Medicaid, CHIP, and Affordable Care Act Marketplace Cuts and Other Health Provisions in the Budget Reconciliation Law, Explained

Editor’s Note: this brief was updated on August 13, 2025 to reflect additional Congressional Budget Office coverage estimates of the reconciliation law issued on August 11, 2025

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On July 4, 2025, President Trump signed the Congressional Republican budget reconciliation bill into law (H.R. 1 or P.L. 119-21 which was previously entitled the “One Big Beautiful Bill Act”).  Earlier, on July 1, 2025, the Senate passed its version of the budget reconciliation bill on a 51-50 vote (Vice President Vance cast the tiebreaking vote) with the House later passing the Senate bill 218-214 on July 3, 2025.  The budget reconciliation law includes numerous provisions related to Medicaid, the Children’s Health Insurance Program (CHIP) and the Affordable Care Act’s Marketplaces, which institute deep, damaging cuts. 

According to final Congressional Budget Office (CBO) cost estimates issued on July 21, 2025 the law’s Medicaid and CHIP provisions would cut gross federal Medicaid and CHIP spending by $990 billion over the next ten years.  This does not include spending related to a new rural health fund established in the CHIP statute but fully separate from the CHIP program.¹  This also does not account for interactions between provisions of the law and for revenue effects. ²

Only a handful of these Medicaid and CHIP provisions can be viewed as addressing fraud, waste and abuse but they account for only 2.5 percent of the gross Medicaid and CHIP cuts.³  States will face significant cost shifts under some of the major Medicaid and CHIP cuts, particularly those restricting state use of provider taxes, at the same time states will face other large cost shifts for SNAP benefits under the law.   

Similarly, the law’s provisions related to the Affordable Care Act’s Marketplace eligibility and enrollment policies do nothing to prevent fraud, waste, and abuse.  CBO estimates that these provisions would cut gross federal Marketplace spending by an additional $213 billion over the next ten years.  This also does not account for interactions and revenue effects.⁴  Altogether, the gross Medicaid, CHIP, and Marketplace cuts total $1.2 trillion over ten years.  Even accounting for interactions, the net Medicaid, CHIP, and Marketplace cuts equal $1.1 trillion over ten years.

The final CBO estimates also find that the number of uninsured individuals overall would increase by a net 10 million in 2034, relative to prior law.⁵ According to additional CBO coverage estimates issued on August 11, 2025, the law’s Medicaid and CHIP cuts account for 7.5 million of the increase in the uninsured in 2034.⁶ The Marketplace cuts would further raise the number of uninsured individuals by 2.4 million in 2034 (including interactions with the Medicaid cuts).⁷

This does not include the impact of the law failing to extend the enhanced Marketplace premium tax credits, which are scheduled to expire at the end of calendar year 2025.  While expiration of the enhanced premium tax credits is already assumed in the CBO baseline, extension of the enhanced premium tax credits would prevent another 4.2 million people from becoming uninsured by 2034 according to earlier CBO estimates.  Combined with other Marketplace changes already assumed in the CBO baseline, the total increase in the uninsured under the budget reconciliation law would likely equal about 15 million people by 2034.⁸

This explainer briefly summarizes and analyzes each of the Medicaid, CHIP and Marketplace provisions of the final budget reconciliation law, grouped into several categories.⁹  All section references are to the budget reconciliation law (H.R. 1 or P.L. 119-21) unless otherwise indicated.  CBO estimates of federal spending effects are provided, but these CBO estimates represent gross spending effects for each provision, without revenue effects and without interactions with other Medicaid, CHIP, and Marketplace provisions.  The CBO estimates also do not include related state spending effects under these provisions.  CBO estimates of the gross coverage impact of individual provisions are provided, if available (but do not account for any interactions).    

Medicaid & CHIP Provisions

Cuts Targeting the Affordable Care Act’s Medicaid Expansion and Its Enrollees

The budget reconciliation law does not include the most severe threats to the Medicaid expansion, which covers nearly 21 million low-income parents, people with disabilities and chronic conditions, and other adults in 40 states and the District of Columbia.  For example, the law does not include eliminating the permanent 90 percent expansion matching rate or imposing a per capita cap on federal expansion funding, both of which would shift massive costs to states and likely lead to most or all states dropping the expansion over time.  The law, however, includes multiple provisions intended to roll back the Medicaid expansion significantly and take away coverage and access from millions of low-income adults.  This includes drastically cutting state revenues currently raised by provider taxes to help finance state Medicaid programs, sharply cutting Medicaid enrollment among individuals eligible for the expansion through work reporting and other requirements, making it harder for expansion enrollees to access needed care, and diminishing the likelihood that the 10 remaining non-expansion states will newly adopt the expansion in the future.

• Restricting certain provider taxes only in expansion states.  Provider taxes play an essential role in state Medicaid financing.  Under longstanding federal rules in place since 1991-1992, states may institute taxes and assessments on hospitals, nursing homes, Medicaid managed care plans and other providers to raise revenues that finance a portion of their share of Medicaid costs.  Provider taxes must comply with three federal requirements: they must be uniform and broad-based and cannot hold taxpayers harmless.  The “hold harmless” requirement was satisfied under a safe harbor if the tax did not exceed six percent of net patient revenues.  As KFF has documented, all states but Alaska rely on such taxes, with 39 states including the District of Columbia having at least three such taxes. 
  
  Section 71115 lowers the safe harbor threshold of 6 percent but only in Medicaid expansion states.  The threshold would be reduced to 5.5 percent in fiscal year 2028 (which starts on October 1, 2027), 5 percent in 2029, 4.5 percent in 2030, 4 percent in 2031 and then to 3.5 percent in fiscal year 2032 and thereafter.  The lower thresholds would apply to existing taxes and assessments on all provider types including hospitals, except for nursing homes and intermediate care facilities for individuals with intellectual disabilities (so long as the taxes on such nursing homes and intermediate care facilities were already in effect on date of enactment and are otherwise in compliance with the current 6 percent threshold).  Puerto Rico and the other territories are exempt from the reduced safe harbor threshold. 
  
  According to data on provider taxes from KFF, as of state fiscal year 2024, there are 18 expansion states that have taxes on hospitals that are above 3.5 percent of net patient revenues, which would eventually be no longer permissible under the new, lower safe harbor.  (The states are Arizona, Colorado, Connecticut, Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Nevada, New Hampshire, New York, Oklahoma, Oregon, Rhode Island, Utah, Vermont, and Virginia.)  Seven of these states have taxes on hospitals that were above 5.5 percent and will be subject to the lower safe harbor starting October 1, 2027.  (The states are Arizona, Colorado, Connecticut, Michigan, Rhode Island, Vermont, and Virginia.)  As a result, these expansion states will have to shrink the size of their existing hospital taxes and thus have considerably less revenue available to finance Medicaid as a result.  They would have to raise other taxes such as income taxes or sales taxes, cut other parts of their budget like K-12 education, or, as is far more likely, dramatically cut their Medicaid programs. 
  
  Moreover, some of the existing taxes on hospitals that will no longer be allowed under this section were used to specifically finance the Medicaid expansion, such as in Arizona.  These expansion states will therefore be at risk of being unable to continue to finance the Medicaid expansion moving forward.  At the very least, this section will impose considerable fiscal and political pressures on all affected states to drop the expansion, so they could retain current provider tax revenues and avoid major Medicaid and overall general fund budget shortfalls over time that states would otherwise be unable to close.  These pressures will be further magnified by the numerous provisions targeting the Medicaid expansion, as discussed below.  In addition, these expansion states will be barred under a separate provision of section 71115 from instituting new provider taxes or raising existing taxes to replace the lost revenues, even if those new taxes or increased taxes are set below the reduced safe harbor threshold, as discussed below.  And some expansion states will see other existing provider tax revenues immediately eliminated under the “uniformity waiver” provision in section 71117 discussed below.  (These two provisions apply to all states.) 
  
