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The One Big Beautiful Bill would reverse the Biden-era Medicaid and Obamacare spending surge and significantly reduce waste, fraud, abuse, and corporate welfare in Medicaid and Obamacare. The Senate version improves upon the House version by further cracking down on Medicaid money laundering with an opportunity to address Obamacare’s Medicaid discrimination against the most vulnerable.
The health policy provisions in the Senate’s version of The One Big Beautiful Bill (OBBB) improve upon the House of Representatives’ version and represent the most significant Medicaid and Affordable Care Act (ACA) reforms in history.
Federal health programs are on an unsustainable trajectory and are the primary driver of the nation’s worsening fiscal outlook. Under the Biden administration’s reckless health policy agenda, the federal baseline for Medicaid and ACA subsidies increased by nearly $1.9 trillion over the next decade. Key aspects of OBBB would reverse the Biden administration’s enrollment-at-any-cost policies and would curb corporate welfare, which substantially increased from Biden-era policies. The OBBB would also introduce structural reforms to both Medicaid and the ACA.
As I testified this week before the House Budget Committee, the House-passed OBBB includes meaningful reforms that would strengthen program integrity and improve the programs for eligible enrollees, while increasing fiscal prudence. These reforms would increase eligibility verification for Medicaid and ACA subsidies, apply community engagement requirements for able-bodied, working-age adults without dependents enrolled in Medicaid, and ensure that ACA subsidies are preserved for U.S. citizens only. These reforms would also end automatic re-enrollment in the ACA exchanges—a major contributor to skyrocketing fraud—and rescind harmful Biden administration rules on Medicaid that carried significant fiscal cost.
Moreover, the House-passed OBBB addressed Medicaid money laundering by freezing the provider tax scam and halting egregious schemes—like those implemented in California—that involve kickbacks and were used to finance Medicaid coverage for unauthorized immigrants. It capped Medicaid payments sent through managed care plans at or just above Medicare rates to address the rising corporate welfare in the program.
Although some positive reforms in the House version have been lost in the Senate—several for procedural reasons as well as a few health savings account (HSA) expansions—the Senate bill represents a significant improvement overall, due to stronger policies to curb Medicaid money laundering. Although some of the parliamentarian’s rulings on Byrd challenges remain uncertain, CBO estimates that the Senate version will likely produce federal health savings that are roughly $150 billion more than the House version.
According to the Congressional Budget Office (CBO), the Senate OBBB draft would reduce federal outlays on Medicaid and ACA subsidies by about $1.15 trillion. When combined with regulatory actions by the Trump administration—bringing the total projected deficit reduction from government health care reforms to $1.25 trillion. In essence, the OBBB would reverse the Biden administration’s significant, inflationary expansion of Medicaid and ACA spending and restore federal health programs to a pre-Biden baseline.
Key Medicaid Reforms Strengthened in the Senate Bill
- Reducing the provider tax “safe harbor” to 3.5 percent in Medicaid expansion states (except for nursing homes and intermediate care facilities)
Provider taxes are the engine of the Medicaid money-laundering machine. There has been longstanding bipartisan opposition to these financing schemes. Joe Biden, as Vice President, described Medicaid provider taxes a “scam.” Senator Dick Durbin referred to them as “a bit of a charade.” Former President Obama proposed curbing the scheme in nearly the same way Senate Republicans now propose. A Washington Post editorial praised Obama’s proposal in “A Much Needed Medicaid Reform.”
The Senate would limit the safe-harbor reduction to only those states that adopted the Medicaid expansion. The safe harbor is effectively the amount that states are able to tax providers and leverage those funds for the purpose of obtaining federal matching funds.
The Senate provider tax reform has two additional benefits. First, it recognizes that the 90 percent federal reimbursement for the expansion population amplifies the rate of return on money laundering and thus represents a much greater fiscal problem for the federal government. Since expansion states reap larger payouts from these schemes, Congress is justified in placing tighter limits on their use. Second, a differential in provider tax rates presents an incentive for non-expansion states to not expand, which increases federal savings. This policy change excludes those taxes on nursing homes and intermediate care facilities as they typically do not treat able-bodied, working-age adults who would qualify for Medicaid expansion and the 90 percent federal reimbursement.
