How the ‘One Big, Beautiful Bill’ Impacts Medicare and Medicaid

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The Congressional Budget Office projected that the Medicaid changes would lower federal spending by $989.7 billion over 10 years and add 7.5 million people to the ranks of the uninsured in fiscal 2034. Starting in 2027, states generally must make work or similar activity a condition of Medicaid for certain adults and must recheck eligibility every six months for adults in the Affordable Care Act’s Medicaid expansion, which covers low-income adults ages 19 through 64.

A separate Medicaid change affects how people with Medicare apply for help paying their costs. Medicare Savings Programs are run by state Medicaid agencies and help qualifying low-income Medicare beneficiaries with premiums and, in some cases, cost sharing. The law delayed specified enrollment and eligibility provisions of a federal rule for those programs until after September 30, 2034. The delay postpones changes that would let applicants use one application to seek help with both Medicare drug costs and other Medicare costs.

The biggest changes are in Medicaid

The One Big Beautiful Bill Act, which became law on July 4, 2025, changes Medicaid and Medicare, and most of the projected spending cuts come from Medicaid.

The Medicaid side of the law, formally Public Law 119-21, covers eligibility reviews, immigrant eligibility, provider taxes, state-directed payments, work requirements, cost sharing and home- and community-based services. The law acts at two levels at once: rules for individual eligibility and rules for state financing.

The Congressional Budget Office estimated that the Medicaid provisions would reduce federal outlays by $989.7 billion from fiscal 2025 through fiscal 2034. It estimated that those provisions would leave 7.5 million more people without health insurance in fiscal 2034 than under its January 2025 baseline. Those are projections against a baseline, not a count of people who have already lost coverage or money already removed from a state budget.

The delayed provisions would have let states use a Medicare drug-benefit low-income subsidy application to determine eligibility for Medicare Savings Programs, simplifying enrollment without a separate application.

In the same estimate, the direct Medicare provisions increased federal outlays by $1.7 billion over the decade and increased the uninsured population by 0.1 million in fiscal 2034.

The work rule is also a paperwork rule

States generally must make community engagement, the law’s name for its work requirement, a condition of Medicaid eligibility for certain adults in 2027, although a state may choose an earlier start. A person can satisfy the monthly rule through at least 80 hours of work, community service or a work program, through half-time education, or through a combination of those activities. Monthly income equal to 80 hours at the applicable minimum wage can also qualify, and the statute gives seasonal workers a six-month income test.

The requirement does not reach everyone on Medicaid: it applies to adults covered under the Affordable Care Act’s Medicaid expansion and to certain adults covered through state demonstration programs known as section 1115 waivers. These groups cover adults ages 19 through 64 who are not pregnant or enrolled in Medicare.

Excluded groups include former foster youth, specified American Indian groups, caregivers of a disabled person or a child under 14, totally disabled veterans, medically frail people, certain recipients of cash assistance (TANF) or food assistance (SNAP), people in addiction treatment, inmates, and pregnant or postpartum people. For people in those groups, community engagement is not a condition of Medicaid eligibility.

Separately, a state must count an adult as meeting the requirement for a month if the person spent part or all of that month outside the rule’s reach: in an excluded group, under 19, enrolled in Medicare or covered under one of Medicaid’s mandatory eligibility groups. The same applies to a person who was incarcerated at any point in the three-month period ending on the first day of the month.

States must verify compliance at each scheduled eligibility review, called a redetermination, may check more often and must use reliable information already available when the rules permit an automatic check. When a state cannot verify compliance, it must send written notice explaining how to prove compliance or an exception and how to reapply after a denial or disenrollment. The state also must consider another basis for coverage and provide an opportunity for a fair hearing, a formal chance to contest the decision, before ending eligibility. Doing the qualifying activity and proving it to the state are separate steps.

The Centers for Medicare and Medicaid Services published the requirement’s details as an interim final rule on June 3, 2026, and a correction followed on June 29. In that rule, the agency said earlier work-requirement programs in Arkansas and Georgia showed that awareness, clear requirements, accessible reporting and administrative complexity can affect participation and compliance.

An interim final rule puts regulations into effect without first taking comments on a proposed rule, while inviting comments that can shape later action. For this rule, both the effective date and the comment deadline were July 31, 2026.

The Centers for Medicare and Medicaid Services says community engagement can connect beneficiaries with employment, education or service, reduce isolation and support self-sufficiency. House Energy and Commerce Committee Chairman Brett Guthrie argues that the requirement protects taxpayers and preserves Medicaid for vulnerable people while helping adults move out of poverty. The Georgetown University Center for Children and Families argues that confusing definitions and administrative burdens can cause eligible people to lose coverage even when they work or qualify for an exception.

