The One Big Beautiful Bill Act was signed into law on July 4 and includes significant changes to the Medicaid program, particularly with regard to state and federal financing for the program. This LawFlash provides a high-level summary of certain key provisions that will impact various Medicaid stakeholders, including states, providers, and enrollees.
Note that several provisions of the act focus on the Affordable Care Act’s Medicaid expansion, which offered enhanced federal matching funds to states that expanded Medicaid coverage to adults with incomes between 100%–138% of the federal poverty line (i.e., $21,597 for an individual in 2025). This group is referred to below as the expansion population. Currently, 41 states, including DC, have expanded Medicaid.
IMPACT ON FEDERAL FINANCING
- Elimination of the two-year 5% increase in federal matching funds available to states under the American Rescue Plan Act as an incentive to adopt Medicaid expansion (eff. Jan. 1, 2026).
- Elimination of enhanced federal matching funds for Emergency Medicaid offered to undocumented immigrants otherwise eligible for expansion coverage (eff. Oct. 1, 2026).
- Reduction in federal financial participation for states exceeding a 3% error rate for payments made to ineligible individuals (including where there is insufficient information to confirm eligibility) and overpayments made to eligible individuals (eff. fiscal year (FY) 2030).
- Requirement for Section 1115 Demonstration Waiver approval to include certification of budget neutrality by the Chief Actuary for Centers for Medicare and Medicaid Services (CMS) (eff. Jan. 1, 2027).
- Establishment of a $50 billion rural health transformation program to be used between FYs 2026 and 2030 for payments to rural healthcare providers, expanding rural health workforces, and other system transformation purposes.
IMPACT ON STATES
- Prohibition on new or increased provider taxes to finance the state share of Medicaid spending with certain exceptions (eff. immediately with three-year transition period).
- Reduction in existing provider taxes in expansion states through an annually decreasing cap: from current level of 6% of net patient revenues to 5.5% in 2028, down to 3.5% by 2032.
- Requirement to conduct eligibility redeterminations every six months for expansion population (eff. Jan. 1, 2027).
- Requirement to conduct monthly eligibility checks of enrolled providers to screen for terminated providers (eff. Jan. 1, 2028).
- Requirement to conduct quarterly reviews of the Death Master File to determine whether enrolled providers are deceased (eff. Jan. 1, 2028).
- Requirement to obtain enrollee address information and conduct quarterly enrollee reviews against the Death Master File (eff. Jan. 1, 2027) and submit enrollee SSNs to new CMS system to prevent Medicaid enrollment in multiple states (eff. Oct. 1, 2029).
IMPACT ON PROVIDERS
- Reduction (through directed HHS rulemaking) on the upper limit for state-directed payments to managed care providers from the average commercial rate to 100% of Medicare payment rates for expansion states and 110% for non-expansion states, with phase-in for certain approved grandfathered payments.
- Prohibition on payments to 501(c)(3) nonprofit organizations if they (1) are essential community providers, (2) are providing abortions outside of the Hyde exceptions, and (3) received $800,000 or more in payments from Medicaid in 2023 (eff. immediately for one year).
IMPACT ON ENROLLEES
- Work requirements for nonexempt adults demonstrating at least 80 hours per month participating in qualifying activities to be verified by the state during redeterminations at least twice per year (implementation prior to 2027).
- Requirement for cost sharing of up to $35 per service for adults in the Medicaid expansion population, with certain exemptions including prescription drugs, primary care, and services provided by rural health clinic (eff. Oct. 1, 2028).
- Limitation on retroactive coverage (previously 90 days) to one month prior to date of application for the expansion population and two months prior to date of application for the non-expansion population (eff. Jan. 1, 2027).
- Reduction of the maximum home equity limit applicable to enrollees who qualify for Medicaid to receive long-term care to $1 million regardless of inflation (eff. Jan. 1, 2028).
- Restriction on Medicaid eligibility for qualified immigrants to no longer include refugees, individuals granted asylum, certain abused spouses and children, trafficking victims, and others (eff. Oct. 1, 2026).
HOW WE CAN HELP
Morgan Lewis lawyers represent a broad range of clients in the healthcare space: states, health plans, managed care organizations, hospitals, long-term care facilities, pharmaceutical and medical device manufacturers, revenue cycle management companies, data-driven healthcare companies, medical groups, and healthcare management consulting firms.
We have a deep background advising our clients on the impacts of changes to Medicaid, other state and federal healthcare programs, and health plans and are ready to assist with your transactional, regulatory, and compliance needs.
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