The One Big Beautiful Bill Act Mends Medicaid and Helps Hospitals  

Overview 

Medicaid enrollment and costs have skyrocketed this century. Program costs now exceed $915 billion per year.¹ The primary driver of spending growth is enrollment, driven by able-bodied adults.² Up from just 6.9 million in 2000, a whopping 34 million able-bodied adults are now enrolled on the program.³ Spending on able-bodied adults accounts for more than 35 percent of total Medicaid spending, more than what is spent on individuals with disabilities, the elderly, or children—those the program was intended to serve.⁴

With the passage of the Affordable Care Act, commonly known as ObamaCare, states had the option to expand Medicaid to a new class of able-bodied adults.⁵ States that expanded have experienced cost overruns, driven by an enrollment explosion that has shattered projections.⁶ And while proponents continue to argue that Medicaid expansion helps hospitals, the opposite is true. Hospitals, in particular rural hospitals, have suffered from Medicaid’s flawed design.^7-8

Medicaid expansion has proven to be a huge negative for hospitals. Medicaid does not pay enough to cover the costs to provide care to patients, forcing hospitals to rely on private payers to make up for losses.⁹ Because expansion replaces private payers with able-bodied Medicaid payers, it increases the Medicaid shortfalls in expansion states and slashes hospital profits.¹⁰

Hospitals make less on Medicaid patients compared to private insurance, and they’re seeing far more Medicaid patients than expected in expansion states. Rural hospitals are particularly at risk of closure from expansion, with rural hospital closures spiking after the enactment of ObamaCare.¹¹

Congress passed and President Trump signed the One Big Beautiful Bill Act, which fixes some of Medicaid’s worst offenses. Contrary to the diatribes from the Left, the law directs historic amounts to rural hospitals. If rural hospitals are struggling, an overreliance on Medicaid is in large part to blame. The new law delivers reforms that restore program integrity to Medicaid, aiding providers and ultimately, the truly needy.

Medicaid expansion has failed to save hospitals.

Proponents argue that expanding Medicaid will save hospitals, including rural hospitals, while not expanding will crush them. In reality, hospitals are faring much worse in expansion states. This is because Medicaid reimburses providers at 60 percent of the rates of private insurance.¹²

Hospitals in most states have Medicaid shortfalls: the difference between hospital payments from Medicaid and the cost of providing services to Medicaid patients.¹³ Since expansion states treat far more Medicaid patients, they often face greater shortfalls. While hospitals in non-expansion states receive 7.8 percent of their revenue from Medicaid, expansion states receive 14.2 percent of their revenue from Medicaid, or nearly double.¹⁴

Hospital profits are moving in opposite directions, increasing in non-expansion states and decreasing in expansion states. Medicaid shortfalls are driving these profit differences.

Hospital profits in expansion states were slashed by two-thirds from 2013, before expansion, to 2021.¹⁵ Profit margins were cut from 6.2 to 1.4 percent over the same period.¹⁶ Non-expansion states, on the other hand, saw their profit margins increase over the same time period, from 4.9 percent to 7.0 percent, or five times that of hospitals in expansion states.¹⁷ Profits in non-expansion states have more than doubled.¹⁸

Expansion has led to serious financial woes for hospitals, and the situation is only becoming more dire for rural hospitals.

Rural hospitals are at risk or have already closed in states reliant upon Medicaid.

Heavy reliance on Medicaid exposes hospitals, including rural hospitals, to unnecessary financial risk. Notably, rural hospitals bear a disproportionate share of Medicaid shortfalls. Rural hospitals bear $12.9 billion worth of Medicaid shortfalls, nearly 40 percent of the $34.4 billion total hospital Medicaid shortfall nationwide.¹⁹

Moreover, reliance on Medicaid impacts populations unevenly. For example, evidence suggests that expansion disproportionately advantages urban populations, while some rural populations bear negative impacts.²⁰ In the end, the rural health care system does not benefit from Medicaid dependency.

