438.6(c)(2)(iii). Section 71116 changes that, setting the limit for state directed payment rates for non-expansion states to no more than 100 percent of the Medicare payment rate, while setting the limit for expansion states to 110 percent of the Medicare payment rate. Though the Medicare payment rate may appear to still be a marked improvement over the Medicaid payment rates, the Medicare payment rates are still considerably lower than what commercial payors pay for inpatient care because “[p]rivate insurers paid nearly double Medicare rates for all hospital services” and “[f]or physician services, private insurance paid 143% of Medicare rates, on average[.]”²² Though hospitals currently benefiting from state directed programs that reimburse providers above their average commercial rates will receive a temporary grandfather clause, Section 71116 ultimately stipulates that “beginning with the rating period on or after January 1, 2028, that total amount of such payment shall be reduced by 10 percentage points each year until the total payment rate for such service” equals 100 percent of the Medicare payment rate for expansion hospitals or 110 percent of the Medicare payment rate for non-expansion hospitals.

Sec. 71117. Requirements regarding waiver of uniform tax requirement for Medicaid provider tax.

Section 71117 is intended to prevent states from structuring their provider taxes to derive revenue principally from Medicaid services. Federal law authorizes states to assess taxes on providers, i.e., “provider taxes,” to finance the state share of Medicaid spending. All states except Alaska have enacted provider taxes. In 1991, Congress enacted restrictions on provider taxes to prevent states from imposing a disproportionate share of the tax burden on providers with high Medicaid utilization—the providers that stand to benefit the most from the taxes.²³ Under those restrictions, provider taxes generally must be broad based (they must apply to all providers in a class, such as hospitals), uniform (the same tax rate must apply for all members of the class) and cannot hold any providers harmless. Recognizing the need for flexibility, Congress’s 1991 reforms directed CMS to grant waivers to the broad-based and uniform requirements if the net impact of a provider tax is “generally redistributive,” i.e., it tends to draw funds from non-Medicaid sources. To determine whether a tax is “generally redistributive,” CMS performs a regression analysis known as the “B1/B2” test to confirm that the tax paid by providers does not increase with Medicaid utilization.²⁴ CMS has recently observed that some states have found ways to design their provider taxes to pass the B1/B2 test even if most of the tax revenue is collected based on Medicaid usage.²⁵ To close this perceived “loophole,” Section 71117 provides that a tax will not be considered “generally redistributive,” and therefore not exempt from the broad-based and uniform requirements, if it imposes a higher tax rate on Medicaid “units” (e.g., bed days, discharges, costs) than non-Medicaid units. States with non-compliant taxes are required to fix them immediately, unless CMS implements a transition period (not to exceed 3 years). Notably, the Trump administration issued a proposed rule earlier this year that would have changed the existing regulations to implement the same policy.²⁶

Sec. 71118. Requiring budget neutrality for Medicaid demonstration projects under section 1115.

Section 71118 prohibits the Secretary of Health and Human Services from approving new or renewing existing Section 1115 demonstration projects on or after January 1, 2027, unless the Chief Actuary for CMS certifies that the project is budget neutral—i.e., it will not increase Federal Medicaid expenditures over what they would be in the absence of the demonstration. Section 1115 permits the Secretary to waive compliance with the Medicaid statute to enable states to carry out demonstration projects that “assist in promoting the objectives of the Medicaid program,” and to authorize federal matching funds for services provided under the demonstration that are not otherwise permissible under the statute.²⁷ Demonstration projects make up a sizable share of Medicaid spending. According to the Medicaid and CHIP Payment and Access Commission, Section 1115 demonstrations accounted for 52 percent of Medicaid spending in fiscal year 2019.²⁸ Under longstanding agency policy, CMS has generally required states to show that a proposed demonstration project will produce no more outlays than savings.²⁹ However, the GAO has reported on several instances where CMS approved demonstrations without adequately ensuring they will be budget neutral.³⁰Now that budget neutrality is a statutory requirement, the agency is expected to review proposed demonstrations with greater scrutiny. To that end, Section 71118 appropriates an additional $5 million to CMS in fiscal years 2026 and 2027 to be used for evaluating the budgetary impact of proposed demonstrations. Section 71118 also gives CMS the discretion to decide whether savings achieved by a demonstration project in one year can be applied towards calculating budget neutrality in future approval periods.

