How the reconciliation bill will shake out for hospitals and the healthcare industry

Note: The opening section of this article was rewritten July 23 to account for an updated estimate by the Congressional Budget Office.

Declines in coverage and spending await the healthcare industry under the budget reconciliation bill signed into law by President Donald Trump on July 4, but the immediate consequences could be muted.

Since passage of the bill, the Congressional Budget Office (CBO) has not released an update on the number of additional people who will be uninsured through a combination of provisions in the bill and rollbacks to Affordable Care Act (ACA) coverage. In its July 21 estimate of the final bill’s direct impact, the CBO reduced the number of additional uninsured in 2034 from 11.8 million in its prior projection to 10 million.

A key difference in the revision was the final bill’s exclusion of a clause that would have affected Medicaid eligibility for some noncitizens. There reportedly were concerns about whether the provision met the rules for inclusion in a reconciliation bill. The CBO still anticipates the 10-year reduction in federal healthcare spending will surpass $1 trillion.

Previously, the CBO said an additional 6 million people would be uninsured in 2034 because of ACA-related changes that are not part of the legislation. If that projection holds, the overall increase in uninsured would be 16 million.

For Medicaid specifically, dramatic changes may take a while to be felt. In 2026, for example, the projected spending reductions to the program, as legislated in the bill, are limited to roughly $18 billion (down from $22 billion in the CBO’s prior estimate).

Separate from the legislation also known as the One Big Beautiful Bill, however, a major change looms heading into next year, and subsequent years will usher in restrictions on provider reimbursement and significant updates to Medicaid eligibility rules.

The immediate issue

Based on analyses by the CBO, the first big impact on coverage is likely to involve ACA marketplace insurance. Unless the Republican majority in Congress chooses to extend the enhanced subsidies that help low-income enrollees pay their premiums, those subsidies will expire at the end of this year.

A projected 4.2 million more people would be uninsured in 2034, compared with a scenario in which the higher subsidies remain. In a December 2024 estimate, the CBO said the 2026 increase in uninsurance would be 2.2 million before jumping to 3.7 million in 2027.

Meanwhile, CMS anticipates that between 725,000 and 1.8 million people will lose access to ACA coverage next year because of recently finalized regulations to tighten enrollment in an effort to improve program integrity. It’s unclear how much crossover there could be between the groups affected by the subsidy expiration and by the final rule.

In addition, based on the reconciliation bill, enrollees who sign up for 2026 coverage during a special enrollment period (SEP) will be ineligible for subsidies if their SEP eligibility does not result from a qualifying life event (e.g., a family-related change or a relocation). Also, some previously eligible immigrants, such as refugees and asylum seekers, will be prohibited from receiving subsidies.

Medicaid attrition ramps up

In Medicaid, the most immediate changes involve technical parts of Biden administration regulations issued in 2024 to remove barriers to coverage. Aspects of that rule have been rescinded until at least 2034, per the reconciliation bill.

For example, with parts of the rule withdrawn, states can implement renewal processes that are more extensive (e.g., by requiring an in-person interview) for enrollees whose Medicaid eligibility is not based on income.

Beneficiaries also will have less leeway in attempting to reenroll without an application if their coverage was terminated for failure to respond to an inquiry about a change of circumstances. Provisions in the 2024 rule to ensure states act on information about enrollee address changes or undeliverable correspondence also are being nullified.

The erosion stemming from those changes will add to the falloff that has been underway since mid-2023, when requirements pertaining to Medicaid continuous enrollment expired with the end of the COVID-19 public health emergency (PHE). Enrollment dropped by 17% over the two-year period ending in March 2025. If the ACA marketplace subsidies expire, that insurance will be a less viable option for some disenrolled Medicaid beneficiaries than it was post-PHE.

Bigger changes impending

The provisions that could most directly affect Medicaid coverage and hospital finances are set for 2027 and 2028.

Implementation of the new Medicaid work requirement technically is mandatory by the start of 2027, as is a requirement to conduct eligibility redeterminations for Medicaid expansion adults every six months instead of annually. States, however, can apply for an exemption from the work requirement through 2028 if they show good-faith efforts at compliance.