  In addition, the KFF data show that as of state fiscal year 2024 states have existing taxes on other affected provider types whose size now exceeds 3.5 percent of net patient revenues.  At least five expansion states have taxes on managed care plans above 3.5 percent.  (The states are California, Illinois, Louisiana, New Jersey, and Pennsylvania, although the taxes in California and New Jersey would already be newly prohibited under the “uniformity waiver” provision in section 71117 discussed below.)  Similarly, nine expansion states have taxes on ambulance providers above 3.5 percent.  (The states are California, Colorado, Kentucky, Louisiana, Massachusetts, Oklahoma, Utah, Washington, and West Virginia.)  Furthermore, several expansion states have other taxes on providers in excess of 3.5 percent (including Maine for an unspecified provider type in the KFF data, Kentucky for community living supports, and West Virginia for lab/x-ray providers.)  Loss of state revenues from these taxes will create further budget gaps that would lead to severe Medicaid cuts, including but not limited to the expansion.
  
  CBO does not include separate estimates for this provision but finds that overall section 71115 (which also prohibits new provider taxes or increases in existing taxes) would reduce federal spending by $191.1 billion over ten years, as states are unable to replace much of these provider taxes revenues and are forced to drastically cut their Medicaid programs.¹⁰ CBO also finds that overall, section 71115 would increase the number of uninsured by 1.1 million in 2034.

• Requiring all expansion states to institute onerous, non-waivable work reporting requirements for expansion adults.  Starting January 1, 2027, section 71119 institutes mandatory Medicaid work reporting requirements in all expansion states for most expansion adults ages 19 through 64.  Under the work reporting requirements, individuals would have to report that they meet the following conditions for a month: work not less than 80 hours, complete not less than 80 hours of community service, participate in a work program of not less than 80 hours, enroll in an educational program at least half-time, engage in any combination of these activities for not less than 80 hours, have a monthly income not less than the minimum wage multiplied by 80 hours, or if a seasonal worker, have an average monthly income over a six-month period not less than the minimum wage multiplied by 80 hours. The federal minimum wage is currently $7.25 per hour.  That multiplied by 80 hours equals $580.     
  
  The work reporting requirements would apply to parents of dependent children above age 13.  (It would also appear to apply to individuals in Wisconsin and Georgia — both non-expansion states — who are covered under a waiver and who are non-elderly adults, not pregnant, not enrolled in Medicare, and would not otherwise be eligible without the waiver.  Puerto Rico and the other territories are exempt.) 
  
  These work reporting requirements need to be satisfied for at least 1 month — and up to three consecutive months at the option of states — before application (in order to enroll).  During enrollment, they need to be satisfied for at least 1 month between every six-month eligibility redetermination (as discussed below) but may need to be satisfied as often as every month at the option of states.  In verifying whether individuals are in compliance with the work reporting requirements or eligible for exemptions (as discussed more below), states are required to use ex parte processes that are based on reliable information available to the state “where possible.”  For example, states would be required to use available wage data to deem individuals in compliance with the work reporting requirement if they meet the $580 monthly income threshold.
  
  States are required to exempt certain individuals from the work reporting requirements, use ex parte processes to determine eligibility for exemptions (as discussed above), and may elect not to require individuals to verify information used for such exemptions.  Some of the exempt categories include: parents, guardians and caretaker relatives of dependent children age 13 and under and disabled family members; pregnant people or those receiving postpartum coverage; some people with disabilities such as those receiving SSI; individuals who are medically frail or otherwise have special medical needs including people with substance use disorders, disabling mental disorders, and serious and complex medical conditions; veterans with disabilities; and former foster youth.  As with the work reporting requirements, in verifying whether an individual is exempt (if the state has elected to require verification of information for the exemption), states are required to use ex parte processes that are based on reliable information where possible.  The ex parte process for verifying compliance with work reporting requirements and for verifying eligibility for exemptions are both subject to standards established by the Secretary of Health and Human Services (HHS).
  
  Implementation funding for states.  States will receive grants from an available pool of only $200 million in fiscal year 2026 to support implementation of the work reporting requirements (and other sections of the law that affect eligibility determinations and redeterminations).¹¹  Half of the funds would be distributed equally among expansion states and half would be distributed on a proportional basis based on the number of expansion enrollees subject to work reporting requirements.  (States would also be eligible for enhanced administrative matching funds for new or upgraded computer systems — 90 percent for the systems themselves and 75 percent for ongoing operations — related to the work reporting requirements and exemptions.)
  
  Potential good faith effort delay for states.  The Secretary is permitted (but not be required) to grant states a “good faith effort” delay in the work reporting requirement, based on vague criteria with significant discretion granted to the Secretary.  The exemption from the mandatory work reporting requirement on states is available for up to two years (no later than December 31, 2028) and with no possibility of renewal.  By January 1, 2029, all expansion states must come into compliance.
  
  Although states have some flexibility to make the work reporting requirements less onerous, states have more flexibility to make the work reporting and exemptions processes more burdensome for beneficiaries.  For example, states could also implement these work requirements earlier than January 1, 2027.  They could also require people to satisfy the work requirements for as many as three consecutive months prior to application in order to enroll or for every single month while enrolled.  At the same time, states would not be able to waive any provisions of the work reporting requirements.  This means that states could not use waivers to provide additional exemptions or broaden existing exemptions.  But it also means that states could not make the mandatory exemptions more restrictive, such as applying work reporting requirements to parents of younger children ages 13 and below.  The Secretary also has no authority to allow additional exemptions beyond those described in this section of the budget reconciliation law in response to new national or state-level developments including a recession or a public health emergency.
  
  CBO estimates that the work reporting requirement provision would result in 5.3 million more uninsured in 2034.  This is in line with Urban Institute estimates that examined the impact of a harsh but less restrictive 2023 work requirement proposal (which was modeled on Arkansas’s work reporting requirement waiver and only would have applied to existing enrollees not upon initial application) and found that 5.5 million to 6.3 million expansion individuals ages 19-64 would be disenrolled because they could not successfully navigate burdensome processes and systems to report their work activities or obtain exemptions.  That constitutes about 36 percent to 42 percent of all expansion enrollees ages 19-64.  Many parents would be at risk of losing their Medicaid coverage, which could adversely affect their children. 
  
  This provision also makes it more likely that those losing Medicaid coverage due to these work reporting requirements end up uninsured because those disenrolled from Medicaid for failure to satisfy the work reporting requirements (or to successfully qualify for an exemption) are made ineligible for premium tax credits to purchase coverage through the Affordable Care Act’s Marketplaces. 
  
  Finally, as CBO (here and here), Harvard University researchers and the Urban Institute find, such work requirements would have little or no effect on employment or hours worked.  In other words, work requirements do not produce savings because people increase employment and hours worked, thereby becoming ineligible for Medicaid as their income rises.  Rather, they produce such large savings because millions of expansion individuals who are otherwise eligible and meet the work reporting requirements or qualify for an exemption are instead disenrolled from Medicaid due to red tape. 
  
  The CBO estimates find that this provision would reduce federal spending by $325.6 billion over ten years.

• Making it harder for expansion adults to retain and renew their Medicaid coverage.  Under prior law, redeterminations for expansion adults were conducted every twelve months, as they are for all income-based Medicaid groups.  Starting on January 1, 2027, section 71107 requires all expansion states to conduct eligibility redeterminations for expansion individuals, including many parents and people with disabilities and chronic conditions, every six months.  (Certain Native American/American Indian expansion individuals are exempt.  Puerto Rico and the other territories are also exempt from this requirement.)  More frequent redeterminations elevate the risk of procedural disenrollments despite enrollees remaining eligible; federal savings are generated because additional barriers to retaining Medicaid coverage among expansion adults are created and result in higher rates of disenrollment, not because substantial numbers of people are determined to be ineligible and are disenrolled.  According to CBO, this provision requiring more frequent redeterminations would increase the number of uninsured by 700,000 in 2034.  The CBO estimates find that this provision would reduce federal spending by $62.5 billion over ten years.

• Requiring states to impose mandatory cost-sharing of up to $35 per service for certain expansion adults.  Medicaid beneficiaries generally do not face premiums and are subject to only nominal co-payments.  (Some people such as children, pregnant women, nursing home residents and American Indians receiving care at an Indian Health Service provider are entirely exempt from premiums and cost-sharing.  Some services such as emergency services, pediatric services, pregnancy-related care and family planning are exempt from cost-sharing.)  In addition, states currently have some flexibility to charge premiums and higher cost-sharing to individuals with incomes above 150 percent of the federal poverty line since enactment of the Deficit Reduction Act of 2005 but states have generally not adopted that option. Total out-of-pocket costs — premiums and cost-sharing — may not exceed 5 percent of household income. 
  