D. Increasing personal accountability

Sec. 71119. Requirement for States to establish Medicaid community engagement requirements for certain individuals.

Section 71119 directs states to incorporate a “Community Engagement” requirement into their processes for determining eligibility for Medicaid no later than January 1, 2027. Under this requirement, those applying for Medicaid enrollment will need to show that they have completed at least 80 hours of “Community Engagement” during the prior month.³¹Those who are already enrolled in Medicaid, must, at their next regularly scheduled redetermination of eligibility, show that they have completed at least 80 hours of “Community Engagement” for one or more prior months.³²

• What constitutes “Community Engagement”? “Community Engagement” is defined as (1) working at least 80 hours; (2) performing at least 80 hours of community services; (3) participating in a work program for at least 80 hours; (4) being enrolled in an educational program for at least half of the time; (5) some combination of the prior four activities amounting to at least 80 hours. Alternatively, “Community Engagement” can be established by a monthly income of the national minimum wage (currently $7.50/hour) multiplied by 80 hours.³³
• What if a beneficiary does not meet the “Community Engagement” requirement? If the state is unable to verify that a person has met the “Community Engagement” requirements, the state is to (1) provide that person with a notice of noncompliance; (2) provide that person 30 days from the date of receipt of the notice of noncompliance to show that they either had met the requirements or were subject to an exception; (3) if the person is unable to make such a showing, deny the person’s application for Medicaid or disenroll the person from Medicaid no later than the end of the month following the month in which the 30-day period ends.³⁴
• Exceptions for Beneficiaries: Most people who are eligible for or enrolled in the Medicaid program will be subject to these requirements. However, the bill establishes both mandatory and optional exceptions.

  There is a mandatory exception, pursuant which the person will be deemed to have demonstrated the prior month that they met the Community Engagement requirements for: (1) Native Americans deemed eligible for the “Indian Health Service”; (2) people who are the parents/guardians/caretakers of a disabled child who is 13 years old or younger; (3) veterans who are deemed to have “total” disability under the VA’s disability rating schedule; (4) people who are “medically frail” or who have “special medical needs,” including those who are legally blind, who have a “disabling mental disorder,” with a “physical, intellectual or developmental disability that significantly impairs their ability to perform 1 or more activities of daily living” or have a “serious or complex medical condition”; (5) people who are already subject to work requirements through the supplemental nutrition assistance program under the Food and Nutrition Act of 2008; (6) people who are participating in a nonprofit or publicly operated drug or alcoholic treatment and rehabilitation program; (7) people under the age of 19; (8) people who are pregnant or entitled to postpartum medical assistance; (9) people who are entitled to or enrolled for benefits under Medicare Part A or enrolled for benefits under Medicare Part B; and (10) people who were inmates of public institution any time during the three prior months.
  
  The OBBBA also allows states to create “optional exceptions” pursuant to which the beneficiary will be deemed to have met their requirement for the prior month if they endured certain “short-term hardship events,” such as (1) where the person received inpatient hospitalization; (2) resides in a county in which there has been a declaration of national emergency or national disaster; (3) resides in a county in which there is an unemployment rate of the lesser of 8% or 1.5 times the national unemployment rate; (4) must travel outside their community for an extended period of time to receive medical services necessary to treat a serious medical condition that are unavailable within their community.

• Exemptions for States: States may submit a request to the HHS Secretary for an exemption, demonstrating that the state is demonstrating a good faith effort to comply with the purposes of these requirements. This “good faith effort” includes requiring the state to submit quarterly progress reports on the state’s efforts to comply with these requirements. Such an exemption will only last until December 31, 2028, and may not be renewed after that date. The Secretary may also terminate the exemption at an earlier date for failure to make “continued good faith efforts towards compliance[.]”

