The “One Big Beautiful Bill Act of 2025,” designed to extend federal tax cuts passed in 2017, will partly pay for those cuts by cutting federal spending on healthcare programs. Sponsors of the OBBBA point to reductions in federal administrative spending as the source of those cuts; critics have focused on reduced direct spending on food assistance, Medicaid funding, and subsidies for those insured under the Affordable Care Act (ACA).
Widespread media coverage of this criticism helps explain why only 35% of Americans view the OBBBA favorably.
Few of the cuts target hospitals, health systems and medical groups directly. But because an estimated $1.14 trillion will come from tightening restrictions on eligibility for and enrollment in Medicaid programs and ACA health plans, the economic effects of the OBBBA will run downstream to all providers, as an estimated 11.8 million Americans join the ranks of the uninsured.
As of this writing, these health insurance coverage impacts are at the center of the current political showdown in Washington, D.C., over the federal budget, resulting in a shutdown of the federal government that began on October 1st. If the cuts are not overturned or significantly modified as part of a re-opening of the federal government, providers with large Medicaid and/or ACA exposure will see a spike in uncompensated care and commensurate reduction in revenue and operating margins. The greatest downstream impact? An estimated 300 hospitals are expected to close, most located in rural and lower-income urban areas.
The OBBBA includes a handful of positive economic impacts for providers, depending on their exposure to Medicare (rather than Medicaid) and their location. But for most, these will not offset the cumulative negative downstream economic impacts. As delineated at the conclusion of this Impact Paper, all providers should calculate the competing economic effects of the OBBBA to determine how their organization should respond.
Background
On July 4, 2025, the “One Big Beautiful Bill Act of 2025” was signed into law to extend and pay for tax cuts passed in 2017. Because it is technically a budget reconciliation act and not new legislation requiring bipartisan, filibuster-proof passage, the OBBBA is not, over its ten-year lifespan, supposed to increase the federal deficit or national debt. As a result, given the outsized share of healthcare spending in the federal budget, the OBBBA includes the largest reduction in federal healthcare spending in history.
If and when the OBBBA does increase the deficit, the legislation will trigger additional spending cuts beyond those specified in its text. With these cuts – and given its status as budget reconciliation legislation, the Act’s authors sought to minimize the increase to the deficit; but the final analysis of the Act yields an estimated at $3.4 trillion increase over ten years. As a result, the OBBBA will necessitate additional automatic cuts at the end of the ten-year period, likely also to focus disproportionately on federal healthcare spending.
Overview of Negative Impacts on Providers
Negative Impacts Related to Patients Covered by Medicaid
The OBBBA cuts an estimated $964 billion in spending on Medicaid programs across the country. The bulk of these cuts involve a tightening of enrollment and eligibility criteria for the program, with a marginally larger impact on the 40 states (and DC), which expanded their programs under the Affordable Care Act. (The non-expansion states are AL, FL, GA, KS, MI, SC, TN, TX, WI, and WY.)
For all states, there will be stricter eligibility requirements for adult Medicaid recipients. Specifically, the OBBBA:
- Freezes a pandemic-era rule easing Medicaid and Childrens’ Health Insurance Program (CHIP) re-enrollment, requiring manual re-enrollments and re- verifications;
- Requires states to maintain updated information on all Medicaid and CHIP enrollees;
- Bars Medicaid payments for any care provided to lawfully present migrants traditionally covered by Medicaid;
- Limits retroactive provider reimbursement for newly enrolled Medicaid recipients to one month instead of three.
For the 40 expansion states and DC, the OBBBA also:
- Adds a work requirement of 80 hours per month of verified employment for “able- bodied” recipients aged 19 to 64 who receive coverage through the ACA Medicaid expansion;
- Requires states to conduct eligibility re-determinations every 6 months for adults covered under the expansion;
- Bars Medicaid payments for emergency services provided to lawfully present migrants traditionally covered by Medicaid;
- Bars expansion states from the current practice of using Medicaid payments to direct Medicaid managed care plans to reimburse providers at greater than 100% of Medicare rates;
- Mandates Medicaid cost-sharing to $35 per service for Medicaid enrollees.
The cumulative result of these changes: an estimated 7.5 million people will lose Medicaid coverage. Given the OBBBA’s concurrent reduction in subsidies for patients in ACA plans – along with an expected spike in private health insurance premiums in the 2026 enrollment year – the vast majority of these 7.5 million people will likely join the ranks of uninsured. Barring a repeal of Emergency Medical Treatment and Active Labor Act of 1986 (EMTALA), this loss of coverage will drive more patients with more acute medical conditions into the nation’s emergency departments (EDs), with a commensurate increase in uncompensated care burden for health systems.
By tightening eligibility requirements, the Medicaid-related provisions of the OBBBA will also increase the paperwork burden for providers who enroll patients when they do present to their facilities for treatment under EMTALA. The final downstream impacts on providers from the Medicaid-related provisions of the OBBBA will be diffuse, but they will involve many state-specific healthcare programs for low-income patients. Unlike the federal government, most states are required to balance their budgets every year; as states feel the impact of these and other cuts under the OBBBA, they will likely cut community health programs, health fairs, and other outreach services designed to keep the uninsured and underinsured healthy and out of EDs and the acute care system.
Two stand-alone provisions in the OBBBA will offset some of the negative economic impact of these cuts to Medicaid, discussed in the “Positive Impacts on Providers” section below.
