President Trump’s “One Big Beautiful Bill” Makes Changes to Medicaid

On July 4, President Trump signed into law the “One Big Beautiful Bill Act” (“the Act”), or H.R. 1, which makes significant changes to federal healthcare programs, including Medicaid, Medicare, and Health Insurance Marketplaces. As proposed in previous versions of the Act, the Act includes cuts to the Medicaid program and imposes new requirements on beneficiaries, states, and healthcare providers.

In contrast to previous versions, the Senate-passed version newly provided the Centers for Medicare & Medicaid Services (“CMS”) Administrator millions in funding for fiscal year (“FY”) 2026 to implement certain of the Act’s Medicaid provisions. In the summary below, we highlight key changes that the Act makes to the Medicaid program.

Community Engagement Requirements, Cost Sharing and Eligibility Checks

The Act imposes new requirements on certain Medicaid enrollees, including for low-income adults, by requiring states to add “community engagement” to their state Medicaid plans. Starting December 2026, these individuals would be required to log at least 80 hours per month of “community engagement,” which could be employment, volunteer activities, or education to maintain Medicaid eligibility.^[1] The Act allows certain exemptions from the new requirements, including for parents/caretakers for children 13 and younger; disabled veterans; and those who are “medically frail”, which includes individuals who are blind or disabled, individuals with physical, intellectual, or developmental disabilities, individuals with substance use disorder (SUD) or a “disabling” mental disorder, and those with “serious or complex” medical conditions. States may also allow short-term hardship exceptions from the requirements, if requested by enrollees who are experiencing certain extenuating circumstances.

Effective December 2026, the Act eliminates the two-year, 5 percent increase in federal matching funds available to states under the American Rescue Plan Act as an incentive to adopt Medicaid expansion.^[2] In addition, effective the same date, the Act would require all states to conduct eligibility redeterminations for expansion individuals, including many parents and people with disabilities and chronic conditions, every 6 months, rather than every 12 months and conduct more frequent address checks and other eligibility verifications. ^[3]

Beginning in October 2028, the Act requires states to impose cost sharing requirements on Medicaid expansion enrollees whose income is just above the Federal Poverty Level (FPL) up to $35 per service and capped at 5 percent of the individual’s income. Certain services, including primary care, mental health and SUD treatment, family planning, emergency care provided in a hospital emergency department, and institutional long-term care, would be exempt from cost-sharing.

The Act limits retroactive coverage in Medicaid from three months for all enrollees to one month for Medicaid expansion enrollees and two months for traditional Medicaid enrollees.[4] The Act also limits Medicaid eligibility for certain lawfully present individuals^[5] and reduces Federal Medical Assistance Percentage (“FMAP”) for emergency Medicaid for individuals who would otherwise be eligible for Medicaid expansion but for their immigration status.^[6] It includes provisions to “prevent wasteful spending” and imposes new verification requirements related to duplicate enrollment, deceased individuals, and deceased providers.

The Act also restricts the definition of qualified immigrant to lawfully permitted residents, Cuban and Haitian entrants as defined in section 501(e) of the Refugee Education Assistance Act of 1980, citizens of the Freely Associated States (“COFA” migrants) lawfully residing in the U.S. and lawfully residing children and pregnant adults in states that cover them under the Immigrant Children's Health Improvement Act (“ICHIA”).^[7]

The Congressional Budget Office (“CBO”) estimated on June 4, 2025, that such provisions would increase the number of uninsured people by 7.8 million.^[8]

Provider Tax Reform

Medicaid provider tax reform has been targeted by the Trump Administration in order to curb federal Medicaid spending. The Act includes provisions restricting the ability of states to use provider taxes, which are used to help finance the state’s share of the cost of Medicaid. Under the provider tax provisions, a relationship between a provider tax and Medicaid payments to the provider is referred to as a “hold harmless” safe harbor. The Act imposes new ceilings on the “hold harmless” threshold in Medicaid expansion states, with the safe harbor level that decreases on an annual basis from 6 percent to 3.5 percent between fiscal years 2028 and 2034 and set the threshold to 0 percent for any new provider taxes.^[9] The CBO estimates that this provision would result in $191 billion of savings for the federal government over the 2025-2034 period.^[10]  

