The One Big Beautiful Bill Act provided financial relief by loosening regulations on low-income housing tax credits and state and local tax deductions while also shifting Medicaid costs in a way that is beginning to take real shape.
"OBBBA's Medicaid changes will place pressure on states to close the coverage and financial gaps that emerge as implementation occurs while addressing the knock-on effects of federal policy changes such as the expiration of enhanced premium tax credits."
The analysis comes from a KBRA
"KBRA believes changes involving work requirements, provider taxes, state-directed payments, and eligibility redeterminations may have the largest impacts for states due to their combined fiscal and administrative implications."
KBRA quotes numbers from a Rand Corporation study that estimates OBBBA "will reduce state Medicaid budgets by $664 billion over 2025-2034, with state general funds declining by $87 billion."
The top five states for Medicaid spending as measured against total state expenditures include Louisiana, Ohio, Missouri, New York, and Indiana. All of them are over 38%.
The five lowest are North Dakota, Illinois, Hawaii, Wyoming, and Utah. Of those, North Dakota is 18.9% and Utah is 13.4%
Work requirements go live on Jan. 1, 2027, and affect the 42 states that expanded their Medicaid programs under the Affordable Care Act along with the District of Columbia.
Wyoming, Kansas, Texas, Mississippi, South Carolina, Alabama, and Florida did not expand Medicaid and will not have to administer work requirements.
The Congressional Budget Office estimates five million people could be affected by the new work requirement rule.
New limits on provider taxes are also expected to play a major role in the future of state budgets. States generate revenue by taxing providers and hospitals. The revenue is used for the state's share of Medicaid funding that the federal government matches.
According to KBRA, "States often increase payments back to those same providers through Medicaid, so providers often receive much of the tax back in the form of higher reimbursements. From a state's perspective, this is a way to bring in extra federal dollars without relying entirely on general tax revenue."
The new rules, which are already in effect, prohibit states from establishing new provider taxes or increasing existing taxes. Starting next October, the rates will be phased down in expansion states by 0.5 percentage points until they reach 3.5% in 2032.
Non-expansion states are not subject to the expansion-state phase-down but are prohibited from increasing fees or establishing new taxes.
According to Avalere Health, a consulting firm to the healthcare industry, states are responding to the rule changes by writing policy playbooks aimed at keeping outlays under control.
Hawaii is looking at a move from managed care plans to more Fee For Service programs, while North Carolina is no longer covering the cost of weight loss drugs.
Idaho and Colorado are moving towards cutting reimbursements to providers.
New Hampshire is planning to implement premiums for enrollees with incomes greater than 100% of the federal poverty levels.
