Breaking down OBBBA: How healthcare providers can prepare for the impact of the ‘One Big Beautiful Bill Act’ 

While the scope of the One Big Beautiful Bill Act (OBBBA) concerns nearly every sector of the economy, the impact to the healthcare industry is significant. As it stands today, elements of the OBBBA are set to result in millions of individuals losing healthcare coverage, whether through Medicaid or through the Affordable Health Act (AHA) marketplace insurance. The significant increase in uninsured population is likely to endanger providers that are financially strained, requiring them to navigate reduced reimbursement and provide increased uncompensated care. While the Senate’s version of the OBBBA added the Rural Health Transformation Program (RHTP), the additional funding will not offset the anticipated shortfalls that providers will experience.

Key reductions in the OBBBA impacting healthcare 

Medicaid eligibility and enrollment

Perhaps the most significant change is the result of the OBBBA’s long-term reductions in federal Medicaid funding; achieved through a combination of limitations to individuals’ eligibility and program funding cuts. The OBBBA will decrease Medicaid participation through a combination of eligibility limitations that include work requirements for nonexempt adults, increased administrative burdens for eligible individuals like regular re-verification, and reducing those who are eligible for the program, such as eliminating refugees and asylum seekers. Projections for reduction in insured individuals are estimated to be 10 to 15 million individuals over ten years. Many of these changes are scheduled to take place in late 2026, or later in 2027 and 2028.

State Medicaid funding

In addition to reducing the number of individuals covered by the Medicaid program, the OBBBA also reduces overall funding to states to administer the Medicaid program and pay for services. These reductions come from a combination of technical funding changes, from reducing federal matching funds that are distributed to states, to limiting states’ abilities to raise funding through the state, such as capping the amount that states can tax providers as a revenue source for state Medicaid funds and reducing states’ ability to make directed payments to providers. These reductions are also greater for Medicaid expansion states. States will also be required to significantly increase administration of programs, as they are tasked with determining and tracking the new eligibility requirements of individuals and providers. Some of these reductions take place as early as January 1, 2026.

ACA Marketplace Insurance

In addition to the reductions through the Medicaid program, the OBBBA also eliminates certain tax credits for individuals that seek care through the ACA Marketplace. The changes also impact eligibility and enrollment periods. These changes taken together are expected to contribute to the increase in uninsured individuals, as the tax credits subsidize the cost for many families and individuals that obtain insurance through the ACA exchange.

Other OBBBA considerations that impact the healthcare industry

In addition to the key reductions to the insured population and Medicaid funding more generally, other provisions in the OBBBA are expected to indirectly impact the delivery of healthcare, particularly for hospitals.  For example, the current provider shortage is likely to be exacerbated through the caps on federal student loans, as the new limits fall short of the funding needed for medical school or other professional graduate programs. The expected financial strain on facilities is also projected to negatively impact Graduate Medical Education (GME), although GME payments were not specifically reduced in the OBBBA. Finally, harsher immigration policies may also reduce the number of clinicians available to provide care in the US. 

Rural Health Transformation Program

In response to the drastic reductions to financial support of providers, the Senate version of the OBBBA included a new program to distribute $50 billion dollars to states to support access to rural health services. This initiative is set to take effect in 2026, prior to the anticipated reductions to Medicaid.

The RHTP funds have a complicated path to distribution. The total $50 billion dollars available will be divided into $10 billion dollars to be allotted annually each year between 2026 and 2030. With respect to the annual $10 billion, the OBBBA directs that 50% of the amount should be divided equally among each of the states with an approved RHTP application. The other 50% of the funding will be allotted by CMS’ with some guidelines. At least 25% of the remaining amount must be distributed to approved RHTP states based on elements such as rural population, density of rural health facilities, financial condition of hospitals, and other factors as determined by CMS.

Importantly, the RHTP is not a direct replacement for Medicaid shortfalls and is not required to be divided based on such shortfalls. The process described above is to distribute the funding to qualifying states. After the amounts have been approved to the states, there is a second process of assessment and determination before the state distributes the funds to providers. Importantly, while hospitals often shoulder a significant burden with respect to uncompensated care and it is projected that the Medicaid cuts will hit hospitals the hardest, the RHTP funds are not specifically designated for facilities. Instead, these funds can be distributed to other providers.

In fact, funds are to be distributed based on at least three of ten factors:

1. Promotion of evidence-based prevention and chronic disease programs
2. Payments to providers for rural services as specified by CMS
3. Promotion of consumer-facing, technology driven solutions for chronic disease
4. Training and adoption of technology-enabled solutions to improve rural care
5. Recruitment and retention of rural clinicians with service commitments
6. Funding IT improvements in security, efficiency and care outcomes
7. Right-sizing care systems to align with community needs
8. Supporting access to substance use and mental health care
9. Developing and supporting value-based care and alternative payment models
10. Other activities promoting sustainable, high-quality rural healthcare as defined by CMS.

While these distribution directives provide for flexibility, it also carries a great deal of uncertainty for the facilities and providers that will be in greatest need of the funding. In addition to a complicated determination process, as of the writing of this alert, CMS has not released additional information about the application process; however, applications must be submitted no later than December 31, 2025 and CMS must approve applications no later than December 31, 2025.  

3 things healthcare providers can do now to prepare for the impact of the OBBBA

The OBBBA, as fully implemented, will bring financial challenges for providers, particularly hospitals. In the interim, hospitals and providers should:

1. Follow the RHTP announcements relating to applications and awards closely. Although the application to CMS will be submitted by states, healthcare providers should be aware of the process and how their respective states are responding.
2. Engage in advocacy. In the short term, this may be at a state or federal level relating to the RHTP awards. Long term is to ensure that lawmakers understand the impact of the OBBBA to healthcare providers, not only financially, but how these changes will likely impact access to care.
3. Do not wait to come up with a plan of action. The reductions in Medicaid funding may be a number of years off and in the meantime, it is likely that stakeholders will advocate for additional financial support; however, there is no guarantee that any such relief payments will materialize. Facilities and providers that are proactive in assessing their financial condition and service offerings based on OBBBA changes will be ahead of peer organizations that take a wait and see approach. This will not only serve proactive organizations, but may place them at an advantage to survive and even thrive in a aftermath of the OBBBA.

For guidance on how to navigate the OBBBA and expected impact, please contact Liz Sullivan, Chair of McDonald Hopkins’ Healthcare Practice group or Healthcare Practice Member Emily Johnson.