Understanding Medicaid’s new reality: here’s the breakdown

Last summer, President Donald Trump’s One Big Beautiful Bill Act made significant changes to Medicaid, including nearly $1 trillion in spending reductions and stricter eligibility requirements affecting millions of people with low incomes.

The changes are also expected to leave many current Medicaid enrollees without health coverage and will reduce federal funding for the program, placing new financial pressures on states and health care providers. The effects will vary across the country but are expected to be especially significant in states that expanded Medicaid under the Affordable Care Act (ACA).

KFF and States Newsroom held a briefing on Thursday, July 23, highlighting the potential impacts of work requirements and other federal policy changes on states, health care providers and Medicaid enrollees.

Robin Rudowitz, senior vice president and director of Medicaid and the Uninsured, explained that Congress has gradually expanded Medicaid eligibility over time, extending coverage to children, pregnant women, people with disabilities and later, to more low-income adults through the Affordable Care Act. Despite the expansion, she said that the recent changes are really the biggest rollbacks in federal support for the Medicaid program in the history of the program.

When examining the implications for states, she noted that the effects will vary depending on each state’s Medicaid program, with the new changes creating significant financial and administrative challenges for state governments.

“Often federal Medicaid funding is the largest source of federal funds that come to states. So reductions in federal support for Medicaid can have a big impact on state budgets and leave states with really tough choices when they’re faced with balancing their budgets,” said Rudowitz.

She added that states can raise revenues, cut other areas of the budget or make cuts to Medicaid, as there are not many easy ways to reduce spending for it. They can also reduce provider rates, cut benefits or limit coverage. “These options can have direct implications for providers and people on the program,” Rudowitz said.

The second major area of impact for states, she said, is their ability to implement numerous and complex changes within a short timeframe, often with limited staff and resources. She noted that implementing Medicaid work requirements alone will be a significant lift for states as they prepare for the policy to take effect in January 2027.

Under the new work requirements, certain Medicaid applicants and enrollees will be required to demonstrate 80 hours per month of qualifying activities, including employment, participation in work programs, community service or enrollment in an educational program at least half time.

She also discussed the work status of Medicaid adults and the barriers to employment. “We know that those who are working are typically working in low-wage jobs, so they continue to meet the income standards to be on the Medicaid program. They’re also typically working in jobs without access to private insurance,” she said.

She noted that adults who are not working often report that they are attending school, providing care for a family member or are unable to work because of an illness or disability.

And under the new law, many individuals who are working or qualify for an exception may lose their coverage not because they’re not eligible, but because they might have difficulty navigating their way to document or report their current status. “States can use some data matching, but in many cases, it's going to be difficult to do the data match,” she said.

Rudowitz also pointed out that people working multiple jobs, part-time positions, jobs with unpredictable schedules or gig work, such as driving for Uber, may face difficulties documenting that they meet the work requirements through state data-matching systems.

Jennifer Tolbert, director of State Health Policy and Data and deputy director for Medicaid and the  Uninsured, explained what the Medicaid Frailty Law means and who falls under that category. 

She said that although California’s Medi-Cal program will be required to implement mandatory work requirements beginning next year, it must also provide exemptions for individuals classified as “medically frail.” Those exemptions protect vulnerable enrollees from having to document 80 hours per month of work or other qualifying community engagement activities.

Anna Claire Vollers, Stateline staff writer, reported that on June 25 Democratic attorneys general sued the Trump administration over the Medicaid frailty rule but more specifically over the narrowed guidance of who qualifies as medically frail. 

“When the guidance came up last month, a lot of them were not pleased. The attorneys general and governors that are part of the lawsuit said that the feds surprised them with this new rule several months after they had already been working with CMS on how to implement the work requirements,” Vollers said. And added that they’re saying the Trump administration is unlawfully reinterpreting the law that Congress passed.

Under the H.R. 1 bill, 1.3 million Californians could lose their Medi-Cal coverage and cost the state “tens of billions” of dollars in federal funding every year, according to the California Health and Human Services Agency.

They are also at risk of losing their food assistance entirely, and reduce the value of CalFresh benefits for all 3 million households who participate in the Supplemental Nutrition Assistance Program (SNAP), known as CalFresh in California.

Cuts would not only  affect children, working-age adults and seniors, but disproportionately affect more than half (52%) of Medi-Cal Latino enrollees, according to the Latino Policy & Policy Institute.

David DeWitt, editor in chief of the Ohio Capital Journal, shared that the nonpartisan Congressional Budget Office estimates the Medicaid changes included in the new law will result in 7.5 million more people becoming uninsured by 2034 and can ultimately increase even higher with changes to the ACA and the expiration of subsidies.

“Medicaid enrollment has fallen by five million over the past year, and marketplace enrollment has declined by about three million in the first few months of this year as people faced higher premiums following the expiration of enhanced premium tax credits,” Tolbert said. She added that these early coverage losses could intensify the effects of the new law’s changes and lead to even larger increases in the uninsured rate in the years ahead.

Vollers explained that new research estimates states could lose $679 billion in Medicaid funding over the next eight years as a result of provisions included in the One Big Beautiful Bill Act. And that state general funds, the primary source of revenue states use to pay for a wide range of programs, including but not limited to Medicaid, are projected to lose about $82 billion. 

She also shared that the figure is lower, as only a portion of the Medicaid funding reductions directly impacts state general funds, and as a result, new changes will vary significantly from state to state.