Medicaid expansion is shuttering hospitals.²¹ Despite promises that expansion would save hospitals and create new hospital jobs, since expansion, 74 hospitals have closed in expansion states, including 20 rural hospitals.²² Four out of the top five states with the highest percentage of rural hospitals at risk for closure are expansion states.²³

And despite the promises and assurances of expansion advocates, more than one in four rural hospitals in expansion states are at risk for closure.²⁴ What’s worse, the risk is only increasing for hospitals in expansion states. From 2021 to 2025, only a single non-expansion state has seen an increase in the percentage of rural hospitals at risk for closure.²⁵ Meanwhile, 18 percent of expansion states saw the percentage of at-risk rural hospitals increase over the same time period. ²⁶

Many solutions proposed for rural hospitals are wrongly focused on increasing Medicaid payments or expanding eligibility.²⁷ This is based on the flawed assumption that most rural patients are uninsured or reliant on Medicaid or Medicare.²⁸ In reality, the best way to save rural hospitals is to roll back over-reliance on Medicaid, reducing dependency and preserving resources for the truly needy.

The One Big Beautiful Bill Act makes the Medicaid program more sound.

OBBB requires, for the first time, able-bodied adults on Medicaid expansion to work, train, or volunteer part time. Without work requirements, most able-bodied adults on Medicaid do not work at all.²⁹ When subject to work requirements, individuals return to work and see their incomes rise.³⁰ In Arkansas, for example, work requirements boosted employment.³¹  People left Medicaid because their incomes increased such that they no longer qualified for Medicaid. When subject to work requirements, the uninsured rate in Arkansas declined.³² Moving able-bodied adults from welfare to work will help reduce hospitals’ financial struggles.

OBBB also addresses the Medicaid money laundering scheme. In most states, health care providers are charged a special tax or fee, which is in turn used to pay for Medicaid services, allowing the state to generate additional federal matching funds.³³ This money laundering scheme increases overall Medicaid spending at the expense of the federal taxpayer. OBBB freezes existing provider tax rates and phases down the “safe harbor” threshold in expansion states.³⁴ The new law also limits excessive state-directed payments in Medicaid so that they do not exceed Medicare rates in expansion states.³⁵ Non-expansion states are now only allowed to set state-directed payment rates 10 percent above that of Medicare rates.³⁶

These schemes shift the burden of Medicaid—intended to be a state-federal partnership—onto the federal government. They do nothing to benefit the truly needy. When states draw down excess federal funding, they surrender their responsibility for the program. Providers become addicted to the artificially inflated funding. While states abusing these schemes will have to course correct, it’s an exaggeration to claim, as some have done, this reform will harm hospitals.

Hospitals’ leadership also engaged in fearmongering about the bill, only to later walk back their statements. During negotiations for OBBB, hospital leaders publicly warned that the bill’s Medicaid reforms would force rural hospitals to close. Lawmakers amplified this message, decrying OBBB as harmful to rural hospitals.^37-38 Democrat senators, in a letter to the Trump administration and Republican congressional leadership, highlighted rural hospitals supposedly at risk.³⁹

Yet as the bill became finalized, hospital leaders, including those referenced as at-risk in the Democrat senators’ letter, are walking back their previous warnings. Instead clarifying that while they oppose some Medicaid reforms, they are not shutting down, and in many cases, are even expanding their services. Wayne HealthCare in rural Ohio was labeled at-risk in the Democrat letter.

In a press release, however, Wayne Health Care wrote “we want to reassure our community that Wayne HealthCare is not at risk of closure or cutting services.”⁴⁰ The CEO of a rural Illinois hospital, also referenced in the letter, weighed in, saying “there is no immediate concern of the hospital closing.”⁴¹

A rural Michigan hospital CEO pushed back, assuring staff that “the facility is not closing and suggested that the ‘spin’ of media accounts of the report at times result in fear.”⁴² Similarly, another rural hospital CEO stated, “there are no plans to close our Danville hospital. In fact, services are expected to increase there.”⁴³

OBBB’s provisions to move able-bodied adults from welfare to work, promote sound financing, and enhance program integrity will serve the truly needy. Hospitals, too, will benefit from the historic Medicaid reforms in OBBB.