  Section 71120 mandates that as of October 1, 2028, all states must charge some cost-sharing for every non-exempt service provided to any individuals enrolled through the Medicaid expansion who have incomes above the federal poverty line.  (No premiums would be permitted.)  The cost-sharing could be as high as $35 per service.  Currently exempt services continue to be exempt.  In addition, primary care services; mental health care services; substance use disorder services; and services furnished by a Federally Qualified Health Center, certified community behavioral health clinic and rural health clinic are made newly exempt.  While states are newly required to charge some prescription drug cost-sharing, the current nominal co-payment rules continue to apply to prescription drugs.  In addition, states are newly permitted to allow providers to deny services to any non-exempt expansion adult who cannot pay the required co-payment.  Providers could decide to reduce or waive such cost-sharing on a case-by-case basis.  (Puerto Rico and the other territories are exempt from this cost-sharing requirement.)
  
  Most expansion states charge no cost-sharing or only nominal co-payments. The research literature on cost-sharing in Medicaid, however, is clear: even modest increases in co-payments lead to reduced usage of needed care.  Furthermore, as noted, this section allows states to permit provides to deny care altogether if expansion enrollees cannot afford the up to $35 co-payment, further exacerbating this negative effect on utilization.  As a result, this provision of the bill would likely lead to low-income people enrolled in the expansion foregoing needed services due to cost which, in turn, would likely lead to poorer health outcomes.  The CBO estimates find that this provision would reduce federal spending by $7.4 billion over ten years.

• Eliminating the additional incentive for states to take up the Medicaid expansion.  Under prior law, after enactment of the American Rescue Plan Act in 2021, if any non-expansion states newly adopted the Medicaid expansion, they would have received an additional five percentage point increase in their regular Federal Medical Assistance Percentage (FMAP) for two years, no matter when they newly expand.  (The increase did not apply to the Medicaid expansion itself or other Medicaid spending that is not subject to the regular FMAP.)  This incentive, for example, was a key factor in North Carolina’s adoption of the Medicaid expansion, which was first implemented in December 2023.  Section 71114 removes this incentive starting January 1, 2026, making it less likely that the remaining 10 non-expansion states eventually take up the expansion and leaving the nearly 2.9 million low-income adults who could newly gain eligibility uninsured, including 1.5 million people in the “coverage gap.”  This is one of several provisions likely intended to discourage states from newly adopting the Medicaid expansion, including provisions related to provider taxes and state-directed payments, as discussed above and below. CBO estimates find that this provision would reduce federal spending by $13.6 billion over ten years and increase the number of uninsured by about 100,000 in 2034.

Restrictions on the Ability of All States to Finance Medicaid through Provider Taxes

The budget reconciliation law includes two other provisions restricting the ability of all states to use provider taxes, which are used to help finance the state share of the cost of Medicaid as permitted under federal rules established in the early 1990s.  The first provision prohibits new provider taxes and any increases in existing taxes.  The second provision immediately prohibits certain existing “uniformity waiver” provider taxes.  While the Secretary is permitted to provide a transition period for such newly impermissible provider taxes, the Secretary is not required to do so.  These provisions would make it considerably more difficult for states to generate needed additional revenues to make future improvements to their Medicaid programs and to sustain their existing Medicaid programs both in the short- and long-term. 

• Prohibiting all states from raising revenues to finance Medicaid through new or increased provider taxes.  Under section 71115 (in addition to the reduction in the safe harbor threshold in expansion states discussed above), as of the date of enactment of the law (July 4, 2025), all states are now prohibited from establishing any new provider taxes or increasing existing taxes (by increasing the size of the existing taxes, measured as a percentage of net patient revenues as under the safe harbor threshold).  Puerto Rico and the other territories are exempt from this prohibition.
  
  This means that states are no longer able to use new or increased provider taxes to replace revenues from provider taxes that are no longer permitted (under the reduction in the safe harbor threshold in expansion states, as discussed above, and under the prohibition of certain “uniformity waiver” taxes in section 71117, as discussed below).  They also are no longer able to use new or increased provider taxes to raise more revenues to finance their share of Medicaid costs.  States are restricted to their existing taxes, even if they have applied taxes only to certain providers like hospitals and nursing homes but not to intermediate care facilities, ambulances and managed care plans.  They are also confined to the current size of their provider taxes even if they are now below the safe harbor maximum (which will be phased down to 3.5 percent in expansion states starting in fiscal year 2028 and remain at 6 percent in non-expansion states). 
  
  As a result, states would have no flexibility to raise additional revenues from provider taxes moving forward which is likely to be highly problematic, especially in light of the other Medicaid and Supplemental Nutrition Assistance Program (SNAP) cuts in the law that shift substantial costs to states.  They would likely have little choice but to make severe cuts in the face of provider tax restrictions.  In addition, in the face of a recession that leads to declining income and sales tax revenues and growing budget deficits, without the option of additional provider taxes, states would either have to cut other parts of their budget such as K-12 education or most likely, deeply cut their Medicaid programs even as people are losing their jobs and health insurance.  States would also be far less able to identify the state financing needed to expand Medicaid eligibility and benefits — such as expanded access to home- and community-based services — or increase provider payment rates to induce greater provider participation and improve access to care especially in underserved areas and rural communities.  Notably, without new or increased provider taxes as a financing source, it would also make it considerably more difficult and less likely for the 10 remaining non-expansion states to newly adopt the expansion in the future. 
  
  CBO does not include separate estimates for this provision but as noted above, finds that overall, section 71115 (which would also reduce the safe harbor threshold in expansion states) would reduce federal spending by $191.1 billion over ten years, as states are unable to replace much of these provider taxes revenues and are forced to drastically cut their Medicaid programs.¹² As noted above, CBO also finds that overall, section 71115 would increase the number of uninsured by 1.1 million in 2034. (According to earlier CBO estimates, this provision prohibiting new or increased provider taxes would increase the number of uninsured by 400,000 in 2034 but CBO has not issued separate updated estimates for just this provision in section 71115).

• Prohibiting certain existing provider taxes with “uniformity waivers.”  Under section 71117, as of the date of enactment, states are now immediately prohibited from using certain existing provider taxes to finance Medicaid.  (Puerto Rico and the other territories are exempt from this prohibition.)  As noted above, provider taxes must be applied in a uniform manner but under longstanding federal regulations, states may comply with this uniformity requirement by obtaining a waiver.  To receive federal approval for a waiver related to a tax, the tax must still be “generally redistributive” which can be demonstrated by satisfying a mathematical test.  While leaving that mathematical test in place, the law prohibits any tax from being considered redistributive and thus permissible if it fails to meet three new technical requirements.  The requirements are intended to capture currently allowed taxes which satisfy the test despite, for example, differing tax rates for Medicaid managed care plans and for non-Medicaid plans.  However, these new requirements apply not just to taxes on managed care plans but also on any type of provider including hospitals. 
  
  The provision is similar but not identical to the requirements of a proposed rule from the Centers for Medicare & Medicaid Services (CMS) issued on May 12.  According to the rule, there are at least 8 taxes (7 taxes on managed care plans and one on hospitals) in at least 7 states that are no longer allowed.  (It is our understanding that these states are California, Illinois, Massachusetts, Michigan, New York, Ohio and West Virginia, which are all expansion states.) 
  
  This provision, however, is much more far reaching.  Unlike the rule, it does not clarify that some existing taxes continue to be permissible such as those excluding or instituting differential tax treatment for sole community hospitals or rural hospitals because of the vital roles they play in their communities.  In addition, while the provision allows the Secretary of HHS to provide a transition period for affected states for up to three fiscal years, there is no requirement that any transition for any states be actually provided.  (In comparison, the proposed rule would not provide any transition for states whose most recent approval for the tax was less than two years ago and a transition period until the start of the first state fiscal year after one year for other states.)  Finally, in the preamble to the rule, CMS argues that states should be able to maintain the same level of revenues raised by any newly prohibited taxes because states can modify the prohibited taxes to come into compliance with the new rules or institute other provider taxes.  But with section 71115 (the prohibition on new or increased provider taxes as discussed above), states would likely not be able to substitute a different provider tax, increase a different provider tax, or even modify the non-compliant tax in ways if it may increase the size of the tax (measured as a share of net patient revenues) even if those changes are needed to satisfy these new requirements. 
  
