OBBBA Health Provisions Reshape Medicaid and Marketplaces Impacting State Budgets

The recent enactment of the One Big Beautiful Bill Act (OBBBA), formally known as H.R. 1, introduces sweeping changes to Medicaid and Health Insurance Marketplace programs, significantly impacting states, health care providers, and consumers across the United States. The law aims to extend aspects of the 2017 Tax Cuts and Jobs Act while increasing federal spending on border security, defense, and energy, offset by savings through reductions in federal Medicaid and Marketplace expenditures. Currently, Medicaid covers 71 million Americans, including vulnerable populations such as children and disabled individuals, while Marketplaces serve 24 million, largely covering working families and small business employees, with a notable concentration in rural areas. The Congressional Budget Office projects that up to 11.8 million individuals could lose health insurance coverage over the next decade due to new eligibility restrictions, including stricter community engagement requirements, frequent eligibility reviews, and limits on immigrant coverage for Medicaid, alongside enhanced pre-verification and narrower tax credit eligibility in Marketplaces. Coverage losses will vary by state based on implementation specifics and pending federal guidance, highlighting the decentralized nature of Medicaid and Marketplace administration. For the Marketplaces, eliminating autoenrollment and introducing annual active verification for premium tax credits are expected to contribute substantially to coverage attrition; these provisions will intersect with other federal rules such as the CMS’s 2023 Marketplace Integrity and Affordability Rule, cumulatively affecting over 8 million Medicaid consumers. These coverage reductions raise concerns about access to care as uninsured rates increase, with evidence showing uninsured individuals face increased difficulty in affording care and higher rates of avoidable hospitalizations, leading to potential rises in uncompensated care costs estimated to add $204 billion over ten years, impacting hospitals and physicians especially. Implementation will require states to undertake extensive operational system changes, particularly upgrading eligibility, verification, and enrollment systems for Medicaid expansion populations and Marketplace enrollees; new cross-agency collaborations and data-sharing mechanisms will be critical to meet these operational demands within expedited timelines. States will also face considerable financial challenges, balancing the need for substantial investments in IT systems, staffing, and consumer education while managing constrained budgets for FY 2026 and beyond, compounded by the expiration of pandemic-era federal funding and ongoing budget shortfalls. The financial impact on states will be significant, particularly for the 40 states plus DC that expanded Medicaid, where federal Medicaid spending reductions might reach up to 21%, with non-expansion states also facing cuts. Reduced Marketplace enrollments are expected to lead to diminished federal funding streams, including decreased tax credit disbursements and reduced support from 1332 State Innovation Waivers, affecting programs designed to mitigate premium costs such as reinsurance and subsidies. Additionally, new state financial responsibilities under the OBBBA for programs like the Supplemental Nutrition Assistance Program (SNAP) and upcoming rule changes to Medicaid verification will further strain state budgets and administrative capacity. As states implement these complex changes, they will need to continually assess coverage losses, fiscal impacts, and health system ripple effects while navigating evolving federal guidance and regulatory updates. The National Academy for State Health Policy will provide ongoing monitoring and technical assistance to support states through this significant transition, aiming to promote strategic and effective implementation of OBBBA provisions.