The One Big Beautiful Bill Act creates unprecedented opportunities for rural hospitals.

While critics have lambasted OBBB for “cutting” aid to rural hospitals, this charge is entirely imaginary. One of the talking points most frequently used by opponents OBBB is that reductions in provider tax scams and state-directed payment abuse will harm rural hospitals.⁴⁴

However, provider taxes—which states use to effectively hold hospitals harmless and drain federal dollars with minimal state financial participation—are not a uniquely rural phenomenon. While data on provider tax utilization by state is lacking, the available evidence suggests that states with a smaller concentration of rural hospitals are more dependent on provider tax revenue than states with a greater concentration of rural hospitals.

Drawing on data on non-general fund state contributions to Medicaid from the National Association of State Budget Officers, states with more rural hospitals per capita rely less on provider taxes than states with fewer rural hospitals per capita.⁴⁵ For example, of the seven states with 25 or more rural hospitals per one million residents, estimated provider tax revenues comprise just 35 percent of the state’s share of Medicaid financing.⁴⁶

However, in the seven states with one or fewer rural hospitals per one million residents, estimated provider tax revenues make up more than 47 percent of the state’s share of Medicaid financing.⁴⁷ As a result, the claims spread by OBBB opponents on the relationship between provider taxes and rural hospitals is misleading, at best.

The myths spread by OBBB opponents are just as false when it comes to state-directed payments. Based on an analysis of state-directed payment preprint applications filed with the Centers for Medicare & Medicaid Services, many states either have no state-directed payments whatsoever or state-directed payments well within the allowable thresholds established in OBBB.⁴⁸ Only 10 states have state-directed payments above those thresholds.⁴⁹ The five states with the highest number of rural hospitals per one million residents—South Dakota, North Dakota, Montana, Wyoming, and Nebraska—do not utilize state-directed payments at all.⁵⁰ Rural hospitals and rural states are not dependent upon state-directed payments in the manner that OBBB opponents would like people to believe.

In reality, OBBB’s work requirements will reduce dependency and shift more individuals onto superior private coverage, allowing limited resources to go to the truly needy. This helps hospitals as able-bodied adults on Medicaid move from welfare to work and acquire private insurance—that reimburses providers at higher rates—from their employers or the exchange. Arguments against OBBB continue to focus on inputs, namely Medicaid dollars, rather than on outputs and results, specifically reduced dependency.

Moreover, OBBB creates a $50 billion Rural Health Transformation Program, presenting a potential boon to rural hospitals.⁵¹ This fund—arguably the single-largest investment in rural health care—benefits states that are rural in nature.⁵² While half of the fund’s grants go to approved states equally, the other half is based on a variety of factors that are largely tied to a state’s rural nature.⁵³

The program gives maximum flexibility to states, allowing them to work with rural providers to determine the best use of funds.⁵⁴ Examples of fund uses include promoting partnerships between rural health care providers, improving the use of technologies to assist rural hospitals, improving rural residents’ health care outcomes and access to care, and more.⁵⁵

The Bottom Line: The One Big Beautiful Bill Act restores integrity in Medicaid and provides options for rural hospitals.

Enrollment of able-bodied adults on Medicaid has skyrocketed, driving up spending. Increased enrollment has left hospitals reeling, especially in expansion states. Hospital shortfalls are much higher in states that are highly dependent upon Medicaid.

OBBB curbs some of the worst enrollment-maximizing traits of Medicaid expansion by implementing work requirements. The law also tackles waste, fraud, and abuse in Medicaid, freeing up resources for rural health care investment.

OBBB delivers historic reforms that will help hospitals, especially rural hospitals. Americans and rural health care providers should view OBBB as a once-in-a-generation opportunity to mend the nation’s broken health care system, while pursuing historic reforms and investments to improve the long-term solvency of rural health care providers.

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