• Avoiding Managed Care Entity Conflicts of Interest: The bill prohibits the Medicaid managed care entities or contractors that determine whether a beneficiary has complied with the Community Engagement requirements from being the same Medicaid managed care entity that is responsible for providing or arranging for coverage for those individuals in order to avoid conflicts of interest.

• New Administrative Requirements: The bill defers to the HHS Secretary for developing the specific procedures by which states will confirm beneficiaries’ “Community Engagement” and eligibility or lack thereof for Medicaid. These procedures will be utilized during each beneficiary’s regularly scheduled redetermination of eligibility. This means annually. However, the bill allows states to conduct verifications of “Community Engagement” more frequently should they choose.

  The bill also delegates the authority to the HHS Secretary to establish processes by which states can use payroll data or similar data to confirm beneficiaries’ eligibility in order to minimize the amount of additional information the beneficiary must submit.

  The bill also directs the HHS secretary to establish standards by which states must notify applicable individuals of these requirements.

  The HHS Secretary must promulgate an interim final rule to implement these requirements no later than June 1, 2026.

• Funding: The bill authorizes the appropriation of $200 million for CMS to use to carry out the implementation of these requirements. The bill authorizes a grant of $100 million to the states for FY2026, to be distributed based on the ratio of individuals who meet the requirements to be eligible for Medicaid in that state to the total number of individuals who meet the requirements to be eligible for Medicaid in all states, as well as another grant of $100 million to be distributed equally among the states.

Sec. 71120. Modifying cost sharing requirements for certain expansion individuals under the Medicaid program.

Section 71120 permits state Medicaid plans, effective October 1, 2028, to begin imposing deductions, cost sharing, or similar charges determined appropriate by the state for certain care, items and services rendered to Medicaid beneficiaries who have a family income that exceeds the federal poverty level. This expansion does not, however, allow for the imposition of premiums. This cost-sharing cannot be applied to (1) services rendered to those under 18-years old; (2) services related to pregnancy rendered to pregnant women; (3) people receiving inpatient services in a hospital, nursing facility, or intermediate care facility who are required to spend all but a minimal amount of income on medical care; (4) emergency services; (5) hospice services; (6) certain in vitro diagnostic products; (7) COVID-19 testing; or (8) vaccines recommended by the CDC. The portion the beneficiary must pay should not exceed $35 for any given item or service, with the exception of prescription drugs, where the cost share must not exceed the amounts permitted under Section 1916A(c). The maximum aggregate amount of deductions, cost sharing, or similar charges imposed for all members of a family cannot exceed five percent of the family income.³⁵

Providers are entitled to make the provision of services contingent on payment of deductions, cost-sharing, or similar charges. Providers are, however, permitted to reduce or waive such deductions and cost-sharing on a case-by-case basis.

Section 71120 appropriates $15 million for FY2026 for CMS to carry out these new provisions.

E. Expanding access to care

Sec. 71121. Making certain adjustments to coverage of home or community-based services under Medicaid.

Section 71121 expands the ability of state Medicaid plans to provide Home and Community-based services as an alternative to institutional services for individuals who otherwise would require admission to a nursing facility of intermediate care facility by establishing “waivers” of requirements under § 1396(a) that normally would require state Medicaid plans to ensure consistency and comparability of services statewide. These additional waivers supplement existing waivers under 42 U.S.C. 1396n(c).

Starting July 1, 2028, HHS may approve waivers pursuant to which state plans can cover part or all of the cost of home or community-based services (other than room and board). These waivers will be for an initial term of three years that can be extended for additional five-year terms. The state’s ability to obtain such a waiver will be contingent on the state establishing needs-based criteria for determining who will be eligible for care under the state plan provided under such waiver, as well as on the state establishing that the average per capita expenditure for medical assistance provided pursuant to these waivers will not exceed the comparable amounts expended for individuals receiving institutional care. States will be required to, at least annually, provide data to HHS comparing the costs for home or community-based services with the cost of institutional services and the number of individuals receiving care under both scenarios.

