Devastating Impacts for Health Coverage Overall; Some Silver Linings for Outpatient Safety Net Providers

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (OBBBA), fiscal year (FY) 2025 reconciliation legislation.[1] The OBBBA extends major tax cuts and partially offsets the costs of the tax cuts through savings from new restrictions on Medicaid eligibility processes and conditions, Medicaid services, and Medicaid federal participation rules.

This legislation will likely result in large-scale loss of health coverage in the United States and damage to America’s health care safety net. However, the OBBBA will not erode the basic Medicaid protections for federally-qualified health centers (FQHCs), and in fact, includes a new program that may benefit FQHCs and other outpatient safety-net providers.

The House of Representatives passed its original version of the OBBBA on May 22. Over the subsequent six weeks, draft versions of the OBBBA were released by Senate committees. The Senate Parliamentarian concluded that some provisions in the bill violated the “Byrd rule,” which restricts provisions that are not essential to the budget from being included in reconciliation bills. In the estimation of the Congressional Budget Office (CBO), the final version signed into law on July 4 will result in loss of health coverage for almost 1 million more people than the version that the House approved in May.[2]

After narrowly passing the Senate (51-50), the Senate package returned to the House for further consideration, and after contentious debate, the House voted to pass the OBBBA by four votes (218-214).

OBBBA Overview

The OBBBA will not make dramatic structural changes to the federal government’s role in Medicaid financing or eliminate entire eligibility groups, as legislation introduced (unsuccessfully) during President Trump’s first term would have done. The OBBBA will not reduce federal participation across-the-board for the “expansion population” (those adults under age 65 with income of less than 138% of the federal poverty level (FPL) whose eligibility was first recognized under the Affordable Care Act (ACA))[3]; nor will it institute per-capita caps or other overall limits on federal participation in Medicaid, as some budget hawks in Congress had hoped.

Instead, the OBBBA will (at least theoretically) obtain savings through many targeted measures whose overall effect will be to add more roadblocks for individuals to qualify for and stay on Medicaid. The legislation will add new hurdles to eligibility and increase the frequency of eligibility redeterminations for the ACA expansion population; limit further the (already-restricted) availability of Medicaid to noncitizens; and curtail some financing mechanisms that states have used to increase federal participation in their Medicaid costs.

Dramatic New Medicaid Provider Tax Limits

The measure estimated to result in the most savings for the federal government is Section 71115, addressing provider taxes. Provider taxes are a mechanism that, for several decades, states have used to increase the ratio of federal to state funding for Medicaid service payments. Under a provider tax program, states generally first impose taxes on provider sectors or health plans; second, make providers in those same sectors whole for their tax liability through supplemental payments; and third, seek federal participation in the supplemental payments.

Under the provider tax provisions, a relationship between a provider tax and Medicaid payments to the provider is referred to as a “hold harmless.” A 1991 law allowed for some provider taxes that constitute a hold harmless to remain in place without a federal disallowance, so long as the revenues produced by the tax were no more than six percent of the revenues received by the taxpaying provider (i.e., a safe harbor).[4] Section 71115 imposes new ceilings on this safe harbor threshold for existing hold harmless provider taxes in place in ACA expansion states, with the safe harbor level incrementally decreasing from 6 percent to 3.5 percent between fiscal years 2028 and 2034. In all states, no safe harbor will be available for any new provider tax that does not exist on the date of enactment of the provision, beginning October 1, 2026.

The CBO estimates that this provision alone will result in $191 billion of savings for the federal government over the 2025-2034 period.[5] Observers are particularly concerned about its impact on safety net hospitals.[6]

Health Coverage Losses Under OBBBA Will Impact FQHCs

Three key ways that the OBBBA will result in loss of coverage for outpatient safety net providers’ patients include the following:

New hurdles for Medicaid expansion enrollees. For FQHCs, the most consequential parts of the OBBBA are those that detrimentally impact the ACA Medicaid expansion.

