OBBBA & Medicaid: 4 Ways for State and Local Leaders to Adapt

As of October 1, 2025, the U.S. federal government has shut down after members of Congress failed to pass a bill funding services into October and beyond. The primary dispute between the two parties relates to Medicaid cuts and other healthcare changes passed in July, which are what I’ll discuss in this article.

On July 4, 2025, President Trump signed the budget reconciliation bill (H.R. 1 or P.L. 119-21) into law. Originally named the “One Big Beautiful Bill Act” (OBBBA), this legislation brings the largest Medicaid overhaul in decades. Between spending cuts and new eligibility requirements, state and local governments must adapt quickly to continue serving their communities while remaining in compliance with the law.

For more than a decade, I’ve partnered with public sector organizations to solve complex workforce, operational, and technical challenges. With the implementation of Medicaid changes in OBBBA, public sector organizations are facing a new set of challenges that require custom-built solutions.

Ever since OBBBA was signed into law, I’ve been listening to state and local leaders across the country about their concerns over the bill’s impact on their operations. In this article, I’ll outline the Medicaid changes, the challenges facing public sector leaders, and strategic solutions public sector entities can adopt.

But first… what is OBBBA?

What is the One Big Beautiful Bill Act?

The OBBBA is meant to extend tax cuts, adjust federal spending, raise the debt ceiling, and implement broad economic and social policy changes as part of the proposed FY2025 budget plan.

• Timeline: The OBBBA was introduced in the House on May 20, 2025, and narrowly passed two days later. It passed the Senate by a tiebreaker vote on July 1, 2025, and was signed into law on Independence Day.
• Cost Estimate: The OBBBA will likely cost up to $4.1 trillion including tax cuts, offsets, spending increases, interest costs, and debt impact. Most funding changes will not be enacted until FY2026 at the earliest.
• Impacted Industries: Life sciences, healthcare, government, education, energy, manufacturing, IT, and more.

Some of the biggest changes in OBBBA relate to Medicaid.

The Scope of Medicaid Cuts

OBBBA will reduce federal Medicaid spending by an estimated $911 billion over ten years—about 14% of projected expenditures. Most of these cuts hit in the final five years, meaning states must prepare now for a steep ramp-up in fiscal pressure. The Congressional Budget Office (CBO) estimates these changes will increase the number of uninsured people in 2034 by 7.5 million, with other changes impacting the health insurance coverage of another 2.5 million.

However, there is a possibility that these numbers will change, depending on how Congress passes the next appropriations bill.

What’s Changing

These changes apply to adult, non-family populations enrolled under the Medicaid Coverage Expansion (MCE) under the Affordable Care Act (ACA).

• Work Requirements: Most adults under 65 must work, train, or volunteer at least 80 hours per month to keep Medicaid coverage, with limited exemptions.
• Eligibility Reviews: States must review eligibility of MCE adults every six months, up from an annual review.
• Cost Sharing: Some enrollees will face new co-pays up to $35 per visit.

These changes affect all Medicaid populations.

• Pause on Biden-era Enrollment Regulations: New rules that would make it easier to enroll in Medicaid, CHIP, or the Basic Health Program are on hold until September 30, 2034.
• Stricter Eligibility Checks: States and the federal government must set up new systems to verify enrollee information—such as addresses and Social Security numbers—and cross-check with federal databases to confirm eligibility and identify deceased enrollees.
• Shortened Retroactive Coverage: Medicaid will only cover medical expenses from up to one month before enrollment for MCE adults, and up to two months for other groups. This is a reduction from the previous three-month window. These changes apply to applications submitted on or after January 1, 2027.

These changes affect Medicaid funding and payments.

• Stricter Rules for Provider Taxes: States must restructure taxes on healthcare providers so they aren’t used to boost Medicaid funding.
• Lower Caps on Provider Tax Revenue: The amount of money states can raise from healthcare-related taxes is now capped at lower levels. For states with Medicaid expansion, this cap will gradually decrease over several years, making it harder to generate supplemental Medicaid funds.
• Reduced Supplemental Payments: Payments made by Medicaid-managed care plans to support hospitals and other providers will be limited to Medicare rates (or slightly higher for non-expansion states), replacing previous, more generous limits based on commercial rates.
• Less Federal Support for Emergency Services: Starting October 1, 2026, states will no longer receive enhanced federal matching funds for emergency care provided to non-qualified immigrants.
• No Extra Incentives for Medicaid Expansion: States that newly expand Medicaid will no longer receive higher federal matching rates for the first two years of expansion.
• No Extension of DSH Payment Cuts: Scheduled reductions to disproportionate share hospital (DSH) payments will proceed as planned, with no delay or extension.

What do these changes mean for people and providers?