Section 71121 appropriates $50 million for FY2026 for CMS to carry out the provisions of this amendment, and $100 million for the FY2028 for making payments to the states to support the delivery of home or community-based services. This $100 million will be distributed to the states based on the proportion of the population of the state receiving home or community-based services compared to all other states.

2. Medicare

Strengthening eligibility requirements

Sec. 71201. Limiting Medicare coverage of certain individuals.

Section 71201 limits Medicare coverage of certain individuals. As of 18 months after the date of the OBBBA’s enactment, individuals may only be enrolled in Medicare if the individual is: (1) a citizen or national of the United States; (2) an alien who is lawfully admitted for permanent residence under the Immigration and Nationality Act; (3) An alien who has been granted the status of Cuban and Haitian entrant, as defined in section 501(e) of the Refugee Education Assistance Act of 1980; or (4) an individual who lawfully resides in the United States in accordance with a Compact of Free Association referred to in accordance with section 402(b)(2)(G) of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996.

The Commissioner of Social Security shall notify each individual whose entitlement to Medicare benefits will be terminated.

Improving services for seniors

Sec. 71202. Temporary payment increase under the Medicare physician fee schedule to account for exceptional circumstances.

Section 71202 provides a temporary one-year increase of 2.5% to the Medicare Physician Fee Schedule (PFS) conversion factor for all services furnished between January 1, 2026 and January 1, 2027.

Medicare payment rates to physicians and other clinicians for specific services are set forth each year in the PFS.³⁶ One factor used to determine those rates is the so-called Conversion Factor, which is updated annually.³⁷The Conversion Factor updates are based on statutory factors and other budgetary requirements, and do not vary based on changes in market forces. The Conversion Factor had remained at 0.0% for the last five years and was scheduled to increase by 0.25% each year for most Medicare providers starting in 2026.³⁸

The House-passed version of the bill replaced the Conversion Factor with annual increases tied to the Medicare Economic Index (MEI), a measure of inflation in medical practice costs. This provision was removed, however, by the Senate in the final adoption of the bill. Instead, the enacted version retains the conversion factor for all services and provides a one-time 2.5% increase to the Conversion Factor effective January 1, 2026.

Sec. 71203. Expanding and clarifying the exclusion for orphan drugs under the Drug Price Negotiation Program.

Section 71203 expanded the Orphan Drug Exclusion under the Inflation Reduction Act of 2022 (IRA) Medicare Drug Price Negotiation Program.

As background, the IRA requires HHS to negotiate prices with drug manufacturers for certain drugs covered under Medicare that have been on the market for at least 7 years (for small-molecule drugs) or 11 years (for biologics) past the FDA approval or licensure date. Under the IRA, excluded from the negotiations are so-called “orphan drugs,” drugs that are designated for only one rare disease or condition and approved for an indication (or indications) only for that disease or condition.

Section 71203 modifies the Orphan Drug Exclusion to include drugs designated for one or more rare diseases or conditions and where the only approved indication or indications are for one or more rare diseases or conditions. The time that drugs have been on the market with one or more orphan indications shall not count towards the seven- or eleven-year time frame that determines eligibility for selection.

3. ACA / Health Tax

A. Improving eligibility criteria

Sec. 71301. Permitting premium tax credit only for certain individuals.

Section 71301 limits the availability of premium tax credits under the ACA only to certain “eligible aliens.” An “eligible alien” is defined as an individual who “is, and is reasonably expected to be for the entire period of enrollment for which the [premium tax credit] is being claimed – (i) an alien who is lawfully admitted for permanent residence under the Immigration and Nationality Act . . . (ii) an alien who has been granted the status of Cuban and Haitian entrant, . . . or (iii) an individual who lawfully resides in the United States in accordance with a Compact of Free Association” under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. Currently, these premium tax credits are available to aliens “lawfully present,” which is defined to include individuals who are or are reasonably expected to be for the entire period of enrollment for which the credit is being claimed, a citizen or national of the United States or an alien lawfully present in the United States.