  As a result, for a number of states, this provision results in substantially less state funding available to finance Medicaid possibly immediately.  In order to close budget shortfalls, the affected states would either have to raise other taxes, cut other parts of their budget, or most likely, further sharply cut their Medicaid programs.  The CBO estimates find that this provision would reduce federal spending by $34.6 billion over ten years.  Notably, the estimated federal Medicaid spending reduction would actually be double this amount because CBO assumes this provision would only “score” half of the expected savings due to probabilistic assumptions that the CMS proposed rule would have been finalized irrespective of this provision. CBO also finds that this provision would increase the number of uninsured by about 100,000 in 2034.

More Red Tape to Reduce Enrollment Among All Medicaid Beneficiaries

While some of the budget reconciliation law’s provisions adding red tape specifically target individuals covered under the Medicaid expansion — such as mandatory work reporting requirements and mandatory six-month eligibility redeterminations — other provisions would explicitly add, or would use the threat of severe financial penalties to force states to add, onerous red tape for all Medicaid beneficiaries especially seniors and people with disabilities in order to reduce enrollment among eligible individuals. 

• Blocking implementation of elements of an essential rule to simplify eligibility and enrollment and increase participation in Medicaid and CHIP particularly among seniors and people with disabilities.  CMS finalized an important two-part Medicaid and CHIP eligibility and enrollment rule in September 2023 and April 2024.  The rule would have significantly improved Medicaid and CHIP eligibility and enrollment systems and procedures by making it easier to apply for, enroll in, and renew Medicaid and CHIP coverage.  This included provisions prohibiting waiting periods, lockouts, and annual or lifetime limits in separate state CHIP programs.  The rule also included aligning renewal policies for seniors and people with disabilities with the simplified renewal policies that were already in place for children, pregnant people, parents, and adults.  The rule would also have strengthened program integrity efforts and made Medicaid administration more efficient. 
  
  For example, the rule would have required states to conduct redeterminations every 12 months for seniors and people with disabilities rather than allowing states to require redeterminations every six months;.  It also would have barred states from requiring face-to-face interviews; would have required 30-days for submission of needed renewal information; and would have provided a 90-day reconsideration period for individuals disenrolled for non-eligibility reasons to submit missing information for their renewal to be processed rather than filing a new application.  The rule also would have increased enrollment in the Medicare Savings Programs (MSPs) among low-income Medicare beneficiaries by aligning income and asset methodologies with the Medicare drug benefit’s Low Income Subsidy (LIS) and automatically enrolling those enrolled in SSI into the MSPs. 
  
  Sections 71101 and 71102 generally block implementation through September 30, 2034 of those elements of the eligibility and enrollment rule which have not already been implemented.  (As discussed below, the provisions related to separate state CHIP programs are largely unaffected as they took effect on June 3, 2025.)  Most of the provisions simplifying eligibility and enrollment procedures for seniors and people with disabilities and the MSP rule provisions are therefore blocked.  Provisions that ensure updated addresses to simplify the renewal process for all Medicaid beneficiaries including children are also blocked (as discussed below) along with rule provisions that improve coordination between Medicaid and other sources of health coverage such as the Marketplaces, Basic Health Plans and separate state CHIP programs. 

Key CHIP Protections in Eligibility and Enrollment Rule Are Retained

While the budget reconciliation law blocks many elements of a two-part Medicaid and CHIP eligibility and enrollment rule finalized in September 2023 and April 2024, several provisions that provide key protections for children in separate state CHIP programs which were instituted by the rule are unaffected by the law.  These provisions include:   Prohibiting CHIP waiting periods.  Under prior law, states were permitted to impose waiting periods of up to 90 days for children who are otherwise eligible for CHIP.  Such waiting periods remain prohibited under the rule as of June 3, 2025.   Prohibiting lockouts for missed premium payments.  Under prior law, states could lock eligible children out of CHIP coverage for up to 90 days if their parents had previously missed a premium payment.  Such lockouts remain prohibited under the rule as of June 3, 2025.   Prohibiting annual or lifetime dollar limits on CHIP benefits.  Under prior law, states were permitted to place annual or lifetime dollar limits on CHIP benefits if the overall value of CHIP coverage met CHIP standards.  Any overall annual or lifetime dollar limits or dollar limits on individual CHIP-covered benefits remain prohibited under the rule as of June 3, 2025.   Improving transitions between Medicaid and separate state CHIP programs.  Under prior law, there could be coverage gaps if children enrolled in Medicaid instead became eligible for a separate CHIP program.  Under the rule, as of June 3, 2024, in order to improve coverage transitions, state Medicaid and CHIP programs are required to make determinations of eligibility on behalf of the other program, transfer files when appropriate, and accept determinations made by the other program.  Medicaid and separate CHIP programs are also required to provide a single, combined notice to all enrollees in the household.

• Imposing mandatory federal funding penalties on states related to eligibility errors.  Under the longstanding Medicaid Eligibility Quality Control (MEQC) program, if a state’s erroneous payments related to eligibility exceeded 3 percent, the state could be subject to a penalty of all federal spending related to such errors that exceed 3 percent of total Medicaid expenditures.  Erroneous excess payments involve payments with respect to ineligible individuals and overpayments related to errors in determining the amount of “spenddown” medical or long-term care costs required to be eligible.  But the Secretary had the authority to provide “good faith effort” waivers for such penalties and it appears that no Secretary has ever penalized states in this manner under the MEQC program.  Moreover, the MEQC program was later converted in 2017 to targeted pilot programs focusing on certain eligibility issues with the separate establishment by CMS of the Payment Error Rate Measurement (PERM) program for Medicaid and CHIP. 
  
  Starting in fiscal year 2030 (which begins October 1, 2029), section 71106 effectively eliminates this good faith effort waiver; requires penalties to be assessed; sets the erroneous excess payment rate as determined under audits by the Secretary or at the option of the Secretary, state audits; and extends the definition of erroneous payments to include payments for items and services furnished to ineligible individuals or “where insufficient information is available to confirm eligibility.”  (Puerto Rico and the other territories were already exempt from this penalty.)  This latter addition is likely intended to require financial penalties to be assessed on states related to PERM eligibility errors that are often due to lack of sufficient documentation, rather than to any finding an individual was actually ineligible for Medicaid.  In addition, such erroneous payments would certainly include payments related to individuals who are subject to work reporting requirements. 
  
  To reduce their erroneous payment amounts (especially for those who are later determined to be ineligible) and avoid the risk of potentially very large federal funding penalties, it is likely that many states would add greater red tape and require more onerous paperwork requirements.  All of those actions would slash participation among eligible individuals.  Notably, the provision gives significant discretion to the Secretary on how this provision will be implemented by allowing the Secretary to permit state audits in some cases, rather than relying on federal audits.  The CBO estimates find that this provision would cut federal spending by $7.6 billion over ten years. CBO also finds that this provision would increase the number of uninsured by about 100,000 in 2034.

• Replacing address updating requirements in the eligibility and enrollment rule intended to simplify enrollment processes with different address verification requirements focused on reducing duplicate Medicaid and CHIP managed care plan enrollment in multiple states.  Under the second part of the Medicaid and CHIP eligibility and enrollment rule, much of which is blocked (as discussed above), states would have been required to implement processes to obtain updated address information and act on address changes without additional verification if the sources are considered reliable including returned mail with a forwarding address, the U.S. Postal Service National Change of Address database, Medicaid managed care plans, and other sources determined by the Secretary.  If receiving information from a different source that could not be confirmed with reliable sources, states would have to make a good-faith effort to contact the beneficiary (at least two attempts using two different methods and giving at least 30 days to respond) but the state could not update the address or terminate that coverage if there was no response.  In the case of an update for an out-of-state address from a reliable source, states would have had to first contact the beneficiary and provide advance notice of termination and fair hearing rights before disenrolling the individual.  These requirements were intended to improve the renewal process for beneficiaries but are instead blocked under the budget reconciliation law. 
  