Massachusetts, California and other states sued in federal court over the rule. The plaintiffs represent twenty-five states and the District of Columbia. They challenge the rule’s work requirements within its medical-frailty definition and emergency-declaration hardship exception, and its twelve-month look-back for medical frailty. On July 29, 2026, the judge denied their request for a preliminary injunction without prejudice, which leaves them free to ask again. The court said the denial did not reflect its ultimate view of the merits. It said the case raises difficult questions about how much authority Congress delegated and whether the rule is faithful to what Congress intended, to be decided on a fuller record. Georgetown’s litigation tracker lists briefing as ongoing and a hearing for October 22, 2026, on summary judgment, a ruling without a trial.

Other eligibility changes can affect when coverage begins or ends

For adults in the expansion group, states must conduct eligibility redeterminations every six months for reviews beginning in 2027. More checks create more opportunities to catch a change in income or eligibility. They also create more deadlines at which a missed form can interrupt coverage.

Beginning January 1, 2027, retroactive coverage, which pays for care received shortly before a person applied, reaches one month before an application for an expansion adult and two months before an application for other Medicaid or Children’s Health Insurance Program applicants. A hospital bill from earlier than those windows may remain unpaid even if the patient qualifies on the day of application.

Starting October 1, 2028, states cannot charge an enrollment fee or premium to specified expansion adults with income above the federal poverty level. But states generally must charge those adults cost sharing, such as a copayment or deductible, of more than $0 and no more than $35 for some care. Primary care, mental-health care, substance-use treatment and services from several safety-net clinic types are among the listed protections from that cost sharing.

Beginning July 1, 2028, states may seek federal approval for a new Medicaid home- and community-based services program covering people who need help but do not need an institution’s level of care. States must show that the new program would not lengthen the average wait for services under their existing home-care waivers.

Beginning October 1, 2026, federal Medicaid and Children’s Health Insurance Program funding is generally limited to citizens, nationals, lawful permanent residents, Cuban-Haitian entrants and lawfully residing migrants from the freely associated states. The law preserves exceptions for emergency Medicaid and for the state option covering lawfully residing children and pregnant people. A state may use its own money for broader coverage, but the new restriction determines when federal matching funds are available.

The freely associated states are the Federated States of Micronesia, the Marshall Islands and Palau. Cuban-Haitian entrant is an immigration category that includes people granted designated Cuban/Haitian parole, as well as certain Cuban or Haitian nationals with pending asylum applications and no final, nonappealable, enforceable deportation or exclusion order.

States lose financing room and gain a rural fund

What Medicaid Provider Taxes Are and How the Bill Limits Them

Some of the law’s largest Medicaid changes will never appear on an enrollee’s renewal form. They govern how states assemble their share of Medicaid spending and how much they may direct managed-care plans to pay providers.

The federal government reimburses states for a share of Medicaid costs, including payments to providers and administrative work. Our guide to Medicaid matching funds explains the federal-state funding split in more detail.

In state fiscal year 2025, 49 states and the District of Columbia used at least one provider tax, a tax on health care providers such as hospitals, to finance Medicaid. Many use the revenue and federal matching funds to raise Medicaid payments to the providers paying the tax, rather than using state general funds. Federal rules bar a tax that holds providers harmless, meaning protects them from bearing its cost, and regulations set three tests for spotting that. Regulations waive one of those tests, the guarantee test, when the tax rate is 6 percent or less of providers’ net revenue from patient services, a limit known as the threshold.

For most existing provider taxes in states that expanded Medicaid, the law lowers that threshold to the tax’s rate on the date of enactment or to a federal figure, whichever is lower. The federal figure is 5.5 percent in fiscal 2028 and falls by half a percentage point each year to 3.5 percent in fiscal 2032 and later. Nursing-home taxes and taxes on intermediate care facilities for people with intellectual disabilities retain their enactment-date threshold instead of following that phase-down.

These restrictions limit how states can use provider taxes to finance their share of Medicaid spending.

State-directed payments run through Medicaid managed-care contracts and are tied to services delivered to covered beneficiaries. For inpatient and outpatient hospital services, nursing-facility services and qualified practitioner services at academic medical centers, the law lowers the cap in expansion states from the average commercial rate to 100 percent of Medicare payment rates, and sets it at 110 percent in non-expansion states. Grandfathered payments step down by 10 percentage points each year starting January 1, 2028, until they reach the applicable Medicare-rate cap.

The grandfathered payments cover rating periods within 180 days of enactment with prior approval, or a qualifying good-faith approval effort, before May 1, 2025; rural hospitals had until enactment, and payments with a completed approval request submitted before enactment also qualify.

Paragon Health Institute argues that provider taxes and state-directed payments let states draw more federal matching money and return much of it to providers, shifting costs toward federal taxpayers. The American Hospital Association answers that provider taxes and supplemental payments offset chronically low base Medicaid rates and warns that reduced funding can shrink services or close providers.

