Congress and President Donald Trump moved to cut the exploding costs of government-sponsored health-care programs, as part of the $3.4 trillion One Big Beautiful Bill Act (OBBBA) budget package Trump signed into law on Independence Day.
Ballooning enrollment in Medicaid and subsidized Affordable Care Act (ACA) plans has put increasing pressure on the federal budget.
One of the most contentious issues in the OBBBA was Medicaid, a Lyndon B. Johnson-era program that has expanded to cover able-bodied people, with enrollment now at 78 million, nearly double the 44 million in 2000. Additionally, some 24 million Americans have signed up for ACA Exchange plans, many of whom took advantage of expanded subsidies during the COVID-19 pandemic that were never restored to their prior level.
Medicaid, ACA Cost Explosion
In a May 2025 analysis of the OBBBA, the Paragon Health Institute noted “the 2025-2034 baseline for federal Medicaid and ACA subsidy spending increased by $1.8 trillion during the Biden administration.”
“Weakened eligibility verification” and increased ACA insurance subsidies enabled the growth, which led to “a massive surge in improper payments and widespread enrollment fraud,” stated the analysis.
To bring exploding Medicaid costs under control, the OBBBA sets new work requirements of 80 hours a month for able-bodied adults aged 19-64 with no dependents under the age of 14. An estimated 18.5 million Medicaid recipients will have to comply with the work requirements, The Wall Street Journal reported.
Value Test
Protect Our Care said the work requirement will “rip health care away from millions of seniors, children, middle- and low-income families, people with disabilities, people fighting cancer, and so many more.”
The experience of Georgia, currently the only state with work requirements for able-bodied Medicaid recipients, suggests those affected by the work rules may not value Medicaid.
Georgia introduced its Pathways to Coverage plan on July 1, 2023, under a program instituted in Trump’s first term. The Georgia plan has the same work requirements as those implemented in the OBBBA. Out of 430,000 who were eligible for Medicaid, only 4,300 signed up.
“It’s pretty clear that many low-income people in Georgia do not consider Medicaid enrollment worth the effort of documenting their employment,” health care economist Devon Herrick told Health Care News at the time.
End of ‘Provider Taxes’
The new law also targets Medicaid “provider taxes”—state-imposed fees on health care facilities, such as hospitals and nursing homes, which are then reimbursed by the federal government, and returned to the facility. The reimbursements can be higher than the tax charge
“These so-called provider taxes let states siphon hundreds of billions of dollars from taxpayers in other states, using the federal government as conduit, without sacrificing anything,” wrote Michael Cannon of the Cato Institute in a National Review commentary after the U.S. Senate sent the bill back to the House.
Provider-Tax Windfall
The provider tax has allowed states such as California to provide Medicaid to illegal immigrants and wealthier Americans for long-term care coverage under the program.
“Those expansions would have been much more difficult if California had needed to raise taxes openly or cut other spending to pay for them,” wrote Paul Winfree, president of the Economic Policy Innovation Center.
Under the OBBBA, the maximum “tax” states charge hospitals will gradually decline to 3.5 percent from 6 percent in states that expanded Medicaid under the ACA, starting in fiscal year 2028. For the 10 states that didn’t expand Medicaid, provider taxes will be frozen in place.
To cushion the blow some lawmakers believed would be felt in rural areas, the law provides $50 billion for rural hospital funding.
Medicare v. Medicaid
Under the OBBB, states will no longer be able to pay Medicaid managed-care contractors reimbursement rates that match those paid by commercial insurers.
“Health care providers should not be making windfall profits through a welfare program,” Pargon’s Blase told a Cato Institute panel in February.
The OBBBA limits Medicaid payments to 100 percent of the Medicare rate in expansion states, and 110 percent in states that did not expand their programs.
Step, Not a Leap
The OBBBA is a step in the right direction for health-care reform, but not a leap, say S. T. Karnick and Chris Talgo, authors of The Heartland Institute’s “2024 American Health Care Plan: State Solutions.”
“Medicaid was on an entirely unsustainable cost trajectory before passage of the OBBBA and was certain to push the federal government into some sort of credit default within seven or eight years,” said Karnick.
“These reforms are welcome, but Medicaid will still be unbelievably costly and harmful to the health care system,” said Karnick. “It should be replaced altogether with a cash-based, individual-grant program that gives recipients strong incentives to keep costs down.”
The system needs further reform, says Talgo.
“For the past several years, Medicaid rolls have skyrocketed due to the elimination of work requirements and expansion under Obamacare,” said Talgo. “Unfortunately, states like Missouri and Alaska received special carveouts in the law, but this is how the sausage is made in Washington, DC.
“All in all, President Trump’s one big, beautiful bill will help keep Medicaid solvent in the near term, though the program will need more reforms down the road,” said Talgo
Bonner Russell Cohen, Ph.D., ([email protected]) is a senior fellow at the National Center for Public Policy Research.
Bonner R. Cohen is a senior fellow with the National Center for Public Policy Research, a position he has held since 2002.