  In contrast, section 71103 only requires collection of updated address information but with the primary goal of preventing enrollment in managed care plans in multiple states.  As of January 1, 2027, states are required to regularly obtain address information from reliable sources but there is no requirement that states rely on such information for renewals.  (Puerto Rico and the other territories are exempt from this requirement.)  There are also no protections for any beneficiaries such as requiring good faith efforts to contact individuals using more than one mode of communication.  Nor are there requirements for notice and a right to fair hearing for individuals who appear to be now residing in a different state. 
  
  In addition, as of October 1, 2029, states must submit monthly Social Security Numbers and other information to a new system established by the Secretary which is intended to identify on a monthly basis any individuals who may be enrolled in managed care plans in more than one state.  If the system identifies such individuals, states are required to take actions (as determined by the Secretary) including disenrolling such individuals.  The provision does not identify any protections for beneficiaries — such as specifying how states will confirm that a beneficiary is in fact no longer a resident of their state or requiring states to make good-faith efforts to contact the individual — or what exceptions to disenrollment would be provided.  The Secretary may specify exceptions but is not required to do so.  Starting January 1, 2027, states are also required to ensure through contract that managed care plans transmit updated address information for any enrollees.  All of these requirements apply to both Medicaid and CHIP.  The CBO estimates find that this provision would reduce federal spending by $17.4 billion over ten years.

Increased Medical Debt for Medicaid Beneficiaries

One of the provisions of the budget reconciliation law is certain to increase medical debt for individuals and their families and uncompensated care costs for health care providers.

• Limiting retroactive eligibility which protects families from medical debt and ensures that providers are reimbursed for providing timely necessary care.  Under prior law, Medicaid and CHIP coverage of medical and long-term care expenses was available for up to three months before application, assuming that the individual would have been eligible at the time the services were received.  As we have explained, retroactive eligibility, which was in place since 1973, is critical “because many uninsured individuals apply for Medicaid just after a major health event – for example, after a stroke.  An individual might be hospitalized and incapacitated for weeks before they can start gathering materials and then file a Medicaid application.  Without retroactive coverage, such an individual would have no coverage for their hospitalization, surgeries, and other care.  They would face insurmountable bills and medical providers wouldn’t be paid for all of the vital care provided.”  This would also be the case for people who suddenly see a deterioration in health that requires long-term services and supports in a nursing home.  Their families may not be able to apply for Medicaid immediately because they need significant time to gather supporting documentation such as information related to disability, the patient’s need for institutional care, and the patient’s income and assets, even though nursing home care is needed immediately. 
  
  Some states have received approval for waivers to limit retroactive eligibility on the speculative theory that this would encourage individuals and families to apply more quickly for their Medicaid coverage.  But the Urban Institute found that beneficiaries were wholly unaware of the change in retroactive eligibility and therefore it had no effect on when they applied and enrolled.  Under such waivers, beneficiaries faced greater medical debt and hospitals and other health care providers incurred higher uncompensated care costs. 
  
  Section 71112 curtails retroactive eligibility from 90 days to 30 days for adults (including parents) enrolled in the Medicaid expansion.  It reduces retroactive eligibility for all other Medicaid beneficiaries to 60 days (as well as CHIP enrollees at state option as there was previously no retroactive CHIP coverage).  This provision takes effect January 1, 2027.  That would likely result in people and their families foregoing needed health care and long-term services and supports or incurring significant out-of-pocket costs and medical debt, especially Medicaid expansion enrollees who will now receive retroactive eligibility of only 30 days.  Providers would see a financial hit as they would likely not be able to receive reimbursement for the services they furnished that would have previously have been reimbursed under retroactive coverage.  The CBO estimates find that this provision would reduce federal spending by $4.2 billion over ten years and increase the number of uninsured by about 100,000 in 2034

Cuts Eliminating Immigrant Health Coverage and Shifting Costs to Expansion States for Emergency Room Costs

The budget reconciliation law explicitly eliminates eligibility of many lawfully present immigrants for Medicaid and CHIP.  (Other sections of the budget reconciliation law also explicitly eliminate eligibility of certain lawfully present immigrants for the Affordable Care Act’s Marketplace subsidies and for Medicare, as discussed below.)  The bill also cuts federal Medicaid funding related to payments to hospitals and other providers furnishing emergency services to immigrants otherwise eligible for Medicaid (including undocumented immigrants and some lawfully present immigrants) but only in expansion states.

• Eliminating Medicaid and CHIP eligibility for many lawfully present immigrants.  Under prior law, lawfully present immigrants were generally not eligible for Medicaid for the first five years after obtaining lawful status.  (Undocumented immigrants have never been eligible for Medicaid.)  Some lawfully present immigrants, however, were immediately eligible if they met all other eligibility requirements such as income, including refugees, asylees and citizens of Compact of Free Association (COFA) nations.  In addition, states have the “ICHIA” option to provide Medicaid and CHIP coverage in the first five years to lawfully residing children and pregnant women.  As of October 1, 2026, section 71109 eliminates Medicaid and CHIP eligibility for many lawfully present immigrants (irrespective of how long they have been in the United States).  This includes, for example, refugees and asylees.  It also includes victims of human trafficking and domestic violence, “parolees” who have been lawfully admitted for humanitarian reasons including most recently some people from Ukraine, people from Iraq and Afghanistan admitted on special immigrant visas, and Native American tribal members who were born in Canada.  The only lawfully present immigrants who would remain eligible would be those admitted for permanent residence or “green card holders” (after five years), certain entrants from Cuba and Haiti, COFA individuals, and ICHIA children and pregnant women if the state has taken up the ICHIA option.  The CBO estimates find that this provision would reduce federal spending by $6.2 billion over ten years and increase the number of uninsured by about 100,000 in 2034.

• Cutting federal funding for “Emergency Medicaid” payments to hospitals but only in expansion states.  As noted above, undocumented immigrants have never been eligible for Medicaid.  However, through so-called Emergency Medicaid, at whatever the applicable federal matching rate is, federal funding is available for state Medicaid payments that reimburse hospitals (and other providers) furnishing emergency services to immigrants who would be otherwise eligible for Medicaid but for immigration status, including undocumented immigrants and some lawfully present immigrants.  (Under EMTALA, a law enacted in 1986, hospitals are required to provide emergency services to stabilize a patient.)  Section 71110 cuts the matching rate for emergency Medicaid to the regular matching rate in expansion states, even if the higher 90 percent matching rate would otherwise apply.  This provision would therefore shift significant costs to states related to Emergency Medicaid but only in expansion states, even as the need for Emergency Medicaid will increase with the elimination of Medicaid and CHIP eligibility for many lawfully present immigrants under section 71109.  That would create further fiscal pressures on these states to make other cuts to the rest of their Medicaid programs.  The CBO estimates find that this provision would reduce federal spending by $28.2 billion over ten years.

Restrictions on Access to Needed Care

The budget reconciliation law includes several provisions that would limit access to needed care by barring Planned Parenthood from serving as a participating Medicaid provider, by preventing states from instituting new supplemental provider rate increases through managed care, and reducing existing supplemental provider rate increases through managed care.

• Excluding Planned Parenthood from being a Medicaid participating provider.  Under federal statute, Medicaid beneficiaries have “free choice” to receive Medicaid-covered services from any qualified provider willing to participate in the Medicaid program.  This included Planned Parenthood and other reproductive health clinics, just like any other participating provider.  However, as part of a longstanding anti-abortion campaign, federal and state policymakers have tried to ban Planned Parenthood from being a Medicaid provider, even though federal law already prohibits Medicaid from covering abortion services under the Hyde Amendment except in the case of rape, incest, or when the woman’s life is in danger.  Section 71113 effectively bypasses the free choice requirement by prohibiting for one year (from the date of enactment) federal Medicaid funding for payments to any non-profit essential community provider that provides abortions (other than in the case of rape, incest and, as certified by a physician, danger of death) and receives federal and state Medicaid reimbursements that exceeded $800,000 in 2023.  This essentially prohibits Planned Parenthood clinics (and potentially other providers, although this is unclear) from participating in the Medicaid program and receiving Medicaid reimbursement for providing covered services to beneficiaries.  While this prohibition is technically only for one year, the substantial financial hit to Planned Parenthood raises a significant risk that many clinics will close or sharply scale back their services on a permanent basis.  This would reduce access to critical Medicaid-covered reproductive health services including preventive screenings, family planning, contraceptives as well as other primary care services Planned Parenthood offers.  CBO estimates find that this provision would increase federal spending by $53 million over the ten-year budget period. 