- Clarifying that state-directed payments not approved by May 1, 2025, are subject to new payment limits and phasing down existing state-directed payments to at or just above Medicare rates
Corporate welfare in Medicaid surged under the Biden administration, as states used SDPs to inflate payment rates for politically connected providers. These high payment rates hurt Americans by (1) incentivizing hospitals to increase their prices, and (2) prioritizing Medicaid recipients, particularly able-bodied working age adults, over Medicare recipients. They also reward politically connected providers, often large urban hospital systems, over other providers, particularly those in rural areas. The House-passed version of OBBB capped total payments for Medicaid services at Medicare rates in expansion states and at 110 percent of Medicare rates in non-expansion states. The Senate version improves upon the House draft by clarifying that the new policy, with limited exceptions, applies to any SDPs not approved by May 1. The Senate version also ensures that existing SDPs are phased down to meet this cap through a 10-percentage-point reduction per year, starting in 2028.
- Expanding Medicaid community-engagement requirements to include parents with dependents 14 and older
The Senate version broadens Medicaid’s community engagement requirement to include parents of dependents aged 14 and older.
- Reduction in Federal Reimbursement for ER Services for Unauthorized Immigrants
Under current law, states can pay for emergency services for non-qualified aliens under the Medicaid program. States have been receiving a 90 percent federal reimbursement for these services. Starting October 1, 2026, states will receive their traditional federal reimbursement for emergency services provided to unauthorized immigrants.
A Chance to End Medicaid’s Bias Against the Most Vulnerable
There still appears to be an opportunity to address one of the serious flaws in federal Medicaid policy—the program’s discrimination against the most vulnerable. Currently, the federal government gives states nearly seven times more funding per dollar spent on able-bodied, working-age adults than it does for children, pregnant women, seniors, and people with disabilities. The ACA’s Medicaid expansion has diverted resources from vulnerable populations, driven up the federal share of Medicaid costs, and fueled a surge in improper payments—since states are incentivized to classify enrollees as expansion eligible.
According to CBO, lowering the 90 percent federal reimbursement to the normal state reimbursement would save $710 billion over nine years (2026-2034) and result in an increase of only 2.4 million uninsured individuals. Moreover, the 2.4 million estimate is overstated, as roughly one-third of it reflects CBO’s assumption that non-expansion states adopt Medicaid expansion in CBO’s baseline. CBO assumes that 70 percent of states would choose to keep the ACA expansion if Congress equalizes the federal reimbursement between expansion enrollees and traditional enrollees. Furthermore, many individuals in states that do not keep expansion would then gain eligibility for heavily subsidized ACA exchange coverage. CBO’s estimates underscore the major inefficiency of the status quo. Maintaining current policy means the federal government would spend $33,000 to cover one able-bodied, working-age adult enrollee in a Medicaid managed care plan for a single year.
The leading proposal under consideration would leave the terms of the Medicaid expansion in place through 2030. Beginning in 2031, the federal government would reimburse states for new Medicaid expansion enrollees at the same rate it does for traditional Medicaid enrollees. States would retain the 90 percent federal match for current expansion enrollees until they disenroll. This proposal is thus a very gradual approach and provides expansion states with more than five years to prepare. Incorporating this proposal would likely increase federal savings in excess of $300 billion over the next decade.
Senate Bill Removes Several Key House-Passed Health Reforms
- Appropriation for the ACA’s cost-sharing reduction (CSR) program
The House-passed OBBB included an appropriation for the ACA’s cost-sharing reduction (CSR) program. This appropriation reduced benchmark premiums by about 15 percent and also reduced overall subsidies. According to CBO’s estimates, the CSR appropriation would have reduced federal deficits by about $30 billion. The Senate parliamentarian reportedly ruled this provision out of order under the Byrd Rule.
