Federal Reforms to Medicaid Financing: What Counties Should Know

The OBBBA delays implementation of the federal nursing home staffing rule which would require long term care facilities to meet arduous minimum staffing levels. The law probits the U.S. Department of Health and Human Services from implementing or enforcing this rule until October 1, 2034, easing pressure on county-run facilities facing workforce shortages.

Implementation date: Delays implementation until October 1, 2034

The Affordable Care Act allowed states to expand Medicaid eligibility to adults with incomes up to 138 percent of the federal poverty line. To incentivize state expansion, the American Rescue Plan offered newly expanding states a temporary 5 percent increase in the federal Medicaid match rate (FMAP) for two years. The OBBBA removed this incentive, meaning that any states that expand after January 1, 2026, will no longer qualify for the enhanced federal funding.  For counties in non-expansion states, this means that if their state expands Medicaid after the deadline, a greater share of the expansion costs will fall more heavily on the state and local governments, increasing their share of expenses for resident care.

Implementation date: January 1, 2026

States fund the non-federal share of Medicaid through variety of sources; one common source is health care related taxes, of “provider taxes.” The OBBBA prohibits all states from creating new provider taxes or increasing rates of existing provider taxes beyond what was in effect of the time of enactment—July 4, 2025. In addition, the law gradually reduces the safe harbor threshold in expansion states for all provider types except nursing and intermediate care facilities by 0.5% each year, starting on October 1, 2027, and ending in 2032 when the threshold reaches 3.5%. For counties that help contribute to the non-federal share of Medicaid in their states, capping other Medicaid payment streams, such as provider taxes, may increase the county share of the non-federal Medicaid payment. In all counties, this change may mean that more state dollars must go towards Medicaid payments, reducing the amount of funds available for local initiatives.

CBO estimate of coverage loss: Increases the number of people without health insurance by 400,000 in 2034

Implementation date: July 4, 2025 (prohibition on new and increased provider taxes); October 1, 2027 (reduction in safe harbor limit)

Prior to passage of the OBBBA, states could only impose Medicaid work or reporting requirements by obtaining a Section 1115 waiver. Following passage, the OBBBA now makes work requirements mandatory for certain Medicaid populations nationwide, effective no later than December 31, 2026. States must condition eligibility for adults ages 19–64 in the expansion population on completing at least 80 hours per month of work, qualifying community activities or part-time schooling. Exemptions apply for certain groups including minors, caretakers of children 13 years or younger, recently incarcerated individuals, those with medical hardships, those in substance use disorder treatment or residents of disaster-affected areas. States must verify compliance at each eligibility redetermination and may conduct additional verifications more frequently. Individuals who fail to meet the requirement are also barred from receiving subsidized Marketplace coverage. These provisions cannot be waived under Section 1115 authority, though the Secretary of Health and Human Services may grant a non-renewable exemption through December 31, 2028, to states that demonstrate a good faith effort to comply.

The law also provides $200 million to states and $200 million to HHS in FY 2026 to support implementation and systems development. Counties that help administer Medicaid or operate safety-net hospitals could see an increase in uninsured residents if individuals lose coverage for failing to meet work requirements. This may raise uncompensated care costs and increase demand for county-funded health and human services. Counties that help administer Medicaid may also face increased administrative costs and burdens in verifying compliance with these new requirements.

CBO estimate of coverage loss: Federal Medicaid coverage would decrease by 4.8 million adults in 2034

Implementation Date: December 31, 2026 (or earlier with state option)

The OBBBA imposes new out-of-pocket costs on Medicaid enrollees in the expansion population starting October 1, 2028. States must impose cost sharing up to $35 per service, with exemptions on primary care, mental health, substance use disorder services or services at federally qualified health centers (FQHCs) and similar clinics. Despite excluding health clinics, the provision is likely to increase uncompensated care costs for county safety net hospitals.

Implementation date: October 1, 2028

Unlike Medicare, states and counties are required to cover long-term care facilities under Medicaid. Most states opt to use 1915(c) waivers to provide long-term care in home and community settings through Home and Community-Based Services (HCBS). Previously, these waivers were limited to individuals requiring an institutional level of care. Under the OBBBA, states can now extend these waivers to people who do not need institutional care, provided they demonstrate that doing so will not increase average wait times for those who do require institutional-level services. For counties, this change could expand access to HCBS for residents, potentially reducing reliance on higher-cost institutional care. However, it may also increase demand for county-administered services and require careful resource planning to ensure timely access for those with the highest care needs.

Implementation date: July 1, 2028 (new waiver approval begins)

The OBBBA adds several new administrative requirements that would increase the burden on counties, particularly in states where counties are responsible for Medicaid eligibility operations.

These include:

• Twice-yearly eligibility redeterminations beginning on December 31, 2026
• Quarterly review to ensure enrollees are not deceased beginning on January 1, 2027
• Quarterly review to ensure providers are not deceased beginning on January 1, 2028
• Verify enrollee addresses beginning on January 1, 2027

Individuals with disabilities may be exempted from this requirement.

CBO coverage loss estimate: Increases the number of people without health insurance by 700,000 in 2034

Implementation date: Please see above for implementation dates associated with each new verification and redetermination requirement.

Subject to approval by the Centers for Medicare and Medicaid Services (CMS), states are allowed to require managed care organizations (MCOs) to pay specific rates or use certain payment methods. Under the OBBBA, the U.S. Department of Health and Human Services is required to set lower limits for state-directed payments and reduce existing payments by 10 percent each year until they reach the new lower limit. For counties, these changes could result in lower Medicaid reimbursement rates for hospitals and other local providers, increasing uncompensated care costs and placing greater financial strain on county health systems.

Implementation date: July 4, 2025 (lower limit on new state directed payments); January 1, 2028 (reduction in existing state directed payments)

The OBBA cuts retroactive Medicaid coverage from three to two months for the non-expansion population and from three to one month for the expansion population. These changes may contribute to increased delays in care and increased uncompensated care costs, resulting in financial strain on county-owned and operated health systems.

Implementation date: January 1, 2027