• Restricting state-directed payments in managed care.  A rule related to Medicaid managed care finalized in May 2024 by CMS includes provisions related to state-directed payments (SDPs).  Under SDPs, states can require Medicaid managed care plans to increase provider rates or set minimum rates for a provider type in order to improve access.  To increase access in four key service areas — inpatient hospital services, outpatient hospital services, nursing facility services, and qualified practitioner services at an academic medical center — the rule permits states to require such rates up to the Average Commercial Rate.  According to America’s Essential Hospitals, 34 states and the District of Columbia have SDPs based on the Average Commercial Rate, which are often tied to quality measures, delivery system reforms and other access improvements.  The rule also requires greater state reporting of SDP arrangements (including provider-specific data) and state submission of evaluation reports.
  
  Section 71116 requires the Secretary to revise the rule to prohibit — for any “rating period” beginning on or after the date of enactment — expansion states from instituting new SDPs that exceed Medicare rates and non-expansion states from instituting new SDPs that exceed 110 percent of Medicare rates. 
  
  Existing SDPs (and new SDPs for which states applied for federal approval prior to May 1, 2025 and new SDPs related to rural hospitals for which states applied for approval prior to the date of enactment) in all states that go as high as the Average Commercial Rate are temporarily grandfathered.  Starting with rating periods that begin on or after January 1, 2028, grandfathered SDPs in all states are phased down by 10 percentage points each year until they comply with the new SDP limits.  Barring new SDPs that exceed the Medicare rate would prevent states from newly increasing payments to providers in order to induce greater provider participation and beneficiary access as well as to support vulnerable rural hospitals with thin or negative operating margins. 
  
  In addition, the provision creates another disincentive to adopt the Medicaid expansion among the 10 remaining non-expansion states.  If a non-expansion state institutes a new SDP at 110 percent of Medicare rates, it is forced to cut it to 100 percent of Medicare rates if it expands in the future.  In fact, the non-expansion state that newly expands is liable for any federal funding related to payments above 100 percent of Medicare rates that were made, looking all the way back to the rating period that begins on or after the date of enactment (July 4, 2025).  Moreover, if a non-expansion state newly expands, its grandfathered SDPs are phased down faster (in order to reach the lower target of 100 percent of Medicare rather than 110 percent of Medicare). 
  
  The CBO estimates find that this provision would reduce federal spending by $149.4 billion over ten years.

Restrictions on Long-Term Services and Supports

The budget reconciliation law includes two provisions restricting eligibility for nursing home care and other long-term services and supports among seniors and people with disabilities and affecting quality of care in nursing homes.

• Restricting eligibility for long-term services and supports including nursing home care by capping home equity limits.  Under prior law,in determining an individual’s eligibility for nursing home care and other long-term services and supports when a spouse, dependent child under age 21, or adult child with disabilities does not live in the primary home, home equity could not exceed certain limits.  Those limits are generally either $730,000 or $1,097,000 in 2025 and were adjusted annually for inflation.  Under section 71108, as of January 1, 2028, the home equity is capped at $1 million on a permanent basis.  Moreover, states are no longer permitted to use their current authority to apply asset disregards to effectively raise that limit.  California, for example, currently fully exempts the value of the primary home for an individual no longer living in the primary home just as it does when spouses, dependent children under age 21, and adult children with disabilities who are living in the primary home.  This provision effectively restricts eligibility for nursing home care and other long-term services and supports in the 12 states that now have limits that exceed the new cap amount.  The cap also becomes more restrictive over time, relative to prior law, and affects an increasing number of states because the cap will no longer be adjusted to keep up with inflation.  The CBO estimates find that this provision would reduce federal spending by $195 million over ten years.

• Blocking implementation of a rule to improve nursing home staffing.  Section 71111 blocks through September 30, 2034 implementation of those provisions included in a rule finalized in May 2024 by CMS which increase staff level requirements for nursing homes under both Medicaid and Medicare.  As KFF has noted, “the adequacy of staffing in nursing homes has been a longstanding issue, and the high mortality rate in nursing facilities during the COVID-19 pandemic highlighted and intensified the consequences of inadequate staffing levels.”  The rule is intended to address some of these serious issues that have affected quality of care for nursing home residents, 63 percent of whom are covered by Medicaid.  The CBO estimates find that this provision would reduce federal spending by $23.1 billion over ten years.

Other Medicaid and CHIP Provisions

Provisions Related to Medicaid Waivers

The budget reconciliation law includes a provision related to Medicaid and CHIP waivers.

• Codifying budget neutrality requirement for section 1115 Medicaid waivers.  It has been longstanding policy (but not an explicit statutory requirement) that section 1115 waivers must satisfy a budget neutrality requirement: federal spending under the waiver may not exceed the federal spending that would have otherwise occurred in the absence of the waiver.  Effective January 1, 2027, section 71118 codifies the Medicaid budget neutrality requirement by explicitly adding it to section 1115 of the Social Security Act and barring the Secretary from approving or renewing a waiver unless the Chief CMS Actuary certifies that federal spending under the waiver (or in the case of a renewal of a waiver, federal spending under the original duration of the waiver) would not be higher than would otherwise be the case in the absence of the waiver.  The provision also requires that budget neutrality calculations take into account “hypothetical” spending for populations and services that could have been made anyways under federal law would be counted as federal spending in the absence of the waiver (which has also been a longstanding aspect of budget neutrality policy). 
  
  The CBO estimates find that this provision would reduce federal spending by $3.2 billion over ten years, indicating that this budget neutrality requirement may result in preventing approval of some new waivers and renewal of some existing waivers, likely because the CMS actuary may be somewhat stricter in calculating budget neutrality than how CMS and the Office of Management and Budget do today.

Provisions Addressing Fraud, Waste, and Abuse with Only Nominal Budgetary Effects

The budget reconciliation law also includes two Medicaid and CHIP provisions that can be credibly characterized as focused on addressing fraud, waste, and abuse.  But they are expected to have only de minimis budgetary effects according to the CBO estimates.

• Increasing verification that Medicaid beneficiaries are not deceased.  Under section 71104, as of January 1, 2027, states are required to check not less frequently than quarterly the Social Security Administration (SSA)’s “Death Master File” to determine whether any Medicaid beneficiaries are newly deceased and if found to be deceased, to disenroll such individual and discontinue any payments on their behalf.  (States already can use the Death Master File to check whether beneficiaries are deceased.)  States are also required to immediately re-enroll a beneficiary in the event they are misidentified as deceased, with coverage retroactive to the date of disenrollment.  The CBO estimates find that this provision would have only de minimis effects on spending.

• Increasing verification that Medicaid providers are not deceased.  Under section 71105, as of January 1, 2028, states will be required to check not less frequently than every quarter whether a participating provider or supplier is deceased through the SSA’s “Death Master File.”  (States already can use the Death Master File to check whether providers are deceased.)  The CBO estimates find that the provision would have only de minimis effects on spending. 

Provision Intended to Increase Access to Home- and Community-Based Services

Nearly all of the Medicaid and CHIP provisions in the budget reconciliation law would cut federal Medicaid and CHIP spending, compared to prior law.  One modest provision is intended to increase access to home- and community-based services by providing a new waiver for states.  However, it is unlikely that states will take up this option to a significant degree.

• Establishing new waiver for home- and community-based services.  Effective July 1, 2028, section 71121 establishes a new section 1915(c) waiver option for states to provide home- and community-based services (HCBS) to individuals with long-term service and support needs.  Under prior law, states could only use waivers under 1915(c) of the Social Security Act to provide HCBS to individuals who would otherwise require an institutional level of care, such as in a nursing home.  Separately, under section 1915(i) of the Social Security Act, states have a state plan amendment option to provide HCBS to a specific group of individuals who do not require an institutional level of care but cannot cap enrollment, as is now permitted for 1915(c) waivers.
  