Given FQHCs’ role as the primary care safety net to low-income individuals in the U.S., the progressive adoption of the ACA Medicaid expansion over the last decade (40 states plus D.C. now serve this population) has dramatically increased the insured population as a percentage of total population served in these centers and clinics. As of June 2024, over 20 million people were enrolled through the Medicaid expansion, representing nearly a quarter of total Medicaid enrollment in the U.S., and 31% of total enrollment in expansion states.[7] Further, the ACA provided for an enhanced level federal participation for services that states provide to the expansion population, boosting the capacity of expansion states to provide robust services for the entire Medicaid population.[8]

Work Requirements. Section 71119 of the OBBBA will require states, effective January 1, 2027, to adopt community engagement requirements (otherwise known as “work requirements”) for most of the ACA expansion population, in order to qualify for Medicaid initially or maintain eligibility.[9] Very limited exceptions will apply; for example, American Indians, veterans with disabilities, medically frail individuals, and parents of a dependent child under age 14 or a disabled individual will be exempted. The requirements may be satisfied by qualifying employment, community service, educational or work programs, or showing a minimum level of income. States will determine the compliance of new Medicaid applicants under the expansion category using one to three months of information, at the state’s election. States will be required to re-evaluate enrollees’ compliance with the work requirements at least every 6 months (at the time of eligibility redeterminations), or more frequently, at state option.

States’ experiments with work requirements under Section 1115 demonstration projects under the first Trump administration showed that the requirements tended more to cause disenrollment of Medicaid beneficiaries than to encourage labor force participation. Multiple federal courts held that the work requirements could not proceed under Section 1115 demonstration authority, because, in light of their detrimental effect on coverage and services, they did not advance the objectives of the Medicaid program.[10] In fact, the CBO estimated that this provision, as included in the initial House-passed version, would achieve significant savings by reducing the number of ACA expansion enrollees.[11]

New Required Cost-Sharing. Section 71120 of the OBBBA also will require that state plans, beginning October 1, 2028, provide for the imposition of cost-sharing on members of the ACA expansion population with income over 100% FPL.[12] (Under existing law, Medicaid cost-sharing for this population must be nominal, unless the state elects to implement “alternative cost-sharing” through an amendment of the State plan.[13]) The cost-sharing will be required to be in excess of $1, but not more than $35, for any item or service.

Fortunately for FQHCs and other outpatient safety net providers, however, Section 71120 expressly exempts services furnished by FQHCs, rural health clinics (RHCs), and certified community behavioral health clinics (CCBHCs) from the additional cost-sharing.[14] Various other service categories would also be exempted. The exemption of services furnished by FQHCs, RHCs, and CCBHCs was not included in the original House-passed version of the legislation and reflected successful advocacy by champions for those sectors.

Other Penalties for Medicaid Expansion. The OBBBA also includes provisions that, in various ways, treat Medicaid expansion states unfavorably or place obstacles in the way of individuals qualifying for Medicaid or maintaining coverage under the ACA expansion. As one example, Section 71115, across the board, ends safe harbors for new provider taxes that constitute a “hold harmless”; however, new caps on existing provider taxes would apply only to ACA expansion states. Section 71107 requires states to redetermine ACA expansion enrollees’ eligibility once per six months, beginning in 2027; for other Medicaid enrollees, states may choose to use a redetermination period of as long as one year.

New restrictions on Medicaid for noncitizens. FQHCs serve all consumers, regardless of ability to pay. Provisions of the OBBBA that restrict the (already-narrow) criteria under which noncitizens may qualify for Medicaid will impact centers and clinics as key care providers for this population.

Restricting Which Noncitizens May Receive Medicaid. Section 71109 of the OBBBA narrows the categories of noncitizens who can receive full Medicaid services, effective October 1, 2026. Under existing law, “federal public benefits,” including Medicaid, are available only to individuals who are citizens or “qualified aliens,” a term defined in the 1996 welfare reform legislation as including (among other categories listed in the law) a lawful permanent resident (LPR), an asylee, a refugee, an individual granted humanitarian parole in the U.S. for at least one year, a Cuban or Haitian entrant, an individual granted withholding of removal, and individuals lawfully residing the U.S. in accordance with a Compact of Free Association (CFA).[15] Section 71109 of the OBBBA cancels the Medicaid eligibility of qualified aliens who are humanitarian entrants (i.e., refugees, asylees, and humanitarian parolees), leaving LPRs, certain Cuban/Haitian entrants, and CFA residents in place as the only categories of noncitizens eligible for Medicaid.

