A collective $664 billion is set to disappear from states’ Medicaid budgets through 2034 as a result of policy changes included in last summer’s One Big Beautiful Bill Act, according to new state-by-state projections from RAND.
The nonprofit think tank’s analysis also outlines an $87 billion decline across the states’ general funds due to the landmark legislation. The shift is expected to generate federal savings of $714 billion under RAND’s measure, which is roughly in line with that of the Congressional Budget Office.
The analysis, pulling from publicly available data, including state and federal agency reports, modeled the impact of 12 provisions within the OBBBA on budgets.
Chief among those provisions’ changes are work requirements for Medicaid eligibility, more frequent eligibility redeterminations, limits on states’ use of provider taxes (with greater restrictions on Medicaid-expansion states), rate restrictions on state-directed payments (100% of the average Medicare rate for expansion states, 110% for non-expansion states) and the $50 billion Rural Health Transformation Program.
RAND found “substantial state-to-state variation” in overall Medicaid Budget impacts, but most are expected to see reductions through 2034. Twenty-six states will have reductions of 5% or more.
Those losing the largest share of their budget are Arizona (18.7% reduction, or $42.2 billion), Iowa (15.8% reduction, or $12.7 billion) and Nevada (15.5% reduction, or $10.1 billion). On an absolute basis, California ($112.3 billion reduction, or 6.7%) and New York ($62.6 billion reduction, or 5.2%) lead.
The report’s authors noted that highly affected states opted to expand Medicaid and are “heavily reliant” on state-directed payments.
Meanwhile, some states are slated to boost their Medicaid funds or see relatively lessened impact due to their limited impact on state-directed payments and provider taxes, their decisions not to adopt Medicaid expansion, or the funds from the Rural Health Transformation Program.
Among these are Alabama (1.6% increase, or $1.6 billion), Florida (0.4% increase, or $1.4 billion), Nebraska (0.9% decrease, or $363.5 million), North Dakota (0.4% increase, or $94.9 million), South Dakota (2% increase, or $324.8 million) and Wyoming (9.8% increase, or $1 billion).
Some states’ hits would be somewhat offset by savings to their state general fund generated by the provisions that reduce enrollment or utilization. These include Tennessee (4.8% increase, or $8.3 billion), South Carolina (4.1% increase, or $4.4 billion), Mississippi (3.2% increase, or $2.8 billion), Oklahoma (2.4% increase, or $2.2 billion) and Kentucky (2.4% increase, or $4.4 billion) and Texas (1.9% increase, or $12.8 billion).
However, provisions like the provider tax limit and emergency Medicaid funding for some immigrants that cut general funding without substantial changes to program scale will drain many states’ general funds. Most affected by a wide margin is California (6.1% reduction, or $102.1 billion).
Work requirement provisions are expected to be the leading driver of total state budget impact, pulling them down by almost $350 billion while also driving the most reductions in enrollment (nearly 5.3 million across all 50 states). Those related to provider taxes could see total reductions nearing $280 million, while driving over 1.5 million in enrollment reductions.
“As states plan for the upcoming changes in funding and eligibility, understanding these state-specific differences will be important,” Preethi Rao, a senior economist at RAND and lead author of the study, said in a release. “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.”
Specifically, Rao and colleagues warned in the report of potential reductions in providers choosing to accept Medicaid stemming from state-directed payment changes, or rising uncompensated care costs shouldered by emergency departments or local health clinics.
Healthcare industry groups and organizations warned of such potential outcomes when arguing against the bill last year and have acknowledged, in quarterly reports, layoff announcements and other commentary their expectations of financial and access headwinds.