Executive Summary
The One Big Beautiful Bill Act (OBBBA) represents one of the most significant changes to Medicaid financing in decades. For nursing homes, the legislation raises important questions regarding future Medicaid reimbursement, supplemental payment programs, staffing investments, and long-term financial sustainability. Because Medicaid remains the primary payer for long-term care services, states facing substantial federal funding reductions may be forced to revisit provider reimbursement policies.
Overview of the One Big Beautiful Bill Act
The legislation includes Medicaid financing reforms intended to reduce federal expenditures and limit future spending growth. States that have historically relied on provider taxes, directed payments, and supplemental financing mechanisms may experience greater fiscal pressure, resulting in difficult budget decisions affecting healthcare providers.
States Projected to Experience the Largest Impact
According to RAND Corporation’s state-level analysis of the law’s Medicaid provisions (RR-A4098-1-v2, 2026), Arizona (−18.89%), Iowa (−16.01%), and Nevada (−15.62%) are projected to see the largest percentage reductions in their Medicaid funds by 2034, reflecting their extensive use of state-directed payments and provider taxes. In dollar terms, California (−$112.3 billion) and New York (−$62.6 billion) are expected to see the largest total reductions — though because their overall Medicaid programs are so much larger, both states rank well outside the 15 hardest-hit states in percentage terms (California −6.7%, ranks 20th of 51; New York −5.2%, ranks 26th of 51). Florida (+0.14%) and North Dakota (+0.44%) are projected to see small net increases in Medicaid funds, and Nebraska a small net decrease (−0.85%), as all three rely comparatively little on state-directed payments or provider taxes. Wyoming (+9.77%) and South Dakota (+2.05%) are projected to see the largest net increases in Medicaid funds, driven primarily by funding from the law’s Rural Health Transformation Program, which distributes $10 billion annually from 2026 through 2030 and guarantees every state between $100 million and $300 million a year regardless of size (Kentucky receives the most, $226 million annually; Rhode Island the least, $156 million). See Table 1 for the full state-by-state breakdown.
Table 1. Projected Medicaid Fund Impact by State, 2025-2034 (all 50 states + D.C.)
| State | Medicaid Fund % Change (2034) | Medicaid Fund $ Change (2034) |
|---|---|---|
| Arizona | -18.89% | -$42.60B |
| Iowa | -16.01% | -$12.81B |
| Nevada | -15.62% | -$10.18B |
| Kentucky | -13.91% | -$25.60B |
| Oklahoma | -13.71% | -$12.73B |
| Tennessee | -13.54% | -$23.52B |
| South Carolina | -13.19% | -$14.29B |
| Mississippi | -13.10% | -$11.31B |
| Virginia | -12.32% | -$27.22B |
| Louisiana | -12.27% | -$28.62B |
| Maryland | -11.25% | -$22.57B |
| New Mexico | -9.56% | -$9.83B |
| Oregon | -9.24% | -$16.71B |
| Hawaii | -9.13% | -$3.07B |
| Missouri | -8.74% | -$16.30B |
| District of Columbia | -8.20% | -$4.77B |
| North Carolina | -8.09% | -$20.30B |
| Washington | -7.52% | -$17.56B |
| Indiana | -7.43% | -$17.10B |
| California | -6.70% | -$112.26B |
| New Jersey | -6.58% | -$20.04B |
| Delaware | -6.20% | -$2.23B |
| West Virginia | -5.87% | -$4.15B |
| Utah | -5.77% | -$3.14B |
| Connecticut | -5.46% | -$8.25B |
| New York | -5.20% | -$62.60B |
| Texas | -4.75% | -$32.42B |
| Georgia | -4.63% | -$8.36B |
| Colorado | -4.58% | -$7.43B |
| Minnesota | -4.12% | -$9.12B |
| Illinois | -4.09% | -$16.73B |
| Arkansas | -3.71% | -$3.95B |
| Michigan | -3.47% | -$10.78B |
| Ohio | -3.33% | -$14.14B |
| Montana | -3.23% | -$1.13B |
| Vermont | -3.10% | -$0.90B |
| Rhode Island | -2.90% | -$1.22B |
| Idaho | -2.74% | -$1.22B |
| Massachusetts | -2.52% | -$7.77B |
| Pennsylvania | -2.47% | -$12.66B |
| Wisconsin | -1.78% | -$2.87B |
| Maine | -1.46% | -$0.84B |
| Alaska | -1.40% | -$0.48B |
| New Hampshire | -1.19% | -$0.43B |
| Nebraska | -0.85% | -$0.36B |
| Florida | +0.14% | +$0.53B |
| North Dakota | +0.44% | +$0.09B |
| Kansas | +1.06% | +$0.87B |
| Alabama | +1.25% | +$1.24B |
| South Dakota | +2.05% | +$0.32B |
| Wyoming | +9.77% | +$1.04B |
Table shows all 50 states and the District of Columbia. Figures are the combined federal-and-state “State Medicaid Fund” impact for calendar year 2034 (the last year modeled), net of offsetting Rural Health Transformation Program funds. A separate “State General Fund” impact (not shown) can move in the opposite direction for some states, since reduced Medicaid enrollment lowers a state’s own required contribution even when its federal Medicaid funding falls. Source: Preethi Rao, Lawrence Baker, Federico Girosi, Elaine Li, Rose Kerber, and Christine Eibner, “State-Level Impacts of Key Medicaid Provisions in the One Big Beautiful Bill Act,” RAND Corporation, RR-A4098-1-v2, 2026, Table B.1.
