With the enactment of the One Big Beautiful Bill Act (OBBBA), or H.R. 1, states must now move forward with implementation to effectuate the law’s sweeping provisions. The impact of the health-related provisions of the law is expected to be far-reaching, with significant implications for states, their health care ecosystems, and their consumers, primarily due to significant changes to Medicaid and Health Insurance Marketplace programs.
The OBBBA represents a fundamental shift for states and the broader health care system, requiring strategic yet rapid implementation. NASHP will continue to monitor and provide support to states as they execute changes to effectively and strategically implement the new law.
Major Health-Related Provisions of the OBBBA
The OBBBA is a spending and tax law, passed through the reconciliation process, that extends the 2017 Tax Cuts and Jobs Act and increases spending on border security, defense, and energy. To achieve these goals, Congress offset the increased spending with savings, including through a number of health care provisions that would reduce federal spending on Medicaid and the Marketplaces. In the table below, we summarize key health care provisions.
Key OBBBA Health-Related Provisions
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Implications of the OBBBA Health Care Provisions
Coverage Impact across Medicaid and Health Insurance Marketplaces
Medicaid and Marketplaces serve as key coverage sources for Americans. Seventy-one million individuals are currently enrolled in Medicaid, including children, pregnant women, older adults, and people with disabilities. Another 24 million are enrolled in the Marketplaces, which primarily serve working individuals and families like small business owners, part-time and gig workers, as well as pre-retirees and young adults who have recently aged out of their parents’ benefits. Additionally, Medicaid and the Marketplaces cover a larger share of rural populations than other health insurance programs.
Once the OBBBA law is implemented, the Congressional Budget Office (CBO) anticipates that 11.8 million individuals will lose health insurance over the next ten years. In Medicaid, these coverage losses are attributable to policy changes, including new community engagement requirements, more frequent eligibility reviews, and limits on eligibility for immigrants. For Marketplaces, these losses are attributed to changes to pre-verification requirements and limits to tax credit eligibility to only certain lawful immigrants.
The number of individuals losing health insurance will vary across states, depending on a number of different factors. States are awaiting additional guidance from federal agencies on several provisions and are likely to have variation in the details of how they will implement the provisions of the law.
Additional Coverage Losses Expected from Other Marketplace Changes
Experts and state officials anticipate that coverage losses will occur for individuals enrolled in Marketplace plans due to OBBBA’s more restrictive requirements for qualifying for premium tax credits, which will necessitate annual affirmative and active verification of information by all enrollees seeking eligibility for premium tax credits. The new requirements effectively eliminate autoenrollment into Marketplace coverage, a practice currently used by 88 percent of Marketplace enrollees. These OBBBA provisions, however, will work in conjunction with several other federal policies, leading to additional Marketplace coverage losses.
Without Congressional action, an enhancement to premium tax credits is set to expire at the end of 2025, which will significantly raise premium costs for Marketplace consumers. In addition, in June, the Centers for Medicare and Medicaid Services (CMS) finalized the “Patient Protection and Affordable Care Act; Marketplace Integrity and Affordability Rule,” which imposes a series of additional policies that tighten eligibility requirements and change insurance formulas in ways that may result in a reduction in premium tax credit dollars available to states and consumers. The combined effect of these policies may result in over 8 million individuals losing Marketplace coverage.
States will need to understand the ripple effects of state residents losing health insurance in the future. Evidence has shown that individuals without health insurance face greater challenges in accessing care and affording health care costs. In 2023, close to half of uninsured adults and a quarter of uninsured children did not see a health care provider in the last year, and a fifth of uninsured adults went without needed care because of cost (as compared to only 5-7 percent of adults with health insurance). Uninsured adults are more than twice as likely to report having difficulty affording health care costs, and 60 percent of uninsured adults report having health care-related debt. Uninsured individuals are also less likely to receive preventive care and more likely to be hospitalized for avoidable reasons.
States will also need to consider the potential impact of coverage losses and new restrictions on Medicaid payments on health care providers in their states, particularly those that treat a large share of Medicaid beneficiaries. Several analyses have documented the impact of recent declines in uninsured rates on decreasing uncompensated care costs for hospitals and providers. One analysis has estimated a $204 billion increase in uncompensated care over 10 years, including $63 billion for hospitals and $24 billion for physicians.
Administrative and System Changes
States will need to implement significant operational system changes to effectively implement the new law, including major updates to both Medicaid and Marketplace eligibility and enrollment systems on expedited timelines. New Medicaid community engagement requirements, for example, will require comprehensive changes to eligibility and verification systems for the over 20 million people in the Medicaid expansion population. This will include establishing new data-sharing arrangements and infrastructure across state programs to correctly identify individuals who meet or should be exempt from requirements or who are meeting the monthly community engagement requirements. This work will require establishing new partnerships with other state agencies and external entities to access the necessary data sources to implement the law.
Executives operating state-based Marketplaces have also expressed significant concerns about the operationalization of new pre-verification requirements codified under the law. These requirements will necessitate redesigned eligibility processes that incorporate new data submission, verification, and storage systems, while handling the volume of completing these more rigorous requirements for all new applicants and returning enrollees on an annual basis.
Many of the OBBBA health policy changes will require significant financial investments in information technology and staffing infrastructure to be successfully implemented, with additional investments needed to support consumers in educating them about the changes and mitigating potential coverage losses as they navigate the new system or systems. Prioritizing limited resources – financial, time, personnel – may be a challenge for states as they are tasked with meeting deadlines for implementation set under the law.
Fiscal Impact
With the passage of the OBBBA, states will reevaluate their state budgets for 2026 and beyond. Unlike the federal government, states must balance their budgets, generally on a one- or two-year cycle. State budgets for FY 2026 are generally more conservative than in previous years and include plans to spend down surpluses from previous years. In addition, some states are navigating varying levels of budget shortfalls and responding to changes in federal funding, particularly as short-term funding from the COVID-19 pandemic sunsets.
States will need to understand the impact of a decrease in Medicaid expenditures resulting from the OBBBA, across both federal and state funds. CBO estimates the decrease in federal Medicaid expenditures may be $1 trillion over the next 10 years. In comparison, Medicaid spending in FY 2023 was $900.3 billion. The impact on state budgets will be felt most significantly by the 40 states and Washington, DC, that have expanded Medicaid, with between 10 and 21 percent reductions in federal spending. However, the nine states that have not expanded Medicaid can still expect reductions in federal spending of between 6 and 11 percent. State leaders will need to make decisions on how to account for federal funding reductions, with limited options for new dollars to make up any gaps.
States will also evaluate the fiscal impact of the OBBBA on their health insurance markets. Fewer Marketplace enrollments will mean less federal dollars, including fewer tax credit dollars paid directly to insurers or consumers and reduced funding available through 1332 State Innovation Waivers, currently enacted in 21 states, to finance programs designed to lower premium costs, such as reinsurance programs and state-subsidy programs.
States will also have to balance these investments as they implement major changes to other programs, such as the Supplemental Nutrition Assistance Program (SNAP), which is currently primarily funded by the federal government, with states financing a portion of administrative costs. Under the OBBBA, most states will be required to pay a share of SNAP benefits starting in 2028, based on their payment error rates. States are also awaiting finalization of the “Medicaid Eligibility Changes Under the Affordable Care Act of 2010; Giving States Freedom to Use Immigration Information to Determine State Residency for Medicaid Eligibility” rule, which is expected to add requirements related to verifying residency as part of eligibility, requiring additional system changes for Medicaid.