On July 3, 2025, Congress passed H.R. 1, the One Big Beautiful Bill Act (OBBBA). The following day, President Trump signed the bill into law. The law will reduce Medicaid spending by $1 trillion through 2034. Significant changes to the Medicaid program include limits on state directed payments (SDPs) and provider taxes as well as the implementation of work requirements and cost sharing for certain beneficiaries. The law also limits access to Medicaid, Medicare, and the marketplace for certain immigrants, adopts changes to eligibility and enrollment processes, and implements changes to premium tax credits. To partially mitigate impact on states with significant rural and other hospitals, the law establishes a rural hospital fund of $50 billion over 5 years. These provisions are summarized below.
Reduces State Directed Payment Limits to Medicare Rates
- The law requires CMS to amend its May 2024 regulation allowing states to make SDPs up to the average commercial rate (ACR) for inpatient and outpatient hospital services, nursing facility services, and qualified practitioner services at an academic medical center. Instead, the bill requires CMS to establish a new limit of 100% of the total published Medicare payment rate for states that have expanded their Medicaid programs to childless adults; in non-expansion states, the limit would be slightly higher at 110% of the total published Medicare payment rate.
- In general, SDPs approved by or submitted to CMS for approval by July 4, 2025, for the rating period occurring within 180 days of the date of enactment, are “grandfathered.” Beginning with rating periods starting on or after January 1, 2028, these SDPs will be reduced by 10 percentage points each year until the total payment rate including the SDP equals 100 or 110% of the total published Medicare rate.
Freezes and Reduces Provider Taxes
- The law prohibits states and localities from establishing new provider taxes on services not taxed prior to the date of enactment, July 4, 2025. It also freezes the hold harmless percentage for existing taxes in all states and, beginning in fiscal year 2028, requires reductions in the provider tax hold harmless percentage for most services in states that have expanded Medicaid. Provider taxes on nursing homes and intermediate care facilities are frozen at the rate in effect on July 4, 2025, but are not subject to further reductions.
Imposes New Requirements on Provider Tax Waivers
- States with waivers of the requirement that a provider tax be “broad-based” and “uniform” will need to continue to meet existing statistical tests but will also be required to demonstrate that the provider tax is “generally redistributive.” A tax that imposes a lower tax rate on providers or services with low Medicaid utilization or a higher tax rate on providers or services with high Medicaid utilization or services will not qualify as “generally redistributive.” The Centers for Medicare & Medicaid Services (CMS) has also proposed similar changes in a notice of proposed rulemaking issued on May 12th.
- The law permits but does not require CMS to delay implementation for up to three years, but the proposed rule issued by CMS includes much shorter transition periods (of one year or less).
Imposes Work Requirements for Certain Medicaid Enrollees
- Beginning December 31, 2026, the law requires the Medicaid expansion population and individuals receiving coverage through a waiver to meet an 80-hour per month community engagement requirement. The law exempts certain populations, including pregnant individuals and the medically frail, from the requirement. It also allows states to implement the requirement earlier or delay the effective date of the requirement until December 31, 2028, provided they are making a good faith effort toward implementation.
Requires Medicaid Cost-Sharing
- States will be required, with certain exceptions, to impose cost-sharing on individuals in the expansion population with incomes above 100 percent of the federal poverty level for a broad range of services, beginning October 1, 2028.
Establishes a Rural Health Fund
- The law establishes a new $50 billion grant program that will provide $10 billion in grants to states annually from 2026 to 2030 to support and improve rural health care access, delivery, and outcomes. States must apply for funding under the program by the end of 2025. Half of the funds will be distributed to states with approved applications; the other half will be allocated based on certain factors, including the percentage of population in rural areas, the presence of disproportionate share hospitals in the state, and other factors identified by CMS.
Limits Coverage for Certain Immigrants
- The law restricts eligibility for Medicaid, Medicare, and marketplace premium tax credits for certain immigrants. For example, asylees, refugees, and parolees will no longer qualify for Medicaid beginning October 1, 2026.
Eyman Partners will be closely tracking HHS’s implementation of the law. If you have questions about how the new law may impact you, please reach out to any Eyman Partners attorney to discuss.