States are expected to lose hundreds of billions of dollars over the next decade under the Medicaid provisions of the One Big Beautiful Bill Act. But some states are slated to see larger cuts than others, according to a new analysis from RAND Corporation.
The OBBBA implements significant Medicaid reform, such as imposing work requirements on non-disabled adults, increasing the frequency and rigor of eligibility determinations, limiting spending on immigrants and tightening provisions that have allowed states to increase their federal funding.
Under these provisions, state Medicaid funds will fall by $679 billion from 2025 through 2034, the analysis found. State general funds would also decrease by $82 billion due to savings from fewer Medicaid enrollments and lower provider payment rates, as well as the loss of funds from reduced provider taxes, researchers reported.
However, this decreased funding would affect some states more than others, with 26 states expected to experience reductions of 5% or more. Many of these states have expanded Medicaid eligibility through the Affordable Care Act.
Notably, these figures only account for 12 Medicaid-related provisions within the OBBBA, including those listed above and some related to limiting state-directed payments, imposing cost-sharing for certain services for non-disabled adults, expanding home- and community-based offerings and establishing the $50 billion Rural Health Transformation Program.
Researchers excluded provisions that would depend entirely on state behavior, such as future Medicaid expansions, those estimated to reduce the federal deficit by less than $5 billion over the years and those that prevented the implementation of final rules that had not taken effect, such as parts of the Eligibility and Enrollment Final Rule.
What states will experience the largest Medicaid cuts?
The OBBBA will have a significantly varied impact on Medicaid funds over the next decade, the RAND researchers observed. Some states could see reductions of over 15%, while others could experience little to no impact from the Medicaid provisions.
The states expected to face the largest reductions in total Medicaid funds during the period include Arizona, Iowa and Nevada, which researchers estimate to have reductions of 15% or more.
What do these states have in common? They've expanded Medicaid and are heavily reliant on state-directed payments, which are arrangements in which state agencies require private managed care organizations to pay specific amounts to providers. These amounts can be as high as the average commercial rate.
The federal government plans to cap these rates for certain provider types at 100% of the average Medicare rates in expansion states and 110% in non-expansion states, resulting in significant savings for Medicaid.
California and New York will experience the largest dollar-value reduction in Medicaid funds, researchers added, at $112 billion and $63 billion, respectively. These states similarly rely on state-directed payments and provider taxes.
The analysis also found significant variation in Medicaid enrollment changes under the OBBBA, with expansion states expected to face the greatest declines, largely due to work requirements.
They estimate that West Virginia, Oregon, New Mexico and Washington, D.C. will all experience Medicaid enrollment declines of more than 20%.
What states will bypass significant losses?
On the opposite side, researchers reported that Florida, North Dakota and Nebraska will see little to no impact on overall Medicaid funding from the provisions studied.
In particular, Florida is shielded from many of the provisions since the state has not expanded Medicaid. Meanwhile, Florida will also face a nearly equal positive budget impact from the Rural Health Transformation Program, which allocated $209 million to the state.
North Dakota and Nebraska are Medicaid expansion states, but are significantly less populous than most other states and are expected to gain more proportionally from the Rural Health Transformation Program ($500 million and $1.1 billion over five years, respectively).
Finally, Wyoming and South Dakota will see increases in Medicaid funding of about 10% and 2%, respectively. These states will see little to no impact from the OBBBA's Medicaid provisions, while gaining substantially in percentage terms from the Rural Health Transformation Program.
Under the Rural Health Transformation Program, Wyoming will receive $800 million over five years, while South Dakota secured $500 million in total.
Regarding Medicaid enrollment, researchers found that non-expansion states would experience little change because several provisions do not apply to them. The exception is Wisconsin, which is affected by work requirements because it covers non-disabled adults with incomes below 100% of the federal poverty line, even though it is not an expansion state.
Overall, states that have not expanded Medicaid won't feel a significant impact from the Medicaid-related provisions in the OBBBA, such as work requirements, more frequent redeterminations and cost-sharing, researchers said.
Additionally, states that have little to no use of provider taxes or state-directed payments, as well as those with smaller immigrant populations, will see limited impacts from the provisions.
States standing to gain the most from the OBBBA are those with smaller Medicaid populations and lower Medicaid spending, researchers said.
Jacqueline LaPointe is an Executive Editor at Xtelligent Healthcare Media, covering revenue cycle management, healthcare payers, health policy and health IT since 2016.
