State Budget and Enrollment Impacts of Key Medicaid OBBBA Provisions

• In Event: Medicaid Access and Enrollment

Abstract

Introduction/Background: In July 2025, Public Law 119-21, commonly referred to as the One Big Beautiful Big Act (OBBBA) became law. OBBBA includes policy reforms that aim to reduce federal spending and improve program integrity in Medicaid. These reforms primarily work through reducing federal Medicaid funding and eligibility.

Purpose/Research Question: Existing work either estimates federal impacts, or allocates federal impacts to states; we built state-level budgetary and enrollment impact estimates of several of OBBBA’s key Medicaid provisions.

Data: We relied on Medicaid enrollment figures from Medicaid.gov, and enrollment and spending projections from the National Health Expenditure Accounts. We also compiled data on states’ provider taxes from legal documents and used the state-directed payment (SDP) approval packages available from Medicaid.gov.

Research Design and Methods: We focused on 12 of OBBBA’s Medicaid provisions estimated by the Congressional Budget Office (CBO) to have the largest federal impacts; for 10, we created custom modeling approaches, while for the other 2, we allocated the CBO estimates to states due to data limitations.

Results/Findings: In total, states’ Medicaid budgets will be reduced by $665 billion over 2025–2034, but impacts vary substantially by state. Medicaid expansion states with substantial use of provider taxes or SDPs tend to be the most heavily impacted; Arizona, Iowa, and Nevada could see total state Medicaid budget reductions of more than 15% by 2034.Non-expansion states are shielded from many of the provisions or held to less strict standards, and less populous states stand to gain more funding proportionally from the Rural Health Transformation Program. States like Wyoming and South Dakota will gain funding because they do not have provider taxes or SDPs in affected categories and have small populations.Some provisions (e.g. work requirements, redetermination, SDPs) will result in savings to state general funds due to lower overall Medicaid spending, while others (e.g. provider taxes, emergency FMAP) may necessitate increased outlays by state general funds, as they reduce federal funding and leave states to bridge the gap. We estimate that state general funds will be reduced by $86 billion over 2025–2034, although for 31 states, net general fund impacts were positive. California is expected to have the largest loss in general funds (over 6% of its Medicaid budget), largely due to the structure of its provider taxes.We estimated a joint impact across the provisions we model of 7.6 million fewer Medicaid enrollees in 2034, with West Virginia, Oregon, and New Mexico expected to have declines of over 20%.

Conclusions/Implications: Most states’ Medicaid programs will see substantial budget reductions due to key Medicaid provisions in OBBBA, though the impact is somewhat reduced when considering the savings to state general funds in many states. OBBBA is also expected to reduce Medicaid enrollment in all states, including those that have not expanded Medicaid. States may need to draw more heavily from state general funds or reduce Medicaid enrollment, provider payments, or covered services to bridge the gaps, and may need to consider other actions to address issues related to access and uninsurance.

Authors

• Preethi Rao, RAND Corporation
  Non-Presenting Co-Author

• Lawrence Mark Baker, RAND Corporation
  Presenting Author

• Christine Eibner, RAND Corporation
  Non-Presenting Co-Author