Key Takeaways
- The One Big Beautiful Bill Act (OBBBA) will cut federal Medicaid funding by over $840 billion over 10 years, potentially leading to 9.1 million people losing coverage.
- Starting in 2028, the provider tax “safe harbor” will gradually decrease, which may limit states’ ability to fund Medicaid.
- Starting from January 2027, adults aged 19-64 will need to work at least 80 hours per month to maintain Medicaid, potentially impacting 4.8 million enrollees.
Navigating the One Big Beautiful Bill Act: A Guide for Long-Term Care Providers
Imagine arriving at work to find that the healthcare framework you’ve operated within has been abruptly altered. That may be the reality for millions of Americans as the One Big Beautiful Bill Act (OBBBA) takes effect, reshaping Medicaid and leaving long-term care providers scrambling to adapt. With massive cuts, new restrictions, and stricter requirements, the American healthcare system is changing, and it’s crucial for providers to understand what this means for their operations and patients.
Massive Medicaid Cuts: A Looming Crisis
The Congressional Budget Office’s (CBO) latest cost estimate for the enacted OBBBA, as analyzed by the Kaiser Family Foundation (KFF) on July 23, 2025, projects a reduction in federal Medicaid spending of $911 billion over 10 years. It foresees an increase in the number of uninsured people by 10 million by 2034. In a report dated June 26, 2025, the Center for Children and Families supports this, estimating 7.8 million Americans uninsured from Medicaid provisions in the House bill, including 4.8 million able-bodied adults aged 19-64 who do not meet the new work requirements.
As more individuals lose insurance coverage, already understaffed healthcare systems will face greater strain, since uninsured patients are more likely to rely on costly and inefficient emergency services for non-emergency care.
For long-term care providers, such as nursing homes and assisted living facilities, this means fewer patients will be covered by Medicaid. Many facilities depend heavily on Medicaid reimbursements to remain financially viable, so these cuts could threaten their sustainability.
The impact will be particularly severe in rural areas, where healthcare resources are limited and Medicaid enrollment is robust. Though the bill does offer expanded funding for rural hospitals, the CBO estimates that they will lose $50.4 billion in federal Medicaid funding over 10 years, affecting 1.8 million rural residents who may lose coverage. This could accelerate hospital closures, reduce access to care in underserved communities, and widen the divide between those who can access timely, effective care and those who cannot.
Provider Tax Restrictions: A Double-Edged Sword
Another significant change introduced by the OBBBA is the gradual reduction of the provider tax “safe harbor” from 6% to 3.5% by 2031, starting in 2028. Provider taxes are fees that states collect from healthcare providers to fund Medicaid. These funds are then used to draw down federal matching dollars — a critical mechanism that boosts state Medicaid budgets and supports provider reimbursement rates. By lowering the safe harbor threshold, the OBBBA effectively limits how much states can collect through these taxes without triggering federal penalties, reducing their ability to maximize federal matching funds.
For example, in 2024, Nevada implemented a Private Hospital Assessment & Payment Program requiring all privately operated hospitals in Nevada to pay an assessment of up to 6% on their patient revenue, the maximum allowed under federal Medicaid rules (42 C.F.R. § 433.68). The funds collected are used to finance supplemental Medicaid payments and rate enhancements, aiming to improve access to quality care for Medicaid patients. The program is projected to generate approximately $800 million annually in combined state and federal Medicaid funding to support Nevada’s hospitals. However, proposed reductions to the federal safe harbor threshold may force the state to lower provider tax rates, potentially resulting in decreased hospital reimbursements and reduced access to care.
Nevada is not unique. According to the Illinois Hospital Association, Illinois’ hospital provider tax currently generates approximately $2 billion annually, which the state uses to earn matching federal funds and pay hospitals higher Medicaid rates – including bonus payments when hospitals meet quality or performance standards. The reduction in allowable tax rate essentially pulls away hundreds of millions of dollars that states like Illinois and Nevada have been channeling into their Medicaid systems.
By constraining states’ ability to leverage provider taxes, OBBBA squeezes a crucial funding stream for Medicaid. The ripple effects include lower payments to providers, scaled-back quality incentive programs, and reduced healthcare access for vulnerable populations who depend on Medicaid-supported services.
Work Requirements: A New Hurdle for Patients and Providers
Starting in January 2027, able-bodied adults aged 19-64 will need to work, volunteer, or participate in job training for at least 80 hours per month to maintain their Medicaid coverage. The CBO estimates that this requirement could affect 4.8 million enrollees.
For providers, this means dealing with patients who may lose coverage mid-treatment, leading to disruptions in care and potential financial losses from unpaid services. While the responsibility for verifying work requirements falls on state Medicaid agencies, providers may still face indirect administrative burdens—such as navigating eligibility lapses, verifying coverage status, and coordinating care for patients cycling in and out of Medicaid—which adds complexity to an already strained system.
Positive Aspects of the OBBBA
Despite its challenges, the OBBBA presents some clear advantages for healthcare providers. One notable benefit is reduced administrative waste. By streamlining Medicaid enrollment and eligibility processes, the law may lower administrative costs and free up resources for direct patient care. The OBBBA also introduces meaningful tax incentives that can help providers strengthen their financial position and invest in long-term growth — particularly those looking to expand services, upgrade infrastructure, or improve delivery of care.
Other Significant Changes
The OBBBA includes several other provisions that will impact long-term care providers:
- More Frequent Eligibility Checks: Coverage reviews will now occur every six months instead of annually, increasing the administrative burden for states and providers. This could lead to higher rates of “coverage churn,” where individuals lose and regain coverage due to paperwork errors or temporary income changes, disrupting continuity of care and reimbursements.
- Temporary Regulatory Relief: The OBBBA delays the implementation of new federal nursing home staffing standards until September 30, 2034. This provides a welcome reprieve for facilities struggling with staffing shortages, but it does not address long-term workforce challenges, such as high turnover and recruitment difficulties.
- Variability in State Implementation: The impact of these changes will vary by state, depending on their reliance on provider taxes and Medicaid expansion status.
Tax Advice for Healthcare Facilities and Operators
The OBBBA includes several tax provisions that can benefit healthcare providers — particularly small businesses like physician group practices and nursing home operators — making this an opportune time for capital investments and new tax strategies.
- 100% Bonus Depreciation: Reinstated after January 19, 2025, this allows qualifying equipment and renovations to be covered as fully tax-deductible expenses, offering a significant cash flow boost.
- Higher Section 179 Cap: Increased to $2.5 million (up from $1 million), this allows immediate deductions for capital purchases — such as medical equipment, facility furnishings, and technology upgrades — helping facilities upgrade without long depreciation schedules.
- More Deductible Interest: The interest cap, based on earnings before interest and certain deductions (EBITDA) means more of a facility’s interest expense on building loans and other debt will be deductible, improving after-tax cash flow.
Finding Opportunity Amidst Challenge
The One Big Beautiful Bill Act brings both disruption and opportunity for long-term care providers. Changes to Medicaid funding and provider tax rules will require careful adjustment, but they also encourage providers to rethink their strategies. The bill’s tax relief measures offer valuable financial flexibility, and operators should actively leverage these opportunities to optimize their tax position.
Diversifying revenue streams will be critical for long-term stability, and will require providers to pursue targeted investments, partnerships, and greater operational flexibility. However, this is easier said than done — particularly for providers that serve large Medicaid populations. Just as important, the industry must stay engaged with state policymakers and make their needs clear, so that provider tax policies will be shaped to reflect their real financial and operational challenges.
Overall, OBBBA presents a chance for providers to adapt, innovate, and strengthen their role in this new and challenging healthcare environment.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
