U.S. Healthcare in OBBBA: A Patchwork of Big Changes

Introduction

The One Big Beautiful Bill Act (OBBBA or the Act) contains only 118 references to healthcare, a surprisingly small number given its numerous proposals for changes to the U.S. healthcare system. The provisions are broad in scope and largely unrelated to one another, resembling a compilation of disparate policy ideas.

I. Medicaid: New Rules, New Limits, New Hoops

A. Stricter Eligibility Checks

Starting January 1, 2027, Medicaid and CHIP plans will face a whole new set of checks:

• Monthly address updates to stop people from accidentally getting Medicaid in two different states. (Section 71103)
• Quarterly “are you still alive?” checks to remove deceased recipients — with fast reinstatement if someone’s wrongly flagged. (Section 71104)
  (By January 1, 2028, a similar check will be imposed to remove deceased doctors and suppliers. – Section 71105)
• Eligibility reevaluations every six months for those enrollees qualifying under the Affordable Care Act (ACA)’s Medicaid expansion. (Section 71107)

Starting October 1, 2026, Medicaid is prohibited from providing medical assistance to non-residents unless they meet strict citizenship or legal status requirements. (Section 71109) Emergency medical services for qualifying non-citizens will still be covered up to the amount that would otherwise be paid for an eligible individual. (Section 71110)

B. The “Work for It” Rule

From January 1, 2027, many adults will need to work, volunteer, study, and/or meet income thresholds for 80 hours a month to maintain eligibility for Medicaid in what is termed the “Community Engagement Requirement.” Exemptions apply for minors, recent inmates, hospital, psychiatric, and nursing home patients, and a few other qualifying circumstances. The federal government will set the official rules by June 1, 2026. (Section 71119)

C. Tightening the Purse Strings

OBBBA implements several cost-containment mechanisms:

• Retroactive coverage shrinkage – Most coverage starts the month an eligible individual submits an application, with limited exceptions for child health and pregnancy-related care. (Section 71112)
• Limiting state directed payments to a percentage of the Medicare payment rate (100% to 110% of Medicare) for any service furnished during a rating period beginning on or after OBBBA’s enactment. (Section 71116)
• Budget-neutral pilot programs only — Any new, amended, or renewed Medicaid Demonstration projects must prove they won’t cost the feds more than what they would otherwise pay for the services rendered. (Section 71118)
• New cost-sharing rules by October 2028 — There will be small out-of-pocket fees for some enrollees above poverty level, with caps and exceptions. (Section 71120)
• Cutting off funding to certain large nonprofits that provide abortions, except in rare, defined cases. (Section 71113)
• Restricting the states’ ability to finance Medicaid through provider taxes. (Sections 71115, 71117)

D. Advancing Access to Care

Only a handful of provisions appear to expand access to care, including:

• Possible cost waivers for community-based services, other than room and board, starting in July 2028. (Section 71121)

• Expanded access to long-term care coverage for individuals with homes worth up to $1M and for agricultural residences above that value. (Section 71108)

II. Medicare: Narrower Access, A Few Perks

• Residency rules tighten — Only U.S. citizens, nationals, and certain legal residents will qualify for Medicare. The Social Security Commissioner will have one year to identify people losing coverage and to provide notice of termination, which will take place in 18 months. (Section 71201)
• Doctors get a pay bump — The Act includes a 2.5% increase in Medicare reimbursements for physician services between January 1, 2025 and January 1, 2026. (Section 71202)
• Drug pricing changes — The Inflation Reduction Act’s Medicare Drug Price Negotiation Program initial price applicability has been pushed back to 2028. In August 2024, the federal government concluded the first round of negotiations on 10 common diabetes and chronic condition medications and, in January 2025, identified 15 additional medications to negotiate pricing. The Act also clarified the exception for rare disease medications. (Section 71203)

III. Tax Code Tweaks: Health Edition

From January 1, 2026, the health insurance premium tax credit will only go to people who pass the new, stricter eligibility checks (aligned with Medicare/Medicaid rules). (Sections 71303 – 71305)

There is some good news for certain health plans:

• The telehealth safe harbor becomes permanent in 2025 — High Deductible Health Plans (HDHPs) can keep tax perks even if they cover telehealth before the plan member’s deductible is met.
• Catastrophic & bronze ACA plans can pair with Health Savings Accounts (HSAs) starting in 2026. (Section 71307)
• Direct primary care arrangements won’t count as “health plans” for tax purposes. (Section 71308)

IV. Rural Healthcare Gets a $50B Boost

Rural areas aren’t left out. OBBBA sets aside $50 billion to fund big ideas in underserved areas. Half the money will be split equally among states; the rest goes where CMS sees the most need based on a number of factors outlined in the Act. States must pick at least three of the following health-related activities to receive funding:

1. Promoting evidence-based, measurable interventions for preventing & managing chronic disease.
2. Direct payments to providers for specific services.
3. Consumer tech tools for prevention and management of chronic diseases.
4. High-tech hospital upgrades — think robotics, AI, remote monitoring etc.
5. Recruiting healthcare workers to rural communities for 5 years or more.
6. IT improvements for efficiency, cybersecurity, and patient health outcomes.
7. Restructuring rural healthcare delivery systems (i.e. inpatient, outpatient, pre- and post- acute care, etc.) to match community needs.
8. Expanding mental health and substance use disorder treatment.
9. Testing innovative payment and value-based care models.
10. Any other CMS-approved rural health initiative.

Bottom Line
The healthcare provisions in OBBBA are diverse in scope and ambition, encompassing measures that range from Medicaid work requirements to significant investments in rural healthcare infrastructure. Although the initiatives aim to drive broad transformation, their varied and sometimes disconnected nature suggests a collection of policy priorities rather than a unified, cohesive reform strategy.