- Several provisions to expand HSAs and ICHRAs (although key HSA expansions remain)
The House-passed OBBB contained numerous policies to significantly expand the types of financing arrangements that individuals can have and contribute to HSAs. The legislation also contained a codification of the Trump administration’s 2019 rule that created individual coverage health reimbursement arrangements (ICHRAs) as well as a temporary two-year tax credit for small employers that offered ICHRAs. Most of these provisions were excluded from the Senate bill.
Fortunately, however, it would permit HSA-qualified plans to cover telehealth and remote services before the deductible is met, permit people with direct primary care arrangements to contribute to HSAs so long as they have an HSA-qualified plan, and ensure that all bronze and catastrophic Affordable Care Act plans can be HSA-qualified.
- Subsidy recapture limits for ACA plans
ACA exchange fraud is a severe problem, fueled by bad incentives. Paragon estimates that 6.4 million people are improperly enrolled in ACA exchange plans. Strict limits on government recovery when individuals—or unscrupulous brokers—misstate income and receive excess subsidies create strong incentives for fraud.
The House-passed OBBB included provisions to recapture the full value of subsidies received by individuals who misestimated their income and collected more funding than they were entitled to. The Senate version removes the House provisions for subsidy recapture limits for those under 100 percent of the federal poverty limit (FPL), meaning the federal government may only recoup improper payments if there was “intentional or reckless disregard for the facts.”
Eliminating the entire penalty preserves incentives for people below 100 percent FPL to misstate their income (and for unscrupulous brokers to continue to coach people to misstate their income), underscoring the importance of allowing the ACA’s enhanced subsidies to expire at the end of 2025.
- Elements of CMS’s ACA Program Integrity and Affordability Rule
The House’s version of OBBB codified the Trump administration’s Marketplace Integrity and Affordability Rule, finalized on June 25. The Senate's version includes several sections that would codify the rule's core provisions, such as greater income verification and eliminating abusive special enrollment periods that increase premiums. However, the Senate bill excludes several narrower elements—such as shortening open enrollment and allowing more flexibility in actuarial value. These provisions would reduce premiums and increase program integrity. It remains unclear whether these exclusions were made to comply with the Byrd Rule.
Additional Senate-Added Provisions
- Rural Provider Fund
Opponents have launched a fear-based campaign claiming that OBBB’s efforts to address Medicaid financing abuses would force rural hospitals to close. Paragon has debunked many of these claims.
However, to address systematic abuses of the Medicaid financing structure and target federal dollars to rural health facilities, the Senate draft added a rural provider fund—at $10 billion a year in FYs 2028 and 2029, $2 billion a year in FYs 2030 and 2031, and $1 billion a year in FY 2032—to its structural reforms. States will decide how to prioritize this funding for their own rural residents’ health needs, rather than funneling federal dollars to large hospital systems through inflexible formulas and abusive financing arrangements.
- Special Treatment of Alaska and Hawaii
The Senate version includes FMAP increases for Alaska and Hawaii—15 and 9 percentage points respectively. The section references this change as an FMAP adjustment for states with high poverty rates. It has been reported that the Senate parliamentarian ruled that this provision would necessitate a Byrd point of order.
The Implications of the Byrd Rule
Reports indicate that some additional health care provisions also failed the Byrd Rule test, including: the ban on so-called gender-affirming care in Medicaid and CHIP; a provision that would reduce the 90 percent Obamacare expansion FMAP to 80 percent for states that have any public programs, including state programs, that provide health services or coverage for unauthorized immigrants; removing ACA subsidies from immigrants who are not citizens; and disallowing ACA subsidies during periods of Medicaid eligibility due to immigrant status. However, these provisions remain in the Senate bill and would require 60 votes to be retained if challenged under a Byrd point of order.
Some provisions have been redrafted in an effort to satisfy the parliamentarian’s Byrd Rule criteria. The two provisions with the greatest budgetary impact would limit ACA subsidies to U.S. citizens and lawful residents, and close loopholes that currently allow individuals in a Medicaid five-year waiting period—as well as asylum seekers, parolees, and those with Temporary Protected Status—to receive subsidies below the poverty threshold. The savings from these provisions are nearly $120 billion. These provisions are expected to be revised further to comply with the Byrd Rule.
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