Recoupment of Erroneous Excess Payments. Section 71106 expands the categories of situations allowing the federal government to recoup its share of participation paid to states for “erroneous excess payments” for medical assistance. Under the new provision, such situations include Medicaid payments related to individuals “where insufficient information is available to confirm eligibility.” This will disproportionately impact services rendered to noncitizens receiving Medicaid services while their qualification for Medicaid based on immigration grounds is pending (the “reasonable opportunity” period), in situations where the individual is determined ultimately not to have a satisfactory immigration status to receive Medicaid benefits.[16]

Emergency Medicaid FMAP. Section 71110 of the OBBBA will, beginning October 1, 2026, prevent the enhanced federal participation that states normally receive for members of the ACA expansion population from applying to “emergency Medicaid” services—emergency services provided to individuals who, but for their immigration status, would qualify for Medicaid.[17]

These provisions collectively restrict full Medicaid to U.S. citizens and very narrow categories of noncitizens, and decrease federal support for emergency Medicaid.

Lapse of enhanced premium tax credits. One of the most detrimental aspects of the OBBBA, in terms of health coverage in the U.S., is an omission: the legislation does not extend enhanced premium tax credits for private health insurance in the Health Insurance Marketplaces created under the authority of the ACA. The ACA used a “three-legged stool” to improve health insurance coverage in the U.S.: the expansion of Medicaid; increased protections for group health plan coverage; and the availability of the new Marketplaces, with subsidized coverage for individuals with household income under 400% FPL. The subsidies under the Marketplace plans took the form of cost-sharing reductions and premium tax credits. The American Rescue Plan Act of 2021 established enhanced PTCs, and the Inflation Reduction Act extended the more generous credits.[18] Those enhancements are scheduled to sunset at the end of 2025, and the OBBBA does not extend them. The CBO estimates that the sunset of the enhanced PTCs will result in loss of coverage for more than 5 million people.[19]

Specific Services Impacted by OBBBA

Section 71113 of the OBBBA prohibits federal funds from being used to support Medicaid payments under the State plan or a waiver, for a one-year period, to any “prohibited entity” for Medicaid services. “Prohibited entities” are defined as those that (1) are 501(c)(3) organizations; (2) are classified as “essential community providers” under the ACA; (3) provide abortions (other than those in cases of rape or incest, or where a woman would suffer from a physical illness or injury that would be life-threatening unless an abortion were performed); and (4) for which total Medicaid payments furnished in fiscal year 2023 exceeded $800,000. This provision effectively blocks all federal Medicaid funding for any provider that furnishes elective abortions and exceeds a de minimis level of annual Medicaid payment.

Notably, the House-passed version of OBBBA would have prohibited federal participation in any state payments for gender-affirming care under Medicaid and the Children’s Health Insurance Program (CHIP). The Senate Parliamentarian concluded that this provision would violate the Byrd rule.[20] No comparable provision was included in the OBBBA as signed into law by President Trump.

A Silver Lining

One silver lining for FQHCs in the OBBBA deserves mention: the Rural Health Transformation Program authorized under Section 71401. This provision will provide allotments to states of (cumulatively) $10 billion per year in each of 2026-2030, for the purposes of (among others) “promoting evidence-based, measurable interventions to improve prevention and chronic disease management,” “providing payments to health care providers for the provision of health care items and services,” and “recruiting and retaining clinical workforce talent to rural areas, with commitments to serve rural communities for a minimum of five years.” The funds are to be allotted to states using a formula based in part on “the proportion of rural health facilities . . . in the State relative to the number of rural health facilities nationwide.” FQHCs are included in the definition of “rural health facilities.”

There is no doubt that overall, the OBBBA deals a major blow to Medicaid funding and enrollment, and, absent future intervention by Congress, may reverse many of the gains in health insurance coverage that the U.S. has attained in the last decade as a result of the ACA. Nonetheless, for FQHCs in particular, some potentially detrimental impacts of the OBBBA have been mitigated by the exception of FQHC services from the new enhanced cost-sharing on the expansion population, and from the rural health program that may benefit FQHCs. The most damaging provision of the OBBBA for FQHCs may end up being the community engagement requirements, which will throw procedural hurdles in the way of coverage for millions of low-income adults that FQHCs across the country serve. There is also significant concern that the detrimental treatment of Medicaid expansion enrollees and Medicaid expansion states throughout the OBBBA might result in decisions by states to rescind their Medicaid expansions—a trend that would have dire impacts for health insurance coverage in those states.

