Last week, my newsletter discussed the four main health policy achievements of the One Big Beautiful Bill (OBBB): addressing the Medicaid money-laundering machine; implementing community-engagement requirements in Medicaid; ensuring Medicaid expansion and Obamacare enrollees are eligible; limiting Obamacare subsidies to U.S. citizens; and rescinding costly Biden administration rules. I encourage you to review that piece for my high-level summary of the benefits of OBBB’s health policy provisions.
 
To enact the reforms in OBBB, Congress needed to overcome powerful political opposition from much of the health care industry, including big hospital systems and health insurers, as well as those on the Left who support the Biden administration’s enrollment-at-any-cost strategy for Medicaid expansion and the Obamacare exchanges. Over the past few months, Paragon has worked to set the record straight on key issues, including how OBBB would affect rural hospitals, and how much waste, fraud, abuse, and corporate welfare permeated Medicaid and Obamacare during the Biden administration. In their effort to take down the OBBB, the bill’s critics constructed a strawman—and then attacked it with great ferocity. I expect those attacks, many funded by industry groups that seek to protect the status quo and the large government subsidies flowing into their coffers, to continue. For this reason, Paragon will continue setting the record straight using data and commonsense economics.
 
In today’s newsletter, I first debunk two of the most common strawman arguments—that OBBB will dramatically increase the number of uninsured and that it would harm nursing homes. I then highlight another Medicaid scam that states are using to impose higher costs on federal taxpayers and reward politically connected providers, using another egregious example from California.
 
If you are opening this up right now, tune in to C-SPAN, as Ryan Long will be on Washington Journal at 8am EDT to discuss the Medicaid provisions in the OBBB.

The Reality about the OBBB and Coverage Numbers

Critics of OBBB claim that it will cause up to 17 million Americans to lose health coverage. As Niklas Kleinworth explained in a post last week, this is a myth and relies on Congressional Budget Office (CBO) estimates despite CBO’s poor track record of projecting coverage impacts of major legislation.
 
The number includes ineligible enrollees in Medicaid and the Obamacare exchanges, people who don’t meet modest community-engagement requirements, and even those affected by the expiration of temporary COVID-era subsidies that Congress already chose to phase out. In fact, many of the individuals counted in this figure were never eligible for coverage to begin with—such as unauthorized immigrants or those who misrepresented their income to qualify for exchange subsidies.

CBO’s track record on projecting coverage effects is poor. It vastly overstated the number of people who would lose coverage when the individual mandate penalty was eliminated, and it has not fully accounted for more than 10 million ineligible enrollees currently receiving coverage in the exchanges or Medicaid expansion. OBBB simply restores program integrity by ensuring eligibility is verified and taxpayer dollars are protected. Many individuals who exit Medicaid or exchange plans will have access to other affordable options, including employer-sponsored insurance. What critics call “coverage loss” is often just a return to enforcing eligibility rules.

OBBB Will Help Nursing Homes

One of the first lines of attack from OBBB opponents was the canard that OBBB would harm nursing homes.
 
Senator Ron Wyden (D-OR) claimed that the bill “will worsen conditions in hundreds of nursing homes across America.” House Minority Leader Hakeem Jeffries (D-NY) said, “Nursing homes will be devastated.” Senator Dick Durbin (D-IL) and Senator Tammy Duckworth (D-IL) spoke about the number of nursing homes that would be at risk of closing in Illinois. Senator Peter Welch (D-VT) remarked that “one in four nursing homes are projected to close.”
 
The argument that OBBB will force nursing home closures is absurd for two reasons: First, OBBB rescinded a Biden administration rule that raised nursing home staffing costs. By rescinding that rule, nursing homes will face fewer costs to comply with government mandates, will be able to hire more staff, and will be less likely to shut their doors, particularly rural nursing homes, which were most at risk of closure from the rule.
 
Second, the main OBBB provisions that reduce the growth of federal Medicaid spending will not affect nursing homes or their residents. These provisions—a community-engagement requirement and more frequent eligibility reviews—target only the able-bodied, working-age adults added under Obamacare. They will result in lower state and federal Medicaid spending, preserving resources for those who truly need Medicaid.
 
Unfortunately, many nursing homes are low quality. A major reason for the poor quality is the Obamacare funding policy that provides states with seven times more federal funding for every $1 of spending on able-bodied, working-age adults than for people with disabilities or seniors in nursing homes. States have been incentivized to prioritize able-bodied adults over traditional enrollees.
 
One of the most important sets of health policy reforms in OBBB limits the provider tax “scam.” As I have written previously, provider taxes are the fuel of the Medicaid money-laundering machine. Provider groups develop and lobby for these taxes to secure higher payments, and states go along because the federal government foots the bill.
 
In states that adopted Obamacare’s expansion, OBBB adopts a proposal from then-President Obama to reduce the amount that states can raise through provider taxes to generate federal matching dollars. Paragon recommended the provider tax phasedown included in OBBB because the much higher Obamacare expansion match rate amplifies the impact of money laundering—making these schemes particularly toxic. We also recommended a carve-out for nursing homes from the provider tax phasedown because those residents are traditional enrollees, not expansion enrollees, and OBBB included an exemption for nursing homes. 

How California is Abusing Intergovernmental Transfers

In March, we published Addressing Medicaid Money Laundering: The Lack of Integrity with Medicaid Financing and the Need for Reform. In OBBB, Congress addressed the most prominent scam—Medicaid provider taxes—but left intact another major racket: intergovernmental transfers (IGTs).
 
Through an IGT, a local government or government-owned provider transfers money to the state, which the state then uses to make inflated Medicaid payments to government providers—often the very same providers that made the transfer. These inflated payments trigger federal matching funds. This money-laundering scheme creates a stark disparity between public and private providers delivering identical services and threatens the long-term sustainability of private ambulance services. IGTs raise serious conflict-of-interest concerns and result in preferential treatment for government-owned providers over their private counterparts.
 
This week’s Paragon Pic illustrates how California is using an IGT scheme to drive up costs for federal taxpayers. In 2022, California’s Medicaid program paid both public and private ambulance providers the same rate—$339 per emergency transport. But under a new IGT program launched in 2023, payments to public providers more than tripled, while rates for private providers remained flat. By 2024, public ambulance payments soared to $1,168, and pending federal approval could push them to nearly $1,600 in 2025—almost five times the private rate.  

The federal government should end this abuse by requiring payment parity for equivalent services, regardless of provider ownership.