Why Nursing Homes Are Particularly Vulnerable
Nursing homes depend more heavily on Medicaid than most other healthcare sectors. In many facilities, Medicaid residents represent the majority of occupied beds and Medicaid reimbursement represents the largest source of revenue. Even modest funding reductions can significantly affect operations. Notably, the single largest driver of OBBBA’s Medicaid impact nationally — new work requirements for expansion adults, projected to reduce enrollment by 5.3 million by 2034 — generally does not apply directly to nursing home residents: RAND’s analysis excludes residents of institutional settings, along with most aged, blind, or disabled beneficiaries, from the population subject to the requirement. The risk to nursing homes runs through the state fiscal pressure these provisions create, not through residents losing their own coverage.
How OBBBA Changes Provider Taxes and State-Directed Payments
States have historically used provider taxes to help finance their share of Medicaid spending, often pairing a tax on a provider class with an equivalent increase in Medicaid payment rates to draw down additional federal matching funds. OBBBA restricts this practice for Medicaid expansion states by gradually lowering the “hold harmless” threshold that triggers federal review — from 6% in 2027 to 3.5% by 2032 — while barring states from creating new provider taxes or raising existing rates, and giving CMS broader authority to deny tax waivers. RAND estimates these provider tax provisions will reduce state budgets by $278 billion nationally between 2025 and 2034, concentrated heavily in California, whose denied managed care organization tax waiver alone accounts for more than half that total. Importantly for nursing homes, taxes levied specifically on nursing facilities and intermediate care facilities were exempted from these changes, along with provider taxes in the ten states that have not expanded Medicaid under the ACA. As a result, most nursing homes’ own provider tax base is not directly affected by this provision — though the broader fiscal pressure on state Medicaid budgets from cuts elsewhere may still push states to look for savings in nursing home reimbursement rates.
State-directed payments face a more direct hit. Since 2016, CMS has allowed states to require Medicaid managed care plans to pay providers at set rates, including supplemental payments for nursing facility services specifically. OBBBA repeals a 2024 rule that had capped these payments at 100% of the Medicare rate in expansion states (110% in non-expansion states) for inpatient/outpatient hospital services, academic medical center professional services, and nursing facility services. New SDP applications must meet the cap immediately; existing SDPs being renewed will see their payment ceiling reduced by 10 percentage points a year until they reach it. RAND estimates this provision alone will cut Medicaid spending by $241 billion nationally through 2034, of which $169 billion comes directly out of federal funding. Twenty-four of the 31 states with an active SDP in 2025 have at least one payment arrangement affected; rates on those payments ranged from 36% to more than 300% of the Medicare benchmark before the cap, with a median of roughly twice the Medicare rate. South Carolina and Nevada had the highest SDP rates relative to Medicare, so their payments will shrink the most proportionally, while Texas and Tennessee face the largest dollar reductions. Because nursing facility services are named explicitly among the payment categories subject to the new ceiling, facilities in states that used SDPs to lift Medicaid nursing home rates above the old cap face a real, gradual reduction in that revenue stream as their state’s SDPs come up for renewal.