  Section 71121 amends section 1915(c) to provide a new waiver that allows states to provide HCBS to individuals who do not require that level of care (with capped enrollment) so long as the waiver would not increase wait times under other existing waivers, any existing waivers require more stringent eligibility criteria, and average per-beneficiary spending under the waiver does not exceed average spending for individuals receiving institutional care (among other requirements). 
  
  It is unlikely, however, that many states would take up this option or provide HCBS to many more people than they do today.  States would face significant financial constraints under the law including from the restrictions on use of provider taxes which will create budget shortfalls for existing Medicaid programs and seriously restrict the ability of states to finance any new programmatic improvements, including expanded availability of HCBS.  Moreover, due to cost, states already significantly limit enrollment in current 1915(c) waivers.  Cost is also why a relatively small number of states have taken up the existing 1915(i) state plan amendment option even though HCBS services can already be narrowly targeted to certain populations.  Also, research shows that states often cut HCBS and other long-term services and supports in the face of recessions, reduced revenues, and budget deficits.  The CBO estimates find that the provision would increase federal spending by $6.6 billion over ten years.

Affordable Care Act Marketplace Provisions

Increases in Marketplace Consumers’ Costs

The budget reconciliation law fails to include an extension of enhanced premium tax credits that have dramatically improved the affordability of Marketplace coverage. It also includes provisions that will result in many consumers having their premium tax credits terminated and many more facing unexpected tax liabilities.¹³

• Failing to extend the Marketplace enhanced premium tax credits.  The budget reconciliation law extends several federal tax credits but not a critical health care tax credit that reduces premiums for low- and moderate-income families.  The American Rescue Plan Act of 2021 included a boost to premium tax credits (PTCs) for enrollees in Marketplace health plans.  These “enhanced” PTCs reduced costs for people across all income levels.  For the lowest income Marketplace enrollees (between 100-150 percent of the federal poverty level or FPL: annual incomes of between $15,060 and $22,590), the enhanced PTCs enable them to pay $0 in premiums for their plan.  For moderate-income people (with annual incomes at or greater than $60,240, or 400 percent of FPL) who were previously ineligible for any premium help, the enhanced PTCs eliminated a “subsidy cliff,” capping their premium contributions at no more than 8.5 percent of their income.  Thanks to the enhanced PTCs, in 2024, 80 percent of Marketplace enrollees were able to find a plan for $10/month or less.
  
  If Congress does not act, the enhanced PTCs expire at the end of 2025, resulting in premium increases of more than 75 percent for the average Marketplace enrollee, with a 90 percent increase for those living in rural areas.  CBO has previously estimated that this will cause 4.2 million enrollees to become uninsured over the ten years, compounding the coverage losses resulting from other provisions in the budget reconciliation law.

• Placing Marketplace consumers at risk of higher premiums and unexpected tax liabilities.  The ACA’s premium tax credits are provided to Marketplace enrollees based on their projected income for the next year.  For many low- and moderate-income individuals, projecting their income is challenging because it is variable or dependent on seasonal or part-time employment.  Under the ACA, individuals receiving PTCs must file a tax return with the Internal Revenue Service (IRS) and “reconcile” the PTCs they received in the prior year with the PTCs they were eligible for, based on their actual income.  If they receive more in PTCs than they were entitled to, they may owe that excess back to the IRS.  The budget reconciliation law includes two changes that will expose Marketplace enrollees to significantly higher premiums and unexpected tax liabilities.
  
  Section 71303 permanently enshrines into law a recent regulatory change that requires all Marketplaces to deny PTCs to people who have not filed the correct tax form with the IRS.  Under previous rules, if an enrollee failed to file and reconcile their PTCs, they would have up to two years to submit the necessary tax forms.  In its June 2025 “Marketplace Integrity” final regulation, the Trump administration shortened that window to just one year, even though many problems with consumers’ PTC reconciliation are due to IRS delays and staffing shortages. Consumers who don’t have the necessary paperwork are denied premium tax credits.  Although the regulation applies for only one year (2026), the budget reconciliation law permanently codifies the policy as of plan year 2028.  CBO does not separately estimate the spending effects of just this element of section 71303 but it estimates that the section overall (including the effects of other elements of section 71303 discussed below) will reduce federal Marketplace spending by $36.9 billion over the next ten years and increase the number of uninsured by 700,000 in 2034.
  
  Section 71305 also removes a cap on the amount that low-income individuals must pay back to the IRS, if the PTCs they received exceed the amount they were entitled to, based on their actual income.  For 2025, the repayment of PTCs is capped at $375 for a person under 200 percent of the FPL, climbing to $1,575 for someone with income at 400 percent of the FPL.  There is no repayment cap for people with income over 400 percent of the FPL.  Under the budget reconciliation law, these caps on PTC repayments are lifted starting with the 2026 tax year.  This means that many low- and moderate-income families who file their 2026 tax returns in early 2027 will owe the IRS unexpectedly large amounts if their income or household size changed in the prior year.  This risk is likely to have a considerable chilling effect on people’s decisions on whether or not to enroll in Marketplace coverage.  CBO estimates this provision will reduce federal Marketplace spending by $17.3 billion over the next ten years and increase the number of uninsured by about 100,000 in 2034.

Elimination of Immigrant Eligibility for Marketplace Tax Credits

The budget reconciliation law terminates eligibility for Marketplace tax credits for many lawfully present immigrants who work and pay taxes in the U.S. 

• Slashing Marketplace tax credit eligibility for many lawfully present immigrants.  Section 71301 terminates eligibility for Marketplace premium tax credits and cost-sharing reduction subsidies for all but three categories of lawfully present immigrants (similar to how section 71109 terminates immigrant eligibility for Medicaid):
  • Lawful Permanent Residents (known as “green card” holders)
  • Certain Cuban and Haitian migrants; and
  • Individuals from the Marshall Islands, the Federated States of Micronesia, and the Republic of Palau, who live and work in the U.S. under the “Compact of Free Association” or “COFA.”

Increased Paperwork and Red Tape for Marketplace Coverage

The budget reconciliation law eliminates two tools to facilitate enrollment and renewals of marketplace plans: automatic re-enrollment and provisional eligibility.

• Eliminating automatic reenrollment in Marketplace plans.  Effective for plan year 2028, section 71303 eliminates the longstanding practice of annual automatic reenrollment in all Marketplace plans, which 10.8 million people (54 percent of Marketplace consumers) relied on last year to continue their insurance coverage.  Automatic renewals are a universal business practice for private market insurance companies in order to ease administrative frictions and promote continuity of coverage.
  
  Under the new law, all Marketplace enrollees will need to return to their account and actively verify or update their eligibility information before the end of the open enrollment period.  If they fail to do so, they will lose eligibility for PTCs for the next plan year. Furthermore, beginning next year, HHS will shorten the annual open enrollment window to end on December 15, meaning that many people will not be aware that they must pay the full premium until after the deadline to enroll.  Under the current open enrollment time period, which runs through January 15 for the federally run Marketplace, consumers have an extra two weeks to “fix” any discrepancies that came up in the re-enrollment process.  When open enrollment ends on December 15, they will no longer have that window, meaning that unless the consumer can afford to pay the full, unsubsidized premium, they may have no coverage at all for the entire next year.

• Ending provisional eligibility for Marketplace coverage.  Section 71303 also ends the Marketplace practice of offering provisional coverage, with PTCs, to new applicants while their information is being verified.  Currently, Marketplaces determine eligibility in real time, tapping federal and sometimes state databases.  This allows people to apply for and enroll in a plan in a single sitting.  If there’s a mismatch between the information in an individual’s application and the federal database, the Marketplace asks the applicant for more information.  This process, referred to as a “data matching issue” (DMI), is a manual one and can take a long time to resolve.  Indeed, more than half of income DMIs take over 60 days to resolve.  For this reason, Marketplaces extend provisional eligibility to individuals caught in a DMI, allowing them to enroll in a plan with PTCs for up to 90 days.
  
  Section 71303 disallows provisional eligibility, requiring new applicants for Marketplace coverage to provide paperwork proving their eligibility before they can begin receiving PTCs.  The Marketplaces will not be able to rely solely on third party data sources to assess an applicant or enrollee’s eligibility. Consumers will need to submit or proactively verify information about their:
  • Household income and family size;
  • Immigration status;
  • Eligibility for other coverage;
  • Place of residence;
  • Any other information determined necessary by the Secretary.

