How the One Big Beautiful Bill will affect state Medicaid budgets

As part of the One Big Beautiful Bill (OBBB) Act President Trump signed into law last July 4, state Medicaid budgets are going to be significantly slashed beginning in 2027.

An analysis from research institute Rand Corporation published Feb. 26 estimated that state Medicaid budgets will be reduced by a total of $665 billion between 2025 and 2034.

But not all states will feel the effects equally.

Those that will see the sharpest budget declines, according to Rand, are Medicaid expansion states that use significant state-directed payments (which require managed care organizations to give higher reimbursement rates to Medicaid providers) and provider taxes (which are imposed on hospitals and other Medicaid facilities to help fund the state’s portion of the federal payer’s cost). Such states include Arizona, Iowa, and Nevada, which are set to see an estimated 15% of their budgets cut due to the OBBB, Rand estimated.

That’s because funds from the Rural Health Transformation Program, a provision of the OBBB that gives states $50 billion over five years to improve rural healthcare, are expected to offset the cuts for some states, the analysis found.

A handful of states, including Wyoming and South Dakota, are actually expected to see their Medicaid budgets increase by $1 billion and $325 million, respectively. Because of their smaller populations, they already have small Medicaid budgets and therefore stand to gain more from the Rural Health Transformation Program, according to Rand.

An added challenge. On top of the Medicaid cuts slashing state budgets, expansion states are facing higher administrative costs, thanks to a provision in the OBBB that institutes work requirements for beneficiaries, Colleen Heflin, professor of public administration and international affairs at Syracuse University, told Healthcare Brew.

Instituting work requirements involves hiring additional staff, reaching out to beneficiaries to let them know about the changes and walk them through the process, and updating Medicaid systems, per KFF.

Georgia implemented Medicaid work requirements in 2023, and as of September 2025 has spent $87 million on the program, with most of that going to administrative costs, according to nonprofit healthcare research org the Commonwealth Fund. And in Arkansas, work requirements shrank the insured population and didn’t raise employment numbers, Healthcare Brew previously reported.

Work requirements are “going to cause many people to stop receiving benefits,” and states will “have less money to do more work,” Heflin said. “I think that’s going to lead to an incentive to make the program more difficult to get on.”

In order to cope with the smaller budgets, some states might cut back on Medicaid services, she said.

But for states that already have bare-bones Medicaid coverage, “they may not be able to cut back further,” Heflin added. “So they’re going to have to then cut what they pay providers or go even lower in terms of eligibility.”