The Buzz This Week
The One Big Beautiful Bill Act (OBBBA), signed July 4, phases in major changes to Medicaid and other healthcare programs, including work requirements and reductions in federal support. Although many provisions of OBBBA do not take effect until after the 2026 midterms, organizations are already experiencing impacts.
These impacts reflect intersecting forces: underlying cost and margin pressures that predate OBBBA, and policy shifts under the upcoming law. Adding to the complexity is the federal government shutdown. As of October 2, the government halted non-essential operations after Congress did not extend funding. The US Department of Health and Human Services (HHS) is operating under its FY 2026 contingency staffing plan, which keeps excepted functions running and furloughs non-excepted staff. Affordable Care Act premium tax credits remain unresolved during the shutdown.
Some states are moving preemptively to balance budgets ahead of the OBBBA Medicaid cuts. For instance, North Carolina will address a budget gap by reducing Medicaid payments by 3% across providers on October 1, 2025. Primary care providers will see deeper reductions at 8% and specialties at 10%. Idaho cut Medicaid rates by 4% on September 1 to close an $80 million state shortfall. Provider groups and advocates warn these steps will thin Medicaid networks, lengthen wait times, and accelerate service reductions for rural communities and people with disabilities.
Payers and providers are also resizing. Numerous organizations have announced workforce reductions or eliminated positions and open roles. Their public statements cite expected changes in government policy and safety net funding risk as key factors. They also point to rising costs and tight plan margins in Medicare Advantage and commercial segments that are complicating 2025-2026 product and budget decisions.
In Virginia, one medical group closed three rural clinics, citing OBBBA among the factors shaping its decision. As OBBBA’s changes phase in, analyses indicate that additional rural facilities could be pushed toward closure or conversion, on top of those already vulnerable.
Meanwhile, the Centers for Medicare & Medicaid Services opened applications for a 5-year, $50 billion Rural Health Fund intended to support transformation in rural care. However, organizations can’t use funds to backfill operating losses, and performance shortfalls can trigger clawbacks. The timeline is compressed, with applications due by November 5 and awards expected by December 31.
Why It Matters
These early reactions reflect both ongoing cost pressure and policy change under the OBBBA. Once clinics close, providers leave Medicaid networks, or organizations reduce staff, those choices are difficult to unwind.
Rate pressure is the most immediate driver of these choices. Lower Medicaid rates reduce participation in Medicaid, which narrows networks and means fewer appointments, longer travel, and more deferred care. In North Carolina, the reductions are already prompting providers to reconsider participation. Families are receiving notices that dental offices will stop accepting Medicaid, and caregivers are reporting persistent difficulty securing authorized therapies and skilled services.
Those dynamics intersect with coverage policy. For instance, Georgia’s Pathways to Coverage program conditions Medicaid eligibility on work or qualifying activities. State projections anticipated about 25,000 adults would enroll in the first year, yet only 9,175 were enrolled as of August 31 out of nearly a quarter million eligible adults. At the same time, the GAO reported $54.2 million spent on administration compared with $26.1 million on healthcare services.
National analysis suggests similar effects at a greater scale. Hospital operating margins in expansion states are projected to decline by roughly 12% on average if federal requirements take effect. Safety net and rural hospitals face even larger drops.
For rural hospitals, new funding will help but will not close the gap. The Rural Health Fund is time limited and will be spread across all states through equal shares and a discretionary pool. Given the short runway to apply and deploy funds and the use limits, the fund will be best used to scale proven efforts rather than stand up net-new programs that require longer lead times.
Even without the OBBBA, structural headwinds are significant. Health plans face higher medical trends and tighter economics in key lines of business, employers have absorbed 2 consecutive years of premium increases above wage growth, and health sector prices are rising faster than in prior years. Those pressures help explain why organizations are acting now and attribution is more nuanced than a single law.
Over the next 12 to 24 months, healthcare organizations should consider a balanced response. Responses could include taking steps to sustain access for people previously covered by Medicaid and to rebase budgets and contracts for lower Medicaid reimbursement. Organizations might also consider how they will prepare for administrative efforts to limit avoidable coverage loss under the new work requirements and whether they might use the Rural Health Fund to extend existing initiatives with clear outcomes.
Such steps can help mitigate ongoing structural cost and margin pressures that the OBBBA will exacerbate as it is fully implemented.
RELATED LINKS
KFF:
States Are Cutting Medicaid Provider Payments Long Before Trump Cuts Hit
The Hill:
$50B 'big beautiful' rural health fund applications open for states
Modern Healthcare:
Georgia's Medicaid work rule costs outpace care spending: GAO
