One Big Beautiful Bill Act projected to reduce state Medicaid funding by $664 billion

Provisions in the One Big Beautiful Bill Act (OBBBA) are projected to reduce total Medicaid funding flowing through state programs by $664 billion between 2025 and 2034, according to an analysis of 12 provisions within the bill by RAND. During the same period, state general funds are expected to decline by $87 billion.

The provisions modeled include:

• Sec. 71107, which deals with redetermination eligibility
• Sec. 71119, which deals with work requirements

To date, 41 states, including Washington, D.C., have adopted the Medicaid expansion under the Affordable Care Act. Of those, 20 are projected to see Medicaid budget reductions of at least 5%.

While the magnitude of reductions will vary by state, Medicaid expansion states that rely heavily on state-directed payments and provider taxes are expected to experience the largest impacts. California and New York are estimated to see the biggest reductions, of $112 billion and $63 billion, respectively. Arizona, Iowa, and Nevada stand to see at least a 15% reduction in their Medicaid budgets.

Starting in 2027, Medicaid enrollees must comply with new work requirements, which means they must complete at least 80 hours a month doing community engagement to be eligible for or to maintain their coverage.

Additionally, new redetermination requirements mean that enrollees must renew their coverage twice a year, rather than yearly. This can lead to disenrollment because of administrative reasons, such as not having the correct paperwork or because an individual’s circumstances have changed, making them ineligible, Preethi Rao, a senior economist at RAND and lead author, explains in the study.

“The implementation of Medicaid work requirements and more frequent redetermination for the expansion population represents a reduction to state budgets (sum of Medicaid budget impact and general fund impact) of nearly $350 billion through 2034 because of decreased enrollment,” Rao said. “This represents a $388 billion reduction to state Medicaid budgets and a $40 billion increase to state general funds. Similarly, more frequent redetermination would lead to reductions of nearly $70 billion, with reductions of $77 billion to state Medicaid budgets but savings of nearly $8 billion to state general funds.”

OBBBA was signed into law on July 4, 2025. RAND estimates the federal government would realize $714 billion in savings under the law, which is broadly consistent with projections from the Congressional Budget Office, which estimated roughly $709 billion to $793 billion in reduced federal Medicaid spending tied to similar provisions.

After accounting for overlapping effects across policy changes, RAND projects national Medicaid enrollment would decline by approximately 7.6 million enrollees by 2034.

Rao concludes her analysis by saying that states will likely need to draw more heavily from state general funds, reduce enrollment or reduce coverage.

“As states plan for the upcoming changes in funding and eligibility, understanding these state-specific differences will be important,” Rao said. “The variation we found suggests that policymakers may need tailored approaches to manage fiscal pressures and consider changes in insurance coverage and access to care.”