Reduced Opportunities for Marketplace Enrollment

The budget reconciliation law eliminates opportunities to enroll in Marketplace plans over the course of the year.  Furthermore, as noted above, the law locks out of affordable Marketplace coverage anyone who has failed to satisfy a state’s Medicaid work reporting requirement.

• Eliminating certain special enrollment periods for the Marketplaces.  The Biden Administration promulgated rules creating a special enrollment period (“SEP”) enabling low-income individuals (with incomes of less than 150 percent of the FPL or annual income of $23,475) to sign up for Marketplace coverage year-round.  This SEP has helped low-income people obtain affordable health coverage and access needed health care.  Section 71304 prohibits all Marketplaces from offering this and any other SEP that is tied to a consumer’s income. Earlier CBO estimates indicate that this provision would result in 200,000 additional people becoming uninsured by 2034.  While this provision goes into effect beginning in 2026, HHS’ Marketplace Integrity rule pauses the low-income SEP beginning October 24, 2025.  CBO estimates that this provision would reduce federal Marketplace spending by $39.5 billion over the next ten years and increase the number of uninsured by 400,000 in 2034.

More Tax Breaks Related to Health Savings Accounts

While deeply cutting Medicaid, CHIP and the ACA Marketplaces, the budget reconciliation law at the same time further expands Health Savings Accounts (HSAs).  HSAs are tax-favored savings accounts that increase the prevalence of high deductible health plans (that typically require significant upfront and other out-of-pocket costs) and offer substantial tax sheltering opportunities for the wealthy (as unlike other tax-advantaged accounts, contributions to, earnings from, and withdrawals from HSAs used for health expenses are all tax-free).  According to CBO, such provisions would have no impact on health coverage.   Waiving high deductibles for telehealth services.  Section 71306 allows health plans that waive deductibles for telehealth or other remote care services to be treated as high deductible health plans (HDHPs), allowing them to be paired with an HSA.  This provision would apply to plans effective January 1, 2025 and thereafter.  The Joint Committee on Taxation estimates that would reduce on-budget revenues by $3.2 billion over ten years.   Deeming bronze and catastrophic plans as HSA-eligible plans.  Section 71307 deems all bronze-level and catastrophic Marketplace plans to be high-deductible health plans (HDHP), making them eligible to be paired with an HSA.  This policy will go into effect beginning January 1, 2026.  The Joint Committee on Taxation estimates that would reduce on-budget revenues by $3.6 billion over ten years.   Allowing HSA funds to be used for direct primary care service arrangements.  Section 71308 allows HSAs to reimburse for the fees charged by direct primary care service arrangements, capped at $150 per individual per month. “Direct primary care service arrangement” is defined to include only those primary care services delivered by primary care practitioners.  Procedures requiring the use of general anesthesia, prescription drugs other than vaccines, and laboratory services not typically delivered in a primary care setting are excluded from the definition of primary care services.  This policy goes into effect beginning January 1, 2026.  The Joint Committee on Taxation estimates that would reduce on-budget revenues by $2.1 billion over ten years.

Appendix – Effective Dates

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Endnotes

1. The gross federal Medicaid and CHIP spending cut would equal $942.5 billion over ten years if including $47.2 billion in increased federal spending related to a new Rural Health Transformation Program fund (under section 71401, as discussed below) that is not part of the CHIP program even though the legislative language establishing the fund is placed within the CHIP statute (title XXI of the Social Security Act ). ↩︎
2. There are also interactions among the Medicaid and CHIP provisions and between the Medicaid/CHIP provisions and the ACA Marketplace provisions.  CBO estimates that these interactions would reduce the net Medicaid, CHIP, and Marketplace spending cuts by $95.4 billion over ten years (but CBO does not separately break out the interactive effects just among the Medicaid and CHIP provisions).  If all of the interactions are assumed to be among the Medicaid and CHIP provisions alone (even though it is likely that most of the interactions involve increased Marketplace spending resulting from the Medicaid and CHIP provisions), the net reduction in federal Medicaid and CHIP spending would be at least $894.2 billion over ten years.  CBO also estimates that the Medicaid and CHIP provisions will reduce revenues by $16.3 billion over ten years likely due to modest increases in employer-sponsored insurance (for which employer contributions to employee’s health insurance premium costs are excluded from income). ↩︎
3. The four provisions include funding penalties on states related to eligibility errors (section 71106), address verification to reduce duplicate enrollment (section 71103), identification of deceased individuals (section 71104), and additional screening of deceased providers.  The latter two provision have only de minimis budgetary effects. ↩︎
4. CBO estimates that the Marketplace provisions will increase revenues by $12.9 billion over ten years, likely because fewer people will be receiving non-refundable tax credits.  (Refundable premium tax credits are considered spending under budget scorekeeping.) ↩︎
5. Additional CBO coverage estimates indicate the law would first increase the net number of uninsured by 1.3 million in 2026.  The net increase in the uninsured would then jump to 5.2 million in 2027 and jump to 8.6 million in 2029, eventually rising to 10 million in 2034. ↩︎
6. The Medicaid cuts would result in a gross increase in the number of uninsured of 8 million in 2034 but with offsetting interactions of around 500,000 in coverage gains (likely due to a resulting increase in enrollment in Marketplace plans), the net increase in the uninsured due to the Medicaid cuts equals 7.5 million in 2034. ↩︎
7. The law’s Marketplace provisions would result in an increase in the uninsured of 2.4 million in 2034 (with 2.1 million directly resulting from the Marketplace cuts and another 300,000 apparently due to increased Marketplace coverage losses resulting from the Medicaid cuts or interactions among the Marketplace provisions).  In addition, the Medicare provisions — specifically the elimination of Medicare eligibility for certain lawfully present immigrants under section 71201 — would increase the number of uninsured by another 100,000.  The total net increase in the uninsured would therefore be 10 million relative to prior law, as estimated under CBO’s January 2025 baseline. ↩︎
8. Two provisions permanently codify provisions in a temporary final regulation that restrict Marketplace access.  CBO has previously assumed that codifying the full original proposed regulation would “score” only half (900,000) of the expected 1.8 million increase in the uninsured due to a probabilistic assumption that the original proposed rule would have been finalized anyway.  It is our understanding that CBO did not adjust its baseline for purposes of this cost estimate even though the proposed rule has been finalized but is only in effect for one year.  As a result, accounting for the full impact of the ACA Marketplace provisions would likely result in a further increase in the number of uninsured by 2034.  The total increase in the uninsured in 2034 including the expiration of the enhanced subsidies and the full impact of codification of the original proposed Marketplace regulation would likely be about 15 million. ↩︎
9. For a summary of the Medicaid and CHIP provisions of the original budget reconciliation bill passed by the House on May 22, 2205, see here. ↩︎
10. This provision was not included in the original budget reconciliation bill passed by the House on May 22.  But in its estimate of that initial House bill, CBO found that the prohibition on new or increased provider taxes included in this section would reduce federal spending by $89.3 billion over ten years, which gives a sense of the magnitude of the cuts under this safe harbor provision.  ↩︎
11. When the Government Accountability Office previously examined the cost of implementing Medicaid work reporting requirements through waivers, the cost was over $270 million in just one state (Kentucky).   ↩︎
12. As noted above, in its estimate of the original reconciliation bill passed by the House on May 22, 2025, CBO found that the prohibition on new or increased provider taxes by itself would reduce federal spending by $89.3 billion over ten years. ↩︎
13. In addition, on June 25, 2025, CMS finalized a set of operational and regulatory changes to the Affordable Care Act Marketplaces that, similar to provisions in the budget reconciliation law, further narrow eligibility, increase paperwork, and raise costs for Marketplace enrollees.  Several provisions of this final rule go into effect on August 25, 2025.  A summary of the rule is available here. ↩︎

Acknowledgements: We would like to thank Joan Alker, Andy Schneider, Anne Dwyer, Tricia Brooks, Kelly Whitener, Leo Cuello, Cathy Hope, and Melody Emenyonu for their contributions to this report.