The OBBBA modifies eligibility for premium tax credits under the ACA by replacing the “lawfully present” standard with a narrower definition, limiting eligibility for the tax credits to lawful permanent residents, Cuban and Haitian entrants as defined in the Refugee Education Assistance Act of 1980, and individuals residing under Compacts of Free Association. These changes will go into effect on January 1, 2027.

Sec. 71302. Disallowing premium tax credit during periods of Medicaid ineligibility due to alien status.

Section 71302 eliminates premium tax credit eligibility under the ACA for lawfully present immigrants with income below 100% of the federal poverty level who are ineligible for Medicaid due to their immigration status. This change will become effective for taxable years beginning after December 31, 2025.

B. Preventing waste, fraud, and abuse

Sec. 71303. Requiring verification of eligibility for premium tax credit.

Section 71303 adds eligibility verifications requirements to ensure that health insurance exchanges annually verify an applicant’s eligibility before enrollment in a plan or receipt of premium tax credits. The exchange must verify, using applicable enrollment information, an individual’s eligibility to enroll in the plan through the exchange and eligibility for receipt of payments of premium tax credits under the ACA. Applicable enrollment information includes, under the OBBBA, affirmation of at least the following information: (i) household income and family size, (ii) whether the individual is an eligible alien, (iii) any health coverage status or eligibility for coverage, (iv) place of residence, or (v) such other information as may be determined by the Secretary as necessary to the verification.

The OBBBA also explicitly provides that exchanges may use any data available to the exchange and any reliable third-party sources in collection information for verification by the applicant. These requirements become effective with taxable years beginning after December 31, 2027.

Sec. 71304. Disallowing premium tax credit in case of certain coverage enrolled in during special enrollment period.

Section 71304 disallows premium tax credits in the case of certain coverage that is enrolled during a special enrollment period (SEP).

An SEP provides an opportunity for enrollment in a health plan outside a standard open enrollment period. SEPs are usually temporary and come with restrictions on those that may be eligible to enroll, such as requiring a qualifying life event (e.g., marriage, birth of a child, etc.).

Originally designed to address the COVID-19 pandemic’s effect on unemployment and loss of health care coverage, the Biden administration significantly expanded the opportunity for individuals to enroll in coverage at any point through new SEPs or extensions of open enrollment periods. Many extension deadlines were further extended in response to the American Rescue Plan Act, which introduced a special SEP for individuals with income below 150% of the federal poverty level.

Section 71304 eliminates the SEP for individuals claiming income between 100-150% of the federal poverty level. This change will go into effect during plan years beginning December 31, 2025.

Sec. 71305. Eliminating limitation on recapture of advance payment of premium tax credit.

Section 71305 eliminates caps on the IRS’ recapture of excess Advanced Premium Tax Credits (APTCs) and requires individuals who misreport income to fully account for overpayments.

There are limits to the amount of APTCs the government may recover if an enrollee receives excess APTCs. Since the ACA Premium Tax Credit is based on income, brokers have incentive to advise enrollees to underestimate income and increase overpayments. Limits on the recapture of APTCs account for billions of dollars lost per year.

Section 71305 allows the government to recover the entirety of the overpayments. This change will go into effect during taxable years beginning December 31, 2025.

C. Protecting Rural Hospitals and Providers

Sec. 71401. Rural Health Transformation Program.

Section 71401 establishes a $50 billion rural health relief fund called the Rural Health Transformation Program (RHTP). The RHTP aims to support rural health by dispersing funds to eligible states, which then have the discretion, subject to certain limitations, to determine how to allocate such funds. To be eligible to access this funding, states must submit an application to the Administrator of CMS by December 31, 2025.

