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OBBBA's impact on state Medicaid funds varies nationwide

The law will impact states differently depending on their current Medicaid budgeting tactics, ultimately cutting coverage for 7.6 million people by 2034.

Sara Heath
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Published: 04 Mar 2026

The One Big Beautiful Bill Act's myriad healthcare provisions will have ripple effects across all 50 states, ultimately resulting in nearly 7.6 million fewer Medicaid enrollees come 2034, according to a new RAND analysis.

The report, which examines several of OBBBA's policies affecting the Medicaid program, indicated that states will need to determine how to fill funding gaps left by the law.

"The effects of the law on Medicaid budgets and enrollment are substantial, but will vary widely across states, and in some cases may be at least partially offset by savings to the state general fund," Preethi Rao, a senior economist at RAND and lead author of the study, said in a press release.

"Some states will see significant reductions in Medicaid funding and enrollment, while others may experience relatively limited changes depending on how their programs are structured and financed."

The OBBBA was signed on July 4, 2025, as a massive budget reconciliation bill with provisions that affect various parts of the U.S. economy. In healthcare, most of the law's provisions aim to reduce federal spending on Medicaid.

To determine how the OBBBA will affect individual U.S. states, the RAND researchers used publicly available data, published literature, state and federal agency reports and other information to estimate the costs -- or savings -- generated by different OBBBA provisions.

The examined provisions included the following:

  • Enhanced Medicaid eligibility checks, such as verifying beneficiary addresses, requirements to conduct redeterminations every six months, eligibility restrictions for immigrants and Medicaid work requirements.
  • Changes to so-called good faith waivers limiting the federal government's ability to waive recoupment funds for certain types of erroneous Medicaid payments.
  • Reduction of the federal matching assistance percentage (FMAP) for immigrants who are not eligible for Medicaid and who seek emergency care.
  • Limitations on states' use of provider taxes to increase FMAP claims.
  • Provisions that limit state-directed payments (SDPs) for certain provider categories to 100% of the average Medicare rates for expansion states and 110% for non-expansion states.
  • Required cost-sharing of up to $35 for certain healthcare services for non-disabled adults.
  • Provisions that allow home- and community-based services for people who do not need an institutional level of care.
  • Enactment of the Rural Health Transformation Program (RHTP), which sets aside money for all 50 states to bridge the gap for rural hospitals.

Taken together, these provisions are set to reduce state Medicaid budgets by $664 billion between 2025 and 2034. State general funds are also slated to go down by $87 billion over that same period, with 20 states expected to see Medicaid budgets slide 5% or more.

Meanwhile, OBBBA is expected to yield $714 billion in federal savings, the RAND researchers said.

OBBBA policies affect states differently

Notably, different OBBBA provisions impact some states more than others. For example, states that have expanded Medicaid and that substantially use SDPs and provider taxes -- including Arizona, Iowa and Nevada -- stand to lose more than 15% of their Medicaid budgets. This will be due to a combined reduction in federal and state spending.

In California and New York, which also rely heavily on SDPs and provider taxes, the dollar-value reduction in Medicaid budgets will total $112 billion and $63 billion, respectively.

Conversely, a state like Florida will see little impact from the OBBBA provisions included in the analysis, in large part because the state has not expanded Medicaid and it does not rely much on SDPs or provider taxes. States like North Dakota and Nebraska are in a similar situation, also seeing gains from the RHTP, which offset any losses from other OBBBA provisions.

Meanwhile, in Wyoming and South Dakota, Medicaid budgets will increase by almost 10% and 2%, respectively. This is because these states have small populations and will gain a disproportionate share of RHTP funds.

The study authors stressed that variation in OBBBA provision impacts is likely due to differences in Medicaid design across states. For example, in Michigan, California and Colorado, there will be big impacts due to their reliance on provider taxes. In Texas, Tennessee and Mississippi, Medicaid programs will be more impacted by SDPs.

States tasked with bridging the finance gap

States will need to assess how OBBBA will impact their programs directly as they forge a path forward, the RAND authors advised.

"As states plan for the upcoming changes in funding and eligibility, understanding these state-specific differences will be important," Rao said. "The variation we found suggests that policymakers may need tailored approaches to manage fiscal pressures and consider changes in insurance coverage and access to care."

Overall, reductions in state and federal Medicaid spending will be driven by changes in eligibility, including work requirements, immigrant coverage and redeterminations. Taken together, these provisions will reduce the number of people eligible for Medicaid, thereby cutting program spending.

Meanwhile, provider taxes, emergency FMAP and good-faith waiver provisions will reduce federal funding without affecting Medicaid program headcount.

This means states will have to do at least as much work with less funding, forcing them to trim spending in other areas. States might create more stringent eligibility requirements, cut covered services, reduce provider payment rates or some combination of those, the RAND authors posited.

Notably, there are also potential impacts to healthcare access and uncompensated care that were not included in this report. Although the RHTP built to mitigate those harms, the impact will vary across states, the report concluded.

Sara Heath has reported news related to patient engagement and health equity since 2015.

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