The One Big Beautiful Bill Act (OBBBA), which was signed into law on July 4, 2025, contains over 30 different provisions related to Medicaid — one of the nation’s largest assistance programs. The legislation is poised to change who may be eligible, how people enroll, and how states fund their programs.
Medicaid provides free or low-cost medical insurance to millions of low-income individuals. About 89 million people, or 26% of the population, were covered at some point in fiscal year (FY) 2024.
Medicaid enrollment peaked in FY 2023 with 98.2 million enrollees.
Average monthly Medicaid enrollment, FY 1973-2024
Medicaid is jointly funded by states and the federal government, with federal dollars funding 50% or more of each state’s program. Ten states — California, Colorado, Connecticut, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Washington, and Wyoming — split their Medicaid costs 50/50 with the federal government. Mississippi had the highest federal share of federal Medicaid funding at 76.9%.
In FY 2023, the federal government covered 69% of Medicaid costs.
Federal and state Medicaid expenditures, FY 2014–2023
The Centers for Medicare and Medicaid Services (CMS) oversees distribution of Medicaid funds to states and establishes guidelines for states.
How could changes to Medicaid reduce federal spending?
Over the next 10 years, the Congressional Budget Office (CBO) estimates that the OBBBA’s changes to Medicaid will decrease federal outlays by $840 billion cumulatively. That is nearly equal to the total cost of Medicaid for all of FY 2022. Some of these planned changes will impact Medicaid spending — and people covered by the program — more than others.
Six OBBBA provisions account for roughly 88% of the estimated federal outlay reductions:
- Community engagement requirements: $344 billion less by FY 2034
- Restrictions on provider taxes: $89 billion
- Pausing implementing the Medicare Savings Plan rule: $85 billion
- Pausing implementing an eligibility and enrollment rule: $82 billion
- State-directed payments: $72 billion
- Eligibility redeterminations: $64 billion
Before diving in, let’s clarify a few terms Congress uses. Outlays are when the federal government has disbursed funds to states or other entities that will spend it. Spending includes both outlays and obligations (money that has been committed to being spent but has not been yet).
With that, here’s a closer look at these six new provisions.
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Community engagement requirements
This policy change affects Washington, DC, and the 40 states that expanded Medicaid coverage to include adults ages 19 to 64 without disabilities and without dependent children, often referred to as Medicaid expansion adults.
Changes to community engagement requirements under OBBBA
The Affordable Care Act (ACA) afforded this option to states beginning in 2014. Prior to the ACA, this group could not receive Medicaid regardless of their income. (They’re still ineligible in the 10 states that did not implement the Medicaid expansion.)
40 states and DC have adopted the Medicaid expansion as of the OBBBA's signing.
Medicaid expansion status by state, 2025
Other adults, such as pregnant women, parents or legal guardians of children younger than 14, and individuals with certain disabilities such as blindness, having a substance use disorder, and having a physical or intellectual disability that makes daily activities difficult, will not be subject to work requirements. States are still required to cover them under Medicaid (as long as they are considered low-income).
In FY 2024, about 22 million people were on Medicaid due to the expansion, accounting for 25% of all Medicaid recipients. In FY 2022, the most recent year with data for all eligibility categories, the value was similar: 26.3%.
In FY 2022, over 1 in 4 Medicaid recipients were Medicaid expansion adults.
Percent of recipients by eligibility category
During the first Trump administration, several states obtained a waiver to institute work requirements for adults without disabilities and without dependent children. This marked the first time that work requirements had been instituted in Medicaid (although other federal programs have work requirements).
The Biden administration rescinded all waivers except for Georgia’s. Georgia began a program in 2023 that required adults ages 19 to 64 to provide documentation of 80 hours per month of work, higher education, community service, or other qualifying activities, in order to receive Medicaid.
The CBO estimates that implementing community engagement requirements for this population will reduce federal outlays by $344 billion over 10 years.
Restrictions on provider taxes
States impose taxes on the services (and revenues) on healthcare providers such as hospitals, nursing homes, intermediate care facilities for individuals with disabilities, managed care organizations, and ambulance services.
Changes to provider taxes under OBBBA
Historically, states have implemented these taxes to help pay for their portion of Medicaid. The federal government matches these revenues as long as the states meet certain requirements in their implementation of the tax.
Every state except for Alaska has at least one provider tax in place, and 41 states and Washington, DC, have at least three. For example, Maryland has three separate provider taxes – one on hospitals, a second on nursing homes, and the third on managed care organizations.
Prior to the OBBBA, most provider taxes were set at or below 6% of a provider’s total revenue, as states can only receive matched federal funds on taxes up to this percentage. This 6% is known as the safe harbor limit.
Most states have at least 3 provider taxes
Number of states with provider taxes, state fiscal year 2025
Medicaid expansion states with provider taxes at or near the 6% safe harbor limit will be most affected by this OBBBA provision as it reduces the limit each year until it reaches 3.5% in 2032. As of 2019, 32 states had at least one provider tax over 5.5%. Beginning in 2028, these states must lower their tax rates, which will reduce this stream of Medicaid funding — and will decrease the amount of matched federal funds. The CBO estimates that this will reduce federal outlays by $89 billion.
