The Big Beautiful Bill Act is Law. Now What?

• For Medicaid expansion states: Payments will be capped at 100 percent of the published Medicare payment rate instead of the average commercial rate.
• For all other states: Payments will be capped at 110 percent of the Medicare payment rate.

The bill will require existing SDP limits and payments to rural hospitals to decrease by 10 percent each year until the allowable limit is reached.

Impact:

• The reduced tax rate for SDPs will result in less revenue, shrinking state Medicaid budgets or requiring states to use general funds to fill gaps. If hospitals close or reduce services, states may need to find new funding sources to preserve local access to care, adding further stress to state budgets.
• The healthcare sector is a major employer in many states, especially in rural areas. Cuts to Medicaid payments could reduce hospital staffing, wages, and local economic activity. States could lose tax revenues tied to healthcare employment and spending.
• Indirect effects of this provision include increased uncompensated care costs for states when providers refuse Medicaid or close altogether.
• States use SDPs to incentivize quality improvements and integrated care models, and the new caps may hinder states’ ability to design value-based or alternative payment approaches.

States with large Medicaid populations and rural states are projected to be the most heavily impacted. California, for example, is estimated to lose $5 billion annually in federal matching funds. Texas relies on SDPs to offset low base Medicaid rates, and this provision could result in adjustments to managed care contracts. Rural states may experience critical access hospital closures, requiring emergency state budget measures.

• Payments for health-care providers.
• Chronic disease prevention and management services, including technology-driven approaches.
• Training to use technology to improve care, including through robotics and artificial intelligence.
• Recruitment and retention for rural hospital staffing.
• Technical assistance and IT improvements.
• Substance use treatment and mental health services.

The Centers for Medicare and Medicaid Services (CMS) would have to approve or deny all applications submitted by states by Dec. 31, 2025. CMS would have to distribute 50 percent of the funding equally across all states and could decide how to distribute another 40 percent based on factors such as a state’s rural population and proportion of rural health facilities. At least a quarter of states would have to be allotted funding from the 40 percent category. States would not be required to provide matching funds.

Impact:

• This fund could be used to modernize patient record systems, billing and revenue cycle platforms, and telehealth infrastructure in rural hospitals.
• This fund is intended to encourage transitions to new payment and care delivery models, such as global budgets and value-based care.
• States can direct the funds to hospitals to improve data analytics, cybersecurity, and compliance services.

Impact: Individuals who received excess APTC must repay the full amount, regardless of their income level.

In all states, no safe harbor will be available for any new provider tax that does not exist on the date of enactment of the provision, beginning October 1, 2026.

States also can only levy Medicaid provider taxes if they are uniform across all services and individuals. This rule can be waived if states demonstrate the taxes are at least “generally redistributive.” The bill would stipulate that a provider tax that mainly serves Medicaid beneficiaries must not be higher than the tax levied on providers with fewer Medicaid patients, otherwise it isn’t “generally redistributive.”

Requires states to implement at least one of the community engagement requirements for Medicaid beneficiaries ages 19 to 64:

• Working at least 80 hours.
• Performing at least 80 hours of community service.
• Participating in a work program for at least 80 hours.
• Attending an educational program at least half time.
• Performing a combination of the above activities for at least 80 hours.
• Earning a monthly income that meets minimum wage requirements multiplied by 80 hours, which would be averaged over the previous six months for seasonal workers.

Requires states to exclude from work requirements:

• Pregnant individuals.
• Tribal members.
• Foster and former foster youth under age 26
• Individuals considered medically frail.
• Individuals already meeting Supplemental Nutrition Assistance Program (SNAP) or Temporary Assistance for Needy Families (TANF) work requirements.
• Individuals released from incarceration within the past 90 days.
• Veterans with a disability.
• Individuals caring for a dependent child age 13 or younger or individual with a disability.
• Individuals with disabilities.

States will be required to verify an applicant for Medicaid coverage is compliant with the work requirements for at least one month, but not more than three months, before they applied. Current enrollees must meet the requirements for at least one month between eligibility checks, which states could choose to do more frequently. If a state finds a Medicaid enrollee or applicant does not meet the work requirements, it will have to notify them of their noncompliance and explain the steps they could take to become compliant or to reapply for Medicaid coverage after they are disenrolled. Enrollees would then have 30 days after receiving a notice to prove they are compliant or exempted from the requirements, during which they would continue to receive coverage. Enrollees who don’t come into compliance or demonstrate an exemption within that period would be disenrolled, provided the state explores other avenues to provide coverage and the individual is given an opportunity to receive a fair hearing on the decision.

States would be able to exempt an individual experiencing short-term hardships from the requirements that month. That could include factors such as hospitalization, federally declared disasters, and high unemployment rates. The bill would also consider travel to receive qualified medical treatment that is not available in their community as a short-term hardship.

The Secretary would be allowed to waive the verification requirement for an individual who enrolls in an exchange plan during a special enrollment period (SEP) due to a change in family size. An exchange would be required to implement a pre-enrollment verification process to allow insurance applicants to verify their income for enrollment in exchange plans and the PTC.