How Does the OBBBA Reshape Medicaid?

The OBBBA, enacted in July 2025, includes 25 notable Medicaid policy provisions that fall under five key categories: eligibility and cost sharing, financing, Medicaid expansion, long-term care, and access. The policy changes also reflect an increased emphasis on program integrity and compliance. Although a full repeal of the bill is unlikely, certain provisions may give rise to legal challenges. Regardless of potential litigation, changes within the health plan market are anticipated.

Significant changes in the marketplace for Medicaid managed care organizations require modifications to enrollment procedures, eligibility standards, and state financing strategies. By 2034, these policies are projected to impact 7.8 million enrollees. The most substantial effects will occur at the state level, particularly through changes in eligibility redeterminations, member engagement strategies, state financing approaches, and community partnerships.

The most impactful changes for Medicaid include:

• Mandatory Work Requirements: States are required to implement work and reporting requirements. The new work requirements create additional barriers for some and could potentially lead to a considerable number of individuals being disenrolled. These requirements will also have an impact on individual marketplace enrollment, as some enrollees seek alternate coverage. Plans with Medicaid and Exchange lines of business will see an impact in both markets.
• Eligibility Redeterminations: States are required to complete reviews more frequently (at least twice per year), which is likely to lead to many procedural disenrollments. Plans could also be required to play a role in these activities.
• Legal/Lawfully Present Status: Federal funds for Medicaid will be restricted to US citizens, lawful permanent residents, Citizens of the Compact of Free Association nations (COFA) and Cuban and Haitian entrants. This change eliminates previous entitlement for other lawfully present immigrants.
• Decrease in Medicaid Funding: Many states use provider taxes to finance their Medicaid program. Budget reconciliation bills and state legislative responses to federal cuts will drive funding changes over the next five years. States will be limited in their use of provider taxes to fund their share of Medicaid spending, which will in turn reduce federal spending.

Impact on Patients, Providers, and Plans

As of May 2025, approximately 70 million people are enrolled in Medicaid and 7.3 million people are enrolled in the Children’s Health Insurance Program, and 41 states and the District of Columbia have expanded Medicaid. Changes to eligibility requirements and benefit design through state budget pressures will impact patient access to coverage and care.

As state funding changes and Medicaid beneficiary enrollment shifts due to coverage gaps, the healthcare industry is likely to face increased administrative challenges for providers. For example, providers may face challenges in determining coverage and processing claims for their patients. Further, they may see financial impacts due to shifts in patient insurance status and potential increases in uncompensated care.

Beyond the loss of coverage for enrollees, health plans could encounter greater administrative burdens, which may result in more frequent delays in processing claims. Additionally, the Centers for Medicare and Medicaid Services have indicated a strong interest in program integrity across its programs, and particularly Medicaid. Major changes to the Medicaid program will impact Medicare Advantage (MA) Star Ratings, especially for Special Needs Plans (SNPs). The upcoming reporting changes will influence contracting strategies for health plans. Changes in the ACA Marketplace will also impact Medicaid, as enrollees move between the two programs and adapt to new requirements.

Preparing for Operational Impacts: Strategies Beyond the Medicaid Line of Business

In response to recent regulatory changes, health plans may elect to prioritize alternative commercial lines of business or implement new strategic approaches. Regardless of the direction chosen, it is essential for organizations to evaluate the cumulative impact of these decisions over the next five years to effectively prioritize initiatives and develop comprehensive strategies for long-term success.

Plans must develop strategies that diversify revenue streams or offset potential losses stemming from changing Medicaid policies. Some organizations may explore other markets (e.g., Medicare Advantage, Exchanges, or commercial lines) and others might rethink benefit designs. Any approach requires thorough analysis of key policy changes across all business segments and strategic alignment with organizational objectives. Further, there will be state variation in the impacts and implementation, so plans may seek to adapt strategies by state.

Medicare Advantage/Dual Eligible Special Needs Plans: Dually eligible beneficiaries require special consideration that include adapting eligibility oversight processes (e.g., mandated work requirements/frequent redeterminations) alongside shifting Medicare Advantage regulations that are focused on equitable access. Plans must balance evolving requirements across both programs by projecting enrollment accurately while maintaining robust provider networks amid growing administrative demands and compliance obligations, while simultaneously navigating payment-related regulatory adjustments.

Affordable Care Act/Exchanges: Plans modifying Exchange offerings must account for competitive private insurance dynamics under new policy conditions. These include the potential loss of income-based subsidies after 2026 which could raise premiums and other enrollee costs over five years.

Commercial Lines: Addressing budgetary challenges through commercial lines requires strategic operational shifts: private insurance prices typically outpace public payer rates and rate growth; Narrower networks, increased employee contributions, and higher premiums, deductibles, and cost sharing all carry implications that necessitate operational adaptation along with associated administrative investments.

Next Steps

As healthcare dynamics shift rapidly, health plans must proactively develop solutions now that address imminent challenges ahead. Medicaid managed care plans should assess how upcoming coverage shifts will affect revenue streams, membership, and administrative burden in implementing OBBBA changes and complying with state directed implementation. Managed care organizations considering entry into or exit from certain states should conduct market penetration analyses to ensure alignment with business objectives; those already operating in these markets need similar analyses to inform decisions about contract renewal. Avalere Health’s expertise positions us as an ideal thought partner—we help you strategize these issues today so you can implement effective operational changes now that position you favorably for tomorrow’s landscape. Connect with us to learn more.

Health Plans 2030

This Insight is the fourth installment in Avalere Health’s Health Plans 2030 series, in which we share perspective on the future health plan market and how plans should be prepared now. Previous Insights in this series discussed clinical care delivery , evolving operational approaches, and strategic uses of data and technology. To receive updates in this series directly in your inbox, complete the form below.