Taken together, these two provisions call for a more precise read on Medicaid exposure than “provider taxes” alone suggests: a nursing home’s own provider tax is largely protected, but any state-directed payment supplementing its Medicaid rate is not, and will erode over several years as it comes up for renewal. Operators should confirm with their state Medicaid agency whether a nursing facility SDP is in place, what the current payment-to-Medicare ratio is, and when the arrangement is next due for renewal.
Nursing Home Reimbursement Analysis
Many states already reimburse nursing homes below the full cost of providing care. Facilities often rely on Medicare margins, managed care revenue, provider taxes, and supplemental Medicaid payments to remain financially viable. States facing budget shortfalls may consider freezing rate increases, delaying rebasing initiatives, reducing supplemental payment pools, limiting directed payment programs, or increasing provider assessments. As a result, reimbursement pressure could intensify for facilities with a high Medicaid census.
Operational Impact on Nursing Homes
Labor costs frequently account for 60% to 70% of operating expenses. Reduced reimbursement growth may affect staffing recruitment and retention efforts, wage growth, workforce development initiatives, capital improvements, technology investments, and debt service capacity. Facilities operating with narrow margins may experience increased financial stress, contributing to industry consolidation. One staffing-related risk has already been resolved, and in the industry’s favor: OBBBA itself (Sec. 71111) bars CMS from enforcing the Biden-era federal minimum staffing rule — 24/7 onsite RN coverage and 3.48 total nursing hours per resident day — until September 30, 2034, and CMS went further in December 2025, issuing an interim final rule that repealed those numeric minimums outright, effective February 2, 2026. Facilities must still maintain a data-driven staffing assessment tied to resident acuity, and some states impose their own numeric minimums regardless of federal action, but the specific federal hours-per-resident-day mandate operators had been budgeting around is, for now, off the table.
States Facing the Greatest Nursing Home Reimbursement Risk
Facilities in states with the largest percentage cuts to Medicaid funding face the most acute reimbursement risk, since a percentage reduction — not a state’s total dollar figure — is what determines the squeeze on any individual facility’s payment rates. By that measure, Arizona, Iowa, Nevada, Kentucky, Oklahoma, Tennessee, South Carolina, Mississippi, Virginia, and Louisiana face the greatest risk, each projected to lose more than 12% of their Medicaid funds by 2034. California and New York, despite having the largest total dollar reductions, rank comparatively lower on a percentage basis (−6.7% and −5.2%, respectively) because their Medicaid programs are so much larger to begin with — though their sheer size means a large number of nursing home providers are still exposed in absolute terms. Providers in any state with a large Medicaid census should assess their exposure using both measures.
Why Quality Reimbursement Becomes Even More Important
As Medicaid funding becomes more constrained, quality-based reimbursement programs are likely to become increasingly important. Facilities with strong quality outcomes may be better positioned to earn incentive payments, participate in value-based programs, and maintain financial stability. Quality performance should be viewed not only as a clinical objective but also as an important revenue strategy.
Strategic Considerations for Nursing Home Operators
Organizations should model multiple reimbursement scenarios, monitor state policy developments, evaluate dependence on supplemental payments, strengthen quality programs, and pursue operational efficiencies. Diversification of revenue streams and proactive planning will be critical.
Industry Outlook
The ultimate impact of OBBBA will depend on how states respond to funding reductions during future budget cycles. However, providers should begin assessing Medicaid exposure now and develop contingency plans for changes in reimbursement methodology, supplemental payments, and quality-based funding.
Key Takeaway
While the legislation focuses on federal Medicaid funding, the greatest impact on nursing homes is likely to occur at the state level. States facing major funding reductions may have limited options for balancing budgets, and provider reimbursement could become a primary target. Nursing home operators that emphasize quality performance, financial planning, workforce stability, and operational efficiency will be best positioned to navigate the evolving reimbursement environment.
Source: State-level Medicaid funding figures cited above are drawn from Preethi Rao, Lawrence Baker, Federico Girosi, Elaine Li, Rose Kerber, and Christine Eibner, “State-Level Impacts of Key Medicaid Provisions in the One Big Beautiful Bill Act,” RAND Corporation, RR-A4098-1-v2, 2026, Table B.1 (State Budgetary Impact of Studied Provisions, Overall).
