Within the first six months of President Trump’s second term, his Administration and the GOP have already implemented significant policies that are reshaping health care in the United States. Through his Administration’s restructuring of the Department of Health and Human Services (HHS), promulgation of Marketplace Integrity and Affordability rules, sweeping RADV audit changes, and now the passage of the One Big Beautiful Bill Act (OBBA), entities throughout the health care industry—particularly managed care plans and sub-capitated providers—will need to readjust to the new paradigm. 

Over the next few weeks, Mintz will commence a blog series exploring how the Administration’s and GOP’s policies will impact managed care plans in 2026 and beyond. This inaugural blog post focuses on the impact of OBBA on Medicaid Managed Care Organizations (Medicaid MCOs) and those sub-capitated providers taking global risk from such plans. 

President Trump signed the OBBA into law on July 4, 2024. While none of the provisions of OBBA directly target managed care, it is clear that Medicaid MCOs and sub-capitated providers are collateral damage. Central to OBBA are cost cutting measures impacting the Medicaid program. These provisions focus on reducing federal expenditures by (i) tightening Medicaid eligibility requirements, resulting in the loss of Medicaid coverage for millions of individuals; and (ii) reducing the federal share paid to state Medicaid programs. The implementation of these policies, however, will disproportionately result in the loss of Medicaid coverage for the younger and healthier adult population, which has the potential to significantly impact Medicaid managed care plans’ risk pools. As a result, Medicaid MCOs and sub-capitated providers will be left to manage a sicker patient population, potentially with less funding.

Work Requirements. A hallmark of the OBBA is a “community engagement” or work requirement for able-bodied adults to maintain Medicaid eligibility, starting January 1, 2027. Individuals can meet the work requirement if they work, do community service, or are enrolled in an educational program for at least 80 hours per month. The law includes a number of exemptions for certain individuals from the work requirements, including: 

• Individuals under the age of 19 or over the age of 64;
• Individuals who are pregnant;
• Individuals entitled to Medicare benefits;
• Individuals who are elderly, physically or mentally unfit for employment, or legally disabled; and 
• Adults with dependents who are under 15 years old.

According to the Congressional Budget Office’s (CBO) estimates, the work requirements are projected to result in nearly 5 million people losing coverage over the next 10 years. Given the exemptions above, individuals losing Medicaid coverage will likely be the younger and healthier adult population, including those who likely work part-time or have irregular schedules that cannot maintain 80 hours of work.

Increased Frequency of Eligibility Verification Requirements. Along the same lines, beginning January 1, 2027, OBBA imposes new requirements on states to verify eligibility of Medicaid enrollees in the expansion population every six months (as opposed to every twelve months). The “expansion population” includes those adults below 138% of the federal poverty level (FPL) who were originally eligible for Medicaid as a result of the Affordable Care Act (ACA). This policy creates significant hurdles to enrollment, such that many younger and healthier people may decide to forgo Medicaid coverage or may not be able to meet coverage requirements.

Provider Tax Limitations. The loss of healthier individuals to risk pools may be further exasperated by the fact that OBBA is simultaneously limiting states’ ability to raise new funding for the Medicaid program through provider taxes. Provider taxes have historically been a mechanism states use to draw down additional federal match on Medicaid dollars. At a basic level, states use provider taxes to raise Medicaid funds by (i) imposing taxes on providers or managed care organizations; (ii) making the providers/managed care organizations whole on those provider taxes through allowable supplemental payments; and (iii) drawing down the federal match on those supplemental payments. Federal law has recognized a “hold harmless” safe harbor with respect to the supplemental payments, which allows states to draw the federal match so long as the supplemental payments are less than 6% of the provider’s revenue. 

The OBBA places different limitations on a state’s ability to use provider taxes depending on whether the state expanded Medicaid (i.e., is an “expansion state") or has not expanded Medicaid (i.e., is a “non-expansion state”). For those non-expansion states, the law freezes provider taxes, meaning no new provider tax arrangements can be implemented. For expansion states, in addition to the freeze on new taxes, starting in 2028, OBBA will lower the current 6% hold harmless threshold by 0.5% each year, ultimately reaching 3.5% by 2031. 

The result of the provider tax limitations is the loss of federal funds for state Medicaid programs. Historically, when states have experienced cuts to Medicaid funding, they have turned to managed care as a cost-containment solution, as managed care allows states more predictability in their Medicaid program costs as well as potential cost savings. 

In sum, as states see shrinking Medicaid budgets, they will likely turn to Medicaid MCOs for assistance in providing coverage to their Medicaid-eligible population, providing new opportunities to Medicaid MCOs. However, the combined impact of the aforementioned issues under the OBBA will introduce significant uncertainty and potential challenges for Medicaid MCOs, as Medicaid MCOs may be pushed into the position of managing a sicker, older patient population with fewer financial resources at their disposal. 

Our next post will look at CMS policies impacting the Exchanges and the outlook for plans participating on the Exchange.