OBBBA's Impact: Largest Medicaid Cuts and ACA Subsidy Rollbacks

The 'One Big Beautiful Bill Act' (OBBBA) represents the most significant rollback of healthcare funding in U.S. history, effectively constituting a partial repeal of the Affordable Care Act (ACA). Congressional projections estimate that the bill will reduce federal Medicaid spending by approximately $793 billion and cut subsidies available through the ACA Marketplace by about $268 billion over the next decade.

These financial reductions are expected to increase the uninsured population by an estimated 16 million people, impacting Medicaid recipients and ACA marketplace enrollees. Despite touting federal spending cuts, the bill is projected by the Congressional Budget Office (CBO) to add $3.4 trillion to the national deficit between 2025 and 2034, shifting substantial costs to states and local governments. The legislation includes provisions that will reduce Medicaid enrollment by roughly 7.8 million adults by 2034 through new work requirements and eligibility restrictions, and it will cut marketplace subsidies causing premium increases and coverage losses among 3 to 5 million Americans. Insurance providers, such as Aetna, have already started exiting ACA marketplaces, potentially limiting consumer choice and exacerbating premium hikes. Rural hospitals face increased financial pressure due to anticipated uncompensated care and declining reimbursement streams, particularly with phased reductions in state provider fees that currently leverage federal matching funds. The bill also triggers potential cuts to Medicare funding via PAYGO rules, including a 4% payment reduction to hospitals if deficits rise as projected. States will bear administrative costs related to enforcing new Medicaid eligibility and work requirements, potentially straining budgets further. While a one-time $10 billion fund aims to mitigate some rural impact, experts suggest it will cover only about one-third of the anticipated Medicaid cuts in these communities. Geographic impact varies, with Medicaid expansion states, including Kentucky, North Carolina, and Virginia, facing the most significant reductions. State responses to implementation, such as enforcement of work requirements and allocation of federal funds, will influence local insurance coverage outcomes. Upcoming elections in key states will play a critical role in shaping policy responses and mitigation efforts.

Additionally, expiration of the enhanced ACA premium tax credits by the end of 2025 is expected to cause average premium increases of 75%, doubling costs for some enrollees and prompting potential marketplace dropout, especially affecting working- and middle-class individuals in states that expanded ACA coverage.

 The increased administrative burdens introduced by the OBBBA will further complicate ACA enrollment and retention. This constellation of changes risks destabilizing insurance risk pools, pushing premiums higher and insurers to withdraw from markets. These shifts underscore the complex interplay of federal policy adjustments, state-level implementation, insurer participation, hospital financial health, and consumer affordability challenges in the evolving U.S. health insurance landscape.