State-Directed Payments

The Trump Administration has committed to addressing state-directed payments and issued last month a memorandum to address such payments in order to reduce fraud, waste, and abuse. The Act limits the use of state-directed payments to finance the state’s share of the Medicaid program.^[11] The Act would cap Medicaid payments at 100 percent of the Medicare payment for expansion states and 110 percent of the Medicare payment for non-expansion states.^[12]

Medicaid Spending in Rural Areas

Starting in FY 2026, the Act creates $50 billion total in funding over the next 5 years through the new Rural Health Transformation Program which states can apply into to receive grants.^[13] However, overall, the Act is expected to reduce Medicaid spending in rural areas by $155 billion, according to a Kaiser Family Foundation (“KFF”) estimate.

Home- and Community-Based Services and Other Waivers

Beginning in July 2028, the Act authorizes the Secretary of the U.S. Department of Health and Human Services (“HHS”) to approve a new stand-alone three-year waiver for states to cover the cost of home- and community-based services as medical care.^[14] However, separately, the Act also requires that new Section 1115 waivers to be budget neutral and directs HHS to develop a methodology to potentially claw back federal savings beginning in 2027.[15]

In recent months, the Trump Administration has separately acted to curtail waivers related to health-related social needs and to limit states’ ability to utilize financing tools and flexibility. For instance, in March 2025, the Trump Administration rescinded guidance issued by the Biden Administration that promoted the use of Section 1115 waivers to promote health-related social needs (e.g., housing and nutrition services).

Defunds Abortion Providers

The Act prohibits the use of federal Medicaid funds in all states, either through a state or a managed care company, for certain “prohibited entities,” for 1 year.^[16] Prohibited entities include tax-exempt entities, and their affiliates, that are essential community providers primarily engaged in family planning services, reproductive health, and related medical care, provide abortions beyond cases of rape, incest, and life-endangering situations, and received at least $800,000 in Medicaid funding in 2023. This provision would effectively block all federal Medicaid funding for any provider that furnishes elective abortions and exceeds a de minimis level of annual Medicaid payment.

In response, the Planned Parenthood Federation of America, Inc. filed on July 7 a complaint against HHS Secretary Kennedy in the U.S. District Court for the District of Massachusetts, challenging the “Defund Provision” of the Act. U.S. District Judge Indira Talwani granted a 14-day temporary restraining order blocking the “Defund Provision”.

Additional Medicaid Provider Screening Requirements

Effective January 1, 2028, the Act requires states to conduct eligibility checks of enrolled providers to screen for terminated providers^[17]. On at least a quarterly basis, states are directed to conduct a check of the Social Security Administration’s Death Master File to determine whether providers enrolled in Medicaid are deceased.

Moratorium on Biden Administration Rulemaking

The Act issues moratoriums on various rulemaking promulgated by CMS under the Biden Administration. Specifically, they include the following:

• September 2023, “Streamlining Medicaid; Medicare Savings Program Eligibility Determination and Enrollment’’ (see here)
• April 2024, ‘‘Medicaid Program; Streamlining the Medicaid, Children’s Health Insurance Program, and Basic Health Program Application, Eligibility Determination, Enrollment, and Renewal Processes’’ (see here)
• May 2024, ‘‘Medicare and Medicaid Programs; Minimum Staffing Standards for Long-Term Care Facilities and Medicaid Institutional Payment Transparency Reporting’’ (see here)

Takeaways

Healthcare providers, plans, and other organizations should review how the Act’s new requirements impact offerings and programs. In the coming months, HHS and agencies may issue rulemaking to implement the Act’s numerous healthcare provisions. If you have any questions regarding this alert or requirements outlined in the new law, Crowell’s deep bench of attorneys are available to discuss and assist.