The RHTP appropriates $50 billion, $10 billion of which will be administered annually from 2026-2030, to CMS. CMS will then disperse such funds to eligible states. For a state to be eligible to receive funding under the RHTP, the state must submit (i) a certification that none of the amounts provided under the RHTP will be used by the state for an intergovernmental transfer, certified public expenditure, or any other expenditure to finance the non-Federal share of expenditures required under any provision of law, and (ii) an application to CMS. The application must include a detailed rural health transformation plan. The rural health transformation plan must outline how the state will:

1. Improve access to hospitals, other health care providers, and health care items and services furnished to rural residents of the state;
2. Improve health care outcomes of rural residents of the state;
3. Prioritize the use of new and emerging technologies that emphasize prevention and chronic disease management;
4. Initiate, foster, and strengthen local and regional strategic partnerships between rural hospitals and other health care providers in order to promote measurable quality improvement, increase financial stability, maximize economies of scale, and share best practices in care delivery;
5. Enhance economic opportunity for, and the supply of, health care clinicians through enhanced recruitment and training;
6. Prioritize data and technology driven solutions that help rural hospitals and other rural health care providers furnish high-quality health care services as close to a patient's home as is possible;
7. Outline strategies to manage long- term financial solvency and operating models of rural hospitals in the state; and
8. Identify specific causes driving the accelerating rate of stand-alone rural hospitals becoming at risk of closure, conversion, or service reduction.

CMS will determine the funds allotted to each eligible state. CMS must allocate 50% of the funds equally among the approved states, while the remaining 50% of the funds will be allocated based on a state’s (i) percentage of the state population that is located in a rural census tract; (ii) the proportion of rural health facilities in the state relative to the number of rural health facilities nationwide; (iii) the situation of the state’s “deemed disproportionate share” hospitals; and (iv) any other factors the Administrator deems appropriate.

Additionally, CMS has the authority to determine the terms and conditions of the funds allotted to each state. These terms and conditions prohibit states from using more than 10% of the funds it receives under the RHTP for administrative expenses. The OBBBA also requires funds to be used for at least three of the following activities:

1. Promoting evidence-based, measurable interventions to improve prevention and chronic disease management;
2. Providing payments to healthcare providers for the provision of healthcare items and services, as specified by the Administrator;
3. Promoting consumer-facing, technology-driven solutions for prevention and managing chronic disease;
4. Providing training and technical assistance for the development and adoption of technology-enabled solutions that improve care delivery in rural hospitals, including remote monitoring, robotics, AI and other advanced technologies;
5. Recruiting and retaining clinical workforce to rural areas, with commitments to serve rural communities for at least five years;
6. Providing technical assistance, software and hardware for information technology advances designed to improve efficiency, enhance cybersecurity capability or improve outcomes;
7. Assisting rural communities to right-size their delivery systems by identifying needed preventative, ambulatory, pre-hospital, emergency, acute inpatient care, outpatient care and post-acute service lines;
8. Supporting access to opioid, substance abuse and mental health treatment;
9. Developing projects that support innovative models of care that include value-based care arrangements and alternative payment models, as appropriate; and
10. Additional uses to promote sustainable access to high-quality rural health services, as determined by the administrator.

Thus, if a state wishes to receive funding under the RHTP, the state must: (i) submit an application, including a health transformation plan, to the Administrator; (ii) be approved by the Administrator and granted funding; and (iii) use the funds for at least three of the uses described above.

Health Savings Accounts

Sec. 71306. Permanent extension of safe harbor for absence of deductible for telehealth services.

Section 71306 makes permanent the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) telehealth safe harbor for Health Savings Account (HSA) eligible health plans that allows provision of telehealth and remote care services without a deductible or with a minimum annual deductible lower than the one required under 26 U.S.C. 223(c)(2)(A).

Research

Sec. 70302. Full expensing of domestic research and experimental expenditures.

Section 70302 allows research or experimental expenditures paid or incurred by the taxpayer in connection with the taxpayer’s trade or business to be immediately deductible. This provision revises the existing Section 174 of the U.S. Tax Code that had required amortization of research expenses over a five-year period, rather than allowing them to be immediately deductible. Section 70302 still requires amortization over a 15-year period for research or experimental expenditures from research that takes place outside of the U.S. The amendments made by this section apply to amounts paid or incurred in taxable years beginning after December 31, 2024.