A five-year, 2.5-percentage-point reduction in hospital tax rates as an allowable percentage of net patient revenue begins in 2028 for expansion states, while new and modified taxes are prohibited immediately for all states. Restrictions in some states also are possible from a 2025 proposed rule issued by CMS to phase out arrangements that disproportionately tax Medicaid managed care organizations (MCOs) or hospitals as a way to generate reimbursement funding.

For state-directed payments (SDPs) made through Medicaid MCOs, future arrangements are immediately capped at 100% of the Medicare rate in expansion states and 110% in non-expansion states. Beginning in 2028, existing SDPs must be reduced by 10% per year until they reach the new limits.

Decreased reimbursement also can be expected through a provision reducing retroactive Medicaid coverage from 90 days to one month for expansion enrollees and two months for traditional enrollees starting in 2027. Medicaid payments for emergency care provided to some categories of non-enrolled immigrants also will be constrained.

Eyes on the states

Much of the Medicaid impact will be determined by how individual states respond to reductions such as the new limits on provider taxes. States can try to move money around in the budget to make up for the shortfall, but that will be challenging in many cases.

“Medicaid budgets are stretched anyway,” Paul DeDominicas, director of the network grants office with the University of Vermont Health Network, said in June during a webinar hosted by U.S. News. “And then [if] new cuts come in from Washington, what do you have to do? You have to start looking at reducing eligibility or shrinking benefits.

“The big thing is that compounding effect. In rural states that don’t have large budgets where more money is going come from, it [affects] that provider reimbursement rate, things are going to start to shrink, and then care starts to disappear. I don’t know how states will respond to that.”

It stands to reason that the new law will have varying fiscal outcomes from one state to the next.

Over the next decade, for example, federal Medicaid spending cuts stemming from the bill are expected to exceed 13% in roughly 35 states, according to a statistical analysis by KFF. The decline will be under 10% in a handful of states, primarily those that have not expanded the program as authorized by the ACA.

Hospitals brace for impact

From a service-line standpoint, areas that could be affected most include those that serve a high volume of Medicaid beneficiaries. These tend to include obstetrics and maternity care, along with behavioral health.

But healthcare operations figure to be affected across the board.

 “When you take away funding for mental health services for adults and children in community settings, that results in more and more people utilizing emergency rooms and hospitals for, frankly, care that doesn’t need to be acute care,” Nate Mussell, vice president of public policy with Minneapolis-based Fairview Health Services, said during the U.S. News webinar.

The issue illustrates why the American College of Emergency Physicians released a statement last week after the Senate passed the budget reconciliation bill, saying, “The additional strain that this bill will impose by substantially increasing the number of uninsured or underinsured individuals will result in millions of patients with no other option to access care than the emergency department, further crowding already overburdened EDs, delaying care and driving up costs for everyone.”

And the ramifications extend beyond Medicaid and marketplace enrollees.

“If you have a rural hospital that serves a high volume of moms and babies on Medicaid, and they have to pull back on some of those services, it impacts everybody that relies on those services in that community,” Mussell said.

A Pandora’s box

Hospitals also could experience implications of cuts that are expected to affect the eligibility of at least 2 million enrollees in the Supplemental Nutrition Assistance Program, Andy Quinn, managing partner and founder of the consulting firm McAllister & Quinn, said in the webinar.

Many health systems “are already screening folks for food insecurity,” Quinn said. “If you’re not, you’re probably going to have to in the years ahead because you very well may see folks, for example, showing up in your emergency room post-discharge — not because they have a postoperative infection, but because they’re hungry and they need to be fed.”

He also said cuts to federal student loans, which in the final bill are capped at $200,000 for medical school, may require students to turn to private lenders and thus graduate with significantly more debt, making it even less likely that they will choose a career in primary care or to practice in a small market.

“If you are a brand-new enrollee in medical school, when you get out four years from now, you’re going to be looking at a very different healthcare environment than what we see today,” Quinn said.