State Medicaid budgets will shrink by $664 billion through 2034 as key provisions of the One Big Beautiful Bill Act (H.R. 1) take effect, with impacts varying by state depending on expansion status, reliance on provider taxes and the use of state-directed payments, according to a RAND study published Feb. 26.
Meanwhile, Medicaid managed care insurers have been flagging a mismatch between state capitation rates and enrollee acuity over the last couple of years following the pandemic-era continuous enrollment unwinding.
H.R. 1, signed into law on July 4, will impose work requirements on non-disabled Medicaid enrollees, increase the frequency of eligibility redeterminations, restrict eligibility for some immigrant groups, and tighten rules around provider taxes and state-directed payments. The Congressional Budget Office has estimated the law will reduce federal Medicaid spending by $911 billion over 10 years and that up to 10 million people could lose coverage when combined with the expiration of enhanced ACA subsidies.
RAND modeled 12 specific Medicaid provisions in H.R. 1 at the state level, building estimates that included data from CMS, the American Community Survey, MACPAC, and other academic literature. For two smaller provisions, the good faith waiver reduction and HCBS waiver expansion, the researchers used CBO estimates. Future-year projections relied on National Health Expenditure Accounts growth rates for healthcare costs and Medicaid populations.
Six notes:
1. State Medicaid budgets are projected to lose $664 billion in total funding between 2025 and 2034. State general funds will decline by $87 billion over the same window. Federal savings will total $714 billion, closely tracking the CBO’s $709 billion estimate for the same policy changes. RAND is projecting 7.6 million fewer Medicaid enrollees by 2034 after accounting for overlap across provisions.
2. Work requirements alone are projected to reduce state budgets by nearly $350 billion through 2034, making it the single largest driver of both spending reductions and enrollment losses. RAND estimates that approximately 3.5 million adults in expansion states will be neither exempt from nor compliant with the 80-hour monthly work, volunteering or training requirement. The total enrollment impact is estimated to reach 5.2 million by 2034, because evidence from Arkansas and other states that previously tested work requirements shows that roughly 10% of individuals who are actually compliant or exempt will lose coverage annually due to administrative and informational barriers.
3. Provider tax provisions are projected to reduce total state budgets by $278 billion over the decade, and state-directed payment restrictions add another $169 billion in losses. The provisions do not inherently reduce the size of the Medicaid program, but instead cut federal funding that states have historically used to draw down enhanced matching dollars, leaving states to either backfill with general fund dollars or cut enrollment, provider payment rates and services. The researchers estimate the provider tax changes alone could lead to 1.5 million additional coverage losses by 2034.
4. Twenty states are expected to see Medicaid budget reductions of 5% or more. Arizona, Iowa and Nevada face reductions exceeding 15% of their total Medicaid budgets. California and New York would see the largest overall reductions at about $112 billion and $63 billion, respectively.
Florida may see minimal budget changes as a non-expansion state, and Wyoming and South Dakota may see slight increases because of the Rural Health Transformation Program.
5. West Virginia, Oregon, New Mexico and Washington, D.C. are projected to see Medicaid enrollment declines exceeding 20% by 2034, driven mostly by work requirements. In Utah, Maryland and New Mexico, the share of expansion adults losing coverage reaches 40%. Non-expansion states are largely shielded from enrollment impacts.
6. The researchers noted that the actual impact on coverage and access will depend on state-level decisions. States facing large federal funding losses must decide whether to backfill with general fund dollars, cut enrollment, reduce provider payments, or scale back covered services. The study predicts that states would bridge half of the funding gap through general fund contributions and achieve one-third of the Medicaid spending cuts through enrollment reductions, with the remaining two-thirds from changes to provider payments and services.
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