Negative Impacts Related to Patients Covered by ACA/Exchange Plans
The OBBBA cuts an estimated $124 billion in spending on patients covered by the health insurance exchanges under the ACA. Specifically, the OBBBA:
- Institutes stricter eligibility and income verifications for patients eligible for subsidized premiums on the exchanges;
- Requires new verification procedures for low-income enrollees who have been eligible for zero-premium plans;
- Eliminates premium tax credits for migrants and enrollees with uncertain legal status;
- Ends eligibility for premium tax credits during special enrollment periods.
The cumulative result of these changes: an estimated 4.2 million people covered by the exchange-based plans will lose coverage.
As described earlier, the Act targets eligibility for several categories of patients covered by Medicaid under the expansion provisions, reducing the number of current enrollments; going forward, the OBBBA also terminates financial incentives for states to expand their Medicaid programs under the ACA.
Negative Impacts Related to Patients Covered by Medicare
Relative to the cuts described above, the negative economic impact of the OBBBA on providers payments for Medicare patients will be negligible. There are also several stand- alone Medicare provisions in the OBBBA that will have positive economic impacts, as discussed in the next section of this Impact Paper.
There are, however, two Medicare-specific provisions that will negatively affect providers:
- Immigrants will no longer be eligible for Medicare coverage. This will have a significant impact on providers with large, elderly immigrant populations, which are clustered in California, Florida, Illinois, New York, and Texas.
- The OBBBA blocks the federal rule that makes it easier for dual-eligible patients to enroll in Medicare Savings Programs. This is likely to reduce Medicare coverage for this high-cost population, shift reimbursement to lower Medicaid levels, and add new paperwork burdens and payment delays for providers who enroll large numbers of dual-eligible patients.
More broadly and over the long run, the OBBBA spells alarm for hospitals with large Medicare patient populations. If, as expected, the OBBBA increase the federal deficit by $3.4 trillion over ten years, it will trigger Medicare cuts under the under the “Pay-As-You-Go Act” (2010). These automatic cuts start out with an estimated $45 billion in 2026, and grow to a cumulative $490 billion between 2027 to 2034. The likeliest source for the bulk of these reductions will be provider reimbursements under Medicare, given its outsized place in the federal healthcare budget.
Overview of Positive Impacts on Providers
The downstream cuts described above will be offset by a handful of positive economic impacts of the OBBBA on hospitals, health systems, and physician groups, especially those operating in rural areas, which Congress included in the bill as a cushion to those cuts. These are listed in order of economic magnitude.
For Hospitals & Health Systems
The OBBBA lowers provider taxes currently used to help fund Medicaid, from 6.0% to 3.5% of net patient revenue over several years. The law also places a moratorium on new provider taxes. While much of this funding has traveled full circle – taxes collected from a hospital with a larger Medicaid population returns to that same hospital in the form of Medicaid reimbursement – the net effect will be to reduce the current cross-subsidy of rural, inner city, and other safety net hospitals by profitable hospitals with larger commercial insured populations.
The OBBBA delays $16 billion in cuts to Medicaid Disproportionate Share Hospital (DSH) payments. This will not seem like a positive impact, but it does avoid what would have been a major blow to safety net providers.
The OBBBA also creates a new $50 billion fund for rural hospitals & FQHCs over 5 years.
Finally, the OBBBA provides special financial relief for hospitals in the 10 states that did not expand their Medicaid programs under the ACA. While the law bars expansion states from the current practice of using Medicaid payments to direct Medicaid managed care plans to reimburse providers at greater than100% of Medicare rates, it explicitly allows non-expansion states to pay up to 110% of Medicare.
For Physicians
The OBBBA increases physician Medicare payments by 2.5% for one year. As a trade-off for this one-time increase, however, the final law dropped a House proposal to peg future payment updates to the Medicare Economic Index, a provision the physician community has been seeking for many years.
For Long Term Care Facilities
The OBBBA freezes a current federal regulation setting minimum staffing requirements for nursing homes.
For Health Systems with Home and Community Services
The OBBBA allows states to apply for Medicaid 1115 waivers that would permit expanded home- and community- based services. Given the intense pressure on Medicaid budgets under the law and its downstream economic impacts on providers, this presents an opportunity for health systems to continue to expand into these settings to care for patients outside acute care settings.
Even though the implementation of nearly all of the provisions of the OBBBA have been delayed until after the 2026 midterm elections, the law has generated significant and intense public backlash. In the most recent national poll, only 35% of Americans view the OBBBA favorably.
Suggested Business Responses for Providers
This Impact Paper should underscore that, while the spending cuts under the OBBBA will have dire consequences for patients covered by Medicaid and subsidized ACA/exchange plans, the law will also have a multitude of competing economic effects for healthcare providers.
As a result, providers are urged to conduct their own Impact Analysis of the OBBBA, based on the following:
- State or states of operations (ACA-Medicaid expansion vs. non-expansion states);
- Current payer mix (Medicaid / Medicare / ACA / commercial);
- Projected changes to payer mix based on demographics (citizens / legal immigrants / immigrants of uncertain status);
- Current vs. adjusted provider tax payments;
- Increases in uncompensated care.
Given the cumulative effects of the law on the rate of uninsured across the country, many individual hospitals and health systems should also consider revisiting strategies from the pre-ACA era for strategies to protect their economic health, including the expanded use of Medicaid Coordinated Care Organizations (CCOs), 340B programs, and other critical access funding mechanisms. A thorough Impact Analysis will reveal an organization’s vulnerabilities to the many downstream economic effects of the OBBBA.
