On July 4, 2025, President Trump signed the “One Big Beautiful Bill” into law—a sweeping extension of the 2017 Tax Cuts and Jobs Act (TCJA). While aimed at boosting economic growth and cutting the federal deficit, this legislation includes substantial changes to healthcare financing, including modifications to Medicaid and Medicare eligibility, funding levels, and provider tax structures.
Policy Background & Rationale
As part of its broader policy agenda, the One Big Beautiful Bill makes permanent the individual and corporate tax provisions originally introduced under the TCJA. While rooted in tax policy, the bill also introduces measures aimed at reducing federal spending, mitigating fraud, and promoting long-term economic growth. A central goal of the legislation is to prevent the depletion of the Medicare Hospital Insurance Trust Fund, which is currently projected to run out of money by 2036. Supporters of the bill argue that the legislation is necessary to address concerns about the projected federal budget deficit and the long-term viability of federal healthcare funding, while critics express apprehension about its broader implications.
Key Healthcare-Related Provisions
The bill calls for steep cuts to Medicaid, totaling approximately $739 billion over the next 10 years. To implement these changes, key provisions include new eligibility requirements, shifting re-enrollment frequency, and verification checks to reduce fraud. According to the Congressional Budget Office (CBO), these changes could lead to 10.9 million more uninsured Americans, placing greater pressure on safety-net providers who already operate on thin margins. Similarly, provider tax benefits will be reduced from 6% to 3.5%, limiting states’ abilities to draw federal Medicaid funds. For providers in Medicaid expansion states, where supplemental funding through providers taxes can account for 10–15% of total Medicaid revenue, the decrease in allowable tax benefits could cut annual funding by millions—especially in health systems with large safety-net exposure.
To offset this impact, the bill includes a provision for Rural Emergency Hospital (REH) status, which essentially loosens the criteria for a hospital to qualify as an REH. The intent is to support rural hospitals by offering enhanced outpatient reimbursement, without requiring the costly infrastructure associated with full inpatient services. However, critics argue that it may limit long-term revenue growth opportunities due to the absence of inpatient services, potentially pushing systems toward outpatient-heavy or telehealth-integrated models.
Due to past cases of fraudulent use of healthcare coverage benefits, the bill also introduces a $25 million investment in AI-driven fraud detection tools, changing the way the federal government monitors billing and utilization patterns in Medicare and Medicaid. While the technology promises quicker identification of fraudulent use, it also raises important data privacy and error-risk concerns, especially for large health systems and revenue cycle operations. Health systems will need to reassess their billing workflows and compliance protocols to avoid false positives or denials. This may increase the administrative burden or require investment in internal analytics tools to defend billing accuracy.
Anticipated Impacts
While the full effects of this bill are still unfolding, it has introduced financial and operational implications that warrant further analysis. For healthcare providers and health systems, the effects of these changes will vary based on payer mix, patient demographics, and geographic location. Hospitals with a high Medicaid volume, particularly those in expansion states or rural areas, will likely experience financial volatility as reimbursements go down and uncompensated care goes up. While the REH designation offers financial support, it may not offset broader reductions in federal funding.
Furthermore, the reduction of healthcare coverage to communities and individuals that highly depend on this support directly impacts individuals’ ability to pay for their healthcare. Inability to pay for services will not necessarily reduce the number of people going to the hospital but may cause uncompensated care rates to increase, adding strain to hospitals that are already operating on thin margins. Though the term “uncompensated care” implies services are entirely unpaid, hospitals may recover some of these costs through charity care programs, limited government subsidies such as Disproportionate Share Hospital (DSH) payments, or cost-shifting strategies that raise commercial rates. However, these approaches often fall short, especially in areas with high volumes of uninsured patients. Additionally, the bill does not increase support for DSH payments, despite a projected spike in the number of uninsured.
The ripple effects continue across payers and insurance markets. As less individuals will be enrolled in Medicaid, many may seek coverage through Affordable Care Act marketplaces, potentially increasing the overall risk pool for commercial insurers. In response, insurers may raise premiums or limit participation in high-cost regions. At the same time, providers managing higher levels of uncompensated care may demand higher reimbursement from private payers, leading to more difficult contract negotiations. These dynamics may also contribute to long-term market shifts. Patients could face fewer insurance options, while providers and healthcare companies may pursue mergers or acquisitions to stay competitive.
Looking Forward
As the full implications of the One Big Beautiful Bill continue to come to fruition, healthcare organizations and providers must proactively assess their plans and strategies for the future. With a likely shift toward outpatient-focused and efficiency-driven models, health systems—especially those in rural areas—should consider a transition for REH conversions, as inpatient volumes may no longer support traditional hospital operations.
Rising levels of uncompensated care will require a stronger focus on revenue cycle management to minimize bad debt and protect financial performance. At the same time, reevaluating payer mixes and contracting strategies will be essential, particularly in markets where commercial rates will need to compensate for reduced government funding. Ultimately, those who can adapt and align their strategies with the changing policy will be in a better position for long-term success.
References
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Centers for Medicare & Medicaid Services. (2025, August 4). Disproportionate Share Hospital (DSH). https://www.cms.gov/medicare/payment/prospective-payment-systems/acute-inpatient-pps/disproportionate-share-hospital-dsh
Gravelle, J. G., & Marples, D. J. (2025, April 7). Economic effects of the Tax Cuts and Jobs Act (CRS Report No. R48485). Congressional Research Service. https://www.congress.gov/crs-product/R48485
LeValley, D. (2025, July). Four proposed changes to Medicare in the One Big Beautiful Bill Act — and what ended up in the signed bill. Kiplinger. https://www.kiplinger.com/retirement/medicare/changes‑to‑medicare‑in‑the‑one‑big‑beautiful‑bill‑act
Moore, E. & Grisales, C. (2025, May 22). Here’s what’s in the GOP megabill that’s just passed the House. NPR. https://www.npr.org/2025/05/21/nx-s1-5406392/trump-republicans-tax-bill-reconciliation-medicaid
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Cass, A. & Wilson, R. (2025, June 16). Proposed Medicaid cuts, quantified. Becker’s Hospital Review. https://www.beckershospitalreview.com/finance/medicaid-cuts-quantified/?origin=BHRE&utm_source=BHRE&utm_medium=email&utm_content=newsletter&oly_enc_id=8331F3785501E6S
Healthinsurance.org. (n.d.). Medicaid Expansion. Healthinsurance.org. https://www.healthinsurance.org/glossary/medicaid-expansion/
The White House. (2025, July 4). President Trump’s One Big Beautiful Bill Is Now the Law. The White House. https://www.healthinsurance.org/glossary/medicaid-expansion/
NASHP. (2025, July 8). What Health Care Provisions of the One Big Beautiful Bill Act Mean for States. National Academy for State Health Policy. https://nashp.org/what-health-care-provisions-of-the-one-big-beautiful-bill-act-mean-for-states/
Tolbert, J. et. al. (2024, December 18). Key Facts about the Uninsured Population. KFF. https://www.kff.org/uninsured/issue-brief/key-facts-about-the-uninsured-population/