The law also created the Rural Health Transformation Program, with $10 billion available each year from fiscal 2026 through fiscal 2030. On January 8, 2026, the Centers for Medicare and Medicaid Services reported that all 50 states would receive awards, with first-year amounts averaging $200 million and ranging from $147 million to $281 million. The rural fund adds money for approved projects, but it is not a dollar-for-dollar replacement for the Medicaid financing reductions and eligibility savings elsewhere in the law.

The Medicare cut warning was a separate budget mechanism

The law limits which noncitizens can enroll, raises Medicare’s payments to doctors by 2.5 percent for 2026 and widens one exemption from drug-price negotiation. Congress later set the balances on the 2025 PAYGO scorecards to zero.

The law itself makes three direct changes to Medicare; the cuts that drew warnings would have come through a different law. The first limits Medicare to five groups: U.S. citizens, U.S. nationals, lawful permanent residents, Cuban-Haitian entrants and migrants from the freely associated states who lawfully reside in the United States. People in other noncitizen categories that previously met Medicare’s lawful-presence rule, such as refugees and people granted asylum, can lose eligibility even if they otherwise satisfy the program’s age or disability requirements.

For people already entitled to or enrolled in Medicare on July 4, 2025, the new restriction takes effect January 4, 2027, and Social Security must notify affected beneficiaries that their coverage will end. For other people, the restriction took effect when the law was enacted on July 4, 2025.

The second adds 2.5 percent to payments under the Medicare physician fee schedule, which sets what Medicare pays doctors and other clinicians, for services furnished from January 1 through December 31, 2026. This is a payment to providers, not an added cash benefit for enrollees.

The third change concerns the exclusion of orphan drugs, those designated to treat rare diseases, from the Medicare Drug Price Negotiation Program. The exclusion now covers a drug designated for one or more rare diseases, not just one, provided its approved uses remain limited to rare conditions. If such a drug later gains approval for a condition that is not rare, it loses that exclusion, and the seven- or eleven-year period that determines when a drug becomes eligible for negotiation starts from that later approval. The change takes effect for the negotiation round whose prices apply starting January 1, 2028.

An August 18, 2025 statement from Senate Budget Committee Democrats reported CBO’s estimate that the law’s deficit increase would trigger a 4 percent Medicare cut, about $45 billion in fiscal 2026, unless Congress acted.

The warning about broader Medicare cuts arose under Statutory Pay-As-You-Go, known as PAYGO, a budget law that records the deficit effects of enacted laws on five-year and ten-year scorecards. If a scorecard shows a net increase in the deficit for the budget year, the president must order across-the-board cuts, called sequestration, in mandatory spending programs that are not exempt. Reductions in Medicare Parts A and B provider payments are capped at 4 percent.

Congress later enacted Public Law 119-37, which set the balances on the 2025 scorecards to zero and prevented the conditions for a fiscal 2026 sequester. That action did not repeal the underlying PAYGO process.

The calendar matters as much as the headline

The new federal Medicaid funding limits for several noncitizen groups begin in October 2026. The six-month expansion-eligibility reviews begin with reviews scheduled in 2027. The shorter retroactive-coverage windows also begin in 2027. The national community-engagement deadline falls in 2027 unless a state starts sooner.

The cost-sharing provision begins October 1, 2028. The expansion-state provider-tax ceiling phases down from fiscal 2028 through fiscal 2032. The delayed Medicare Savings Program rules have a much later marker: after September 30, 2034.

The Centers for Medicare and Medicaid Services has posted an informational bulletin, the interim final rule, overview material, medical-frailty guidance and systems resources for states. State officials told the National Governors Association that procurement, legal review, funding transfers, staffing, governance and interagency trust can be larger barriers than technology alone.

They described implementation as a continuing effort that needs dedicated staff, sound processes and realistic expectations. The same federal rule can feel different when one state can verify a record automatically and another asks the enrollee to supply it.

What an enrollee should do

Use the Medicaid.gov state directory to apply, check an application or renewal, replace a card or find the agency’s contact information. Ask the state Medicaid agency whether the community-engagement rule applies, when the state will begin checks and what records it will accept. Do not assume that working, caregiving or having a serious health condition will be recognized automatically.

If a notice says coverage will be denied or ended, read the explanation for proving compliance or an exception and the instructions for reapplying. Federal Medicaid rules provide notice and fair-hearing rights, including procedures for requesting a hearing and rules on when services continue during that process. Those protections matter only if the notice reaches the household in time to act.

For questions involving both Medicare and Medicaid, contact the State Health Insurance Assistance Program, which offers free, federally funded, one-on-one counseling.

Start by checking whether you use Medicaid or Medicare, then check the rules that apply to you and their start dates.