Nearly all states use provider taxes on hospitals and nursing homes
Number of states with hospital and nursing home provider taxes, state fiscal year 2025
Pausing the Medicare Savings Program rule
Medicare Savings Programs are agreements that allow people who are eligible for both Medicaid and Medicare (low-income individuals aged 65 and older or with certain disabilities), to use Medicaid funds to pay Medicare premiums, co-pays, and some other cost-sharing expenses.
In FY 2022, 13.7 million people were eligible for Medicaid and Medicare benefits, which represented 14.6% of all Medicaid enrollees and 21.1% of Medicare enrollees.
Changes to the Medicare Savings Plan rule under OBBBA
The original CMS rule automatically enrolled some eligible people in a Medicare Savings Program. The OBBBA pauses this rule from going into effect, so people will need to continue applying separately to both programs. The CBO estimates this will reduce federal outlays by $85 billion.
In FY 2022, 13.7 million Medicaid recipients were eligible for Medicare
Number of people by eligibility status
Pausing new Medicaid eligibility and enrollment rule
The process of enrolling in Medicaid can vary by state and an individual’s situation. Generally, a Medicaid applicant will fill out a form regarding their employment, income, assets, citizenship, residency, and other required information. States are required to attempt to verify this information by pulling in data from existing and trusted sources, such as a state wage database, and evaluating it against the application.
If the application data seems unreliable or data matches cannot be made, the Medicaid office may request additional eligibility documentation from the applicant. In some situations, a state may also accept just the applicant’s attestation of their income if it cannot find an acceptable source for verification.
Changes to Medicaid eligibility and enrollment rule under OBBBA
In 2024, CMS established a rule that would have required states to:
- enhance their systems for verifying income and assets from other data sources (reducing reliance on applicants reporting this themselves)
- end the practice of in-person interviews for seniors and people with disabilities
- implement renewal forms that pre-populate with information already entered
- and establish a system for automatic detection and notification of when a child’s eligibility status changes from Medicaid to the Children's Health Insurance Program (CHIP) (or vice versa).
Medicaid and CHIP have received over 2 million applications per month for the last year.
Number of Medicaid and CHIP applications per month, May 2024–April 2025
CMS notes it created the policy to save time in applying for Medicaid and ensure insurance coverage continues without a delay in the case of a change in eligibility status.
The CBO projects that pausing this rule will lead to federal outlay reductions of $82 billion, as there will not likely be an increase in individuals enrolling in and receiving continuous coverage through Medicaid, which the original policy projected.
State directed payments
Medicaid base payment rates are typically lower than Medicare or private insurance rates. As a result, some healthcare providers have historically been less likely to accept new patients covered by Medicaid rather than its more high-paying counterparts. State-directed payments (SDP) aim to make up for this by making an extra payment to healthcare providers for services to Medicaid beneficiaries.
Changes to state directed payments under OBBBA
CMS allowed these payments beginning in 2017 so states could incentivize treatment of Medicaid beneficiaries by increasing the fees paid to certain providers or for specific services. As long as the payments meet several requirements, states can pay them on top of their established Medicaid base payment rate.
The CMS rule did not limit on how high these extra payments could be, but stated they were required to cover all “reasonable” and “appropriate” costs associated with the provided service. Each new SDP requires CMS approval. Existing payments are subject to annual reapproval to ensure they continue to abide by guidelines and advance the stated goals of the extra payment.
Like all Medicaid payments, states fund a portion of SDPs from their own revenue sources, and the remaining portion is funded through federally matched funds. A 2023 study by the Government Accountability Office (GAO) estimated SDPs had cost the federal government $26.2 billion more in 2022 than if they were not in place. This represented about 4.5% of all federal Medicaid spending that year for 50 states and Washington, DC.
The OBBBA continues to allow SDPs, but establishes a cap on payments for Medicaid services. States that have SDP rates over the new limits (100% or 110% of the Medicare rate) will not be able to draw as much federal funding to reimburse providers for serving Medicaid beneficiaries.
The CBO estimates that capping SDPs will reduce federal outlays by $72 billion by reducing federal match funding.
How much does the federal government spend on Medicare and Medicaid?
New eligibility renewal requirements
Medicaid requires enrollees to renew their eligibility periodically to ensure that they still qualify. In between regular renewals, individuals must report any life changes that might affect their eligibility, such as changes to income or their state of residence.
Renewing Medicaid requires some of the same steps as applying for the first time, including that the state must attempt to verify the attested employment and income.
Changes to Medicaid eligibility renewal timing under OBBBA
Prior to OBBBA, this renewal process occurred every 12 months. Starting in 2027, states will be required to review eligibility of expansion adults every six months. Increasing the frequency of renewing applications is intended to identify newly ineligible individuals, who may have since had a life change that impacts their eligibility.
The CBO estimates that more frequency of renewals for Medicaid expansion adults will reduce federal outlays by $64 billion over 10 years.
When will the OBBBA changes to Medicaid happen?
The implementation period for the Medicaid provisions varies. Some took effect as of the bill’s enactment on July 4, 2025, and other changes will begin to take effect through 2028.
Some Medicaid provisions are effective immediately while others take effect in 2027 or 2028
Effectiveness dates for Medicaid provisions in the OBBBA
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Page sources and methodology
All of the data on the page was sourced directly from government agencies. The analysis and final review was performed by USAFacts.