Who’s Affected

The impact of the Medicaid changes will be widespread, but especially for vulnerable populations who rely on Medicaid and public sector agencies who oversee Medicaid programs.

• Adults Enrolled Under MCE: As already mentioned, multiple provisions specifically affect MCE enrollees, making it more difficult for them to maintain coverage. Even if they meet the requirements, the administrative burden could be too much for some people.
• Legal Immigrants and Certain Non-Citizen Groups: Medicaid and CHIP eligibility will be limited to lawful permanent residents, Cuban and Haitian entrants, and citizens of Compact of Free Association nations. Refugees, asylees, and other humanitarian groups are excluded.
• Healthcare Providers: They will receive reduced payments from Medicaid-managed care plans, potentially impacting their ability to provide a high standard of care to Medicaid patients.
• State and Local Governments: They must adapt their systems for eligibility review and verification to remain in compliance, while also facing lower federal funding.
• Medicaid Managed Care Organizations (MCOs): They must adjust to new payment limits and eligibility verification processes.

Legal compliance is always critical for any organization, but it’s not always easy. Let’s look into the new challenges public sector entities face with the OBBBA changes.

The Compliance and Eligibility Challenge

State and local governments must rapidly update systems and processes to comply with new federal mandates, including biannual eligibility checks and enhanced reporting requirements such as cross-verifying enrollee data with federal databases.

Administrative Burden

The shift from annual to biannual eligibility checks means more paperwork, more complexity—and more people to manage it all. States may need to process eligibility for millions more individuals each year, requiring robust documentation, analytics, and workflow management.

Technology Gaps

Most states are not equipped to handle these new compliance standards. Upgrading call centers, eligibility platforms, and data integration systems is a top priority. Custom software solutions—such as automated eligibility verification and real-time analytics dashboards—will be essential to manage compliance and minimize disruptions to coverage.

The stakes are high. Without rapid modernization, states risk delays in coverage, increased administrative costs, and potential loss of federal funding.

But there is a path forward.

Strategic Adaptation for State and Local Leaders

Here are four different solutions for public sector organizations to adopt as they strive to continue their important work in the face of the new Medicaid changes.

Modernizing Medicaid Operations

OBBBA’s sweeping changes demand a new era of Medicaid operations. States must rapidly upgrade eligibility platforms, call centers, and data systems to handle biannual eligibility checks, stricter compliance, and complex reporting requirements. Modernization means investing in:

• Automation
• Real-time analytics
• Secure data integration
• Cloud-based solutions
• AI-powered tools

These investments will help states meet new requirements while also allowing Medicaid programs to deliver more efficient, person-centered care during a time of change.

But the success of Medicaid modernization hinges on having the right people in place.

Assessing Talent

Public sector entities must assess their workforce for both skills and capacity.

Are there the right people?

Are there enough people?

With new eligibility and reporting standards, there’s a growing need for professionals who understand both Medicaid policy and digital transformation. One solution is to upskill existing staff. Another is to recruit new talent with the right skills and experience. A third option is to outsource new labor needs—but I’ll get more into that in a minute.

Future-Proofing Against Volatility

OBBBA introduces unprecedented volatility in Medicaid funding, eligibility, and service delivery. To future-proof operations, agencies must adopt flexible budgeting, scenario planning, and risk management strategies.

Tech and talent solutions include investing in scalable technology and cross-training or upskilling current employees. These steps will make it easier for organizations to adapt quickly to policy shifts.

Another way to future-proof Medicaid operations? Establish good partnerships with outside experts.

Outsourcing with Accountability

As administrative demands grow, many states are turning to outsourcing for eligibility processing, call center operations, and IT support. However, outsourcing must be paired with robust accountability measures.

Agencies should set clear performance metrics, require transparent reporting, and conduct regular audits to ensure vendors meet compliance standards. Strategic outsourcing for professional services can free up internal resources and bring specialized expertise, but only when done correctly.

Building strong public-private partnerships—with accountability at the core—will be key to sustaining Medicaid operations under OBBBA.

Leading Through Change

The One Big Beautiful Bill Act has reshaped the Medicaid landscape, introducing sweeping changes that challenge the status quo for public sector leaders. But with challenge comes opportunity. By making bold changes, state and local governments can go beyond compliance, leading with resilience.

The path forward requires urgency, creativity, and collaboration. Leaders who act decisively today will be better positioned to protect coverage, improve service delivery, and build a more adaptive Medicaid infrastructure for tomorrow. This is true even if Congress votes to undo some of the Medicaid changes in OBBBA.

Now is the time to act—and you don’t have to do it alone.

Partnering with a professional services and staffing company like Insight Global can help you navigate this new complexity with confidence. Contact us today.

Stephanie Wisman is Managing Director of SLED at Insight Global and Evergreen, our professional services division. Connect with her on LinkedIn.