[1] One Big Beautifull Bill Act (OBBBA), P.L. 119-21.

[2] Compare CBO, Estimated Budgetary Effects of an Amendment in the Nature of a Substitute to H.R. 1 (https://www.cbo.gov/publication/61533, June 29, 2025) (estimating that a loss of coverage for 11.4 million) with CBO, Estimated Budgetary Effects of H.R. 1, the One Big Beautiful Bill Act (https://www.cbo.gov/publication/61461, June 4, 2025) (estimating that the Act, as approved by the House,  would cause a loss of coverage for 10.9 million people). Please note that neither estimate includes the estimated loss of coverage associated with the sunset of the enhanced premium tax credits enacted under the American Rescue Plan (5.1 million people).

[3] Social Security Act (SSA) §§ 1902(a)(10)(A)(i)(VIII), 1902(e)(14).

[4] SSA § 1903(w); 42 C.F.R. Part 433, Subpart B.

[5] CBO, Estimated Budgetary Effects of an Amendment in the Nature of a Substitute to H.R. 1 (https://www.cbo.gov/publication/61533, June 29, 2025).

[6] Joan Alker and Andy Schneider, One Big Beautiful Bill Act: Winners and Losers in the Medicaid Provisions (June 26, 2025).

[7] See Kaiser Family Foundation, 5 Key Facts About Medicaid Expansion (Apr. 25, 2025).

[8] SSA § 1905(y).

[9] The provision would apply to “applicable individuals,” defined as individuals eligible to enroll under the ACA expansion population (Section 1902(a)(10)(A)(i)(VIII) of the SSA); or individuals enrolled under a waiver of the State plan that provides coverage equivalent to minimum essential coverage, as defined in the ACA who are between the ages of 19 and 64, are not eligible for Medicare, and are not otherwise eligible under the State plan. This describes the ACA expansion population, plus individuals who otherwise would be in the expansion population who are served under a waiver or demonstration.

[10] Stewart v. Azar, 313 F. Supp. 3d 237, 260 (D.D.C. 2018); Philbrick v. Azar, 397 F. Supp. 3d 11 (D.D.C. 2019) (case subsequently remanded by the Supreme Court, in Arkansas v. Gresham, with instructions to dismiss the case as moot); Rose v. Becerra, 2024 WL 3202342 (D.D.C. June 27, 2024).

[11] CBO, Letter to Wyden, Pallone, and Neal re: Estimated Effects on the Number of Uninsured People in 2034 (June 4, 2025) (estimating that under the community engagement requirements provision, 18.5 million people would be subject to the new requirements, and an estimated 5.2 million people would lose Medicaid coverage; CBO noted, “Few of those disenrolled from Medicaid because of the policy would have access to and enroll in employment-based coverage and none would be eligible for the premium tax credit.”).

[12] The requirement applies to “specified individuals,” who are defined in the bill as individuals who (1) are members of the ACA expansion population, or individuals who otherwise would fall within the expansion population but are served under a waiver; and (2) have income that exceeds the poverty line.

[13] SSA §§ 1916(a)(3), 1916A.

[14] SSA § 1916(k)(2)(B)(i), as added by Section 71120 of OBBBA.

[15] SSA § 1903(v); 8 U.S.C. § 1641(b). Many qualified aliens, additionally, are subject to a five-year waiting period before receiving benefits. 8 U.S.C. § 1613.

[16] SSA § 1903(x)(4).

[17] Notably, the FMAP restriction would not apply to the broader “emergency Medicaid” services that States may elect to provide to certain lawfully residing pregnant women and children, per Section 1903(v)(4) of the SSA. However, the recipients of these services in general would not otherwise fall under the Medicaid expansion category.

[18] American Rescue Plan Act of 2021 (Pub. L. No. 117-2), Section 9661; Inflation Reduction Act of 2022 (Pub. L. No. 117-169), Sec. 12001.

[19] CBO, Estimated Budgetary Effects of H.R. 1, the One Big Beautiful Bill Act (https://www.cbo.gov/publication/61461, June 4, 2025).

[20] U.S. Senate Committee on Finance, Wyden Statement on Parliamentarian Reconciliation Decisions (June 26, 2025).