From the Paragon Institute's Brian Blase:

The U.S. House of Representatives has passed the One Big Beautiful Bill (OBBB), sending it to President Trump for his signature on July 4. OBBB is a sweeping package of tax cuts, program reforms, and spending measures. Its health policy provisions largely reverse the reckless and inflationary Biden administration policies that led to massive improper enrollment in Medicaid and the Obamacare exchanges—and unleashed unprecedented levels of waste, fraud, abuse, and corporate welfare. Notably, enacting the OBBB reforms required Congress to overcome fierce opposition from powerful health care special interest groups that profit from the status quo and lobby aggressively to preserve the flow of government subsidies into their coffers.
 
Federal health programs are on an unsustainable trajectory and are the primary driver of the nation’s worsening fiscal outlook. The Biden administration pursued an enrollment-at-any-cost agenda with dramatically higher federal subsidies to health insurers and big hospital systems. As a result, the federal baseline for Medicaid and Obamacare subsidies increased by $1.9 trillion over the next decade based on a comparison between the 2021 and 2025 Congressional Budget Office (CBO) estimates. 
 
The figure below shows the combined growth of the Medicaid and Obamacare subsidy baselines between the beginning and end of the Biden administration. It also shows the effect of OBBB on these two programs as estimated by CBO, including the rural transformation program added by the U.S. Senate. The key takeaway: OBBB is not cutting these programs but rather brings spending projections back in line with pre-Biden projections.

 

The main sources of savings include: 1) addressing the Medicaid money-laundering machine; 2) implementing community-engagement requirements in Medicaid for able-bodied, working-age Obamacare Medicaid expansion enrollees; 3) verifying enrollee eligibility and limiting Obamacare subsidies to U.S. citizens; and 4) rescinding costly Biden administration rules.

Addressing the Medicaid Money-Laundering Machine (Projected Savings ~$375 billion)

The Medicaid money-laundering machine—higher provider tax ‘scam’ revenue fueling Medicaid payment rates well above Medicare rates—exploded during the Biden administration. There has been longstanding bipartisan concern about these schemes with President Obama introducing reforms to phase down the provider tax safe harbor from 6.0 percent to 3.5 percent in his 2013 budget proposal. The safe harbor is effectively the amount that states can tax providers and leverage that revenue to obtain federal matching funds, which are then used to make extremely large payments to the providers taxed. In many instances, states keep some of the extra federal funding to use on programs unrelated to Medicaid.
 
The OBBB incorporates the Obama proposal in Medicaid expansion states, phasing down the current 6.0 percent safe harbor to 3.5 percent, starting in 2028 with a 0.5 percentage point decrease each year. The bill also freezes provider taxes in all states, so that states can’t increase this funding “scam.”
 
The OBBB also implements stricter rules on provider taxes to curb particularly egregious state financing abuses, such as California’s use of a managed care tax that disproportionately targeted Medicaid providers to draw down excessive federal funds—and then expand Medicaid to unauthorized immigrants the following year. The reform reinforces requirements that taxes be broad-based and uniform to prevent the explicit kickback mechanism of these taxes, where the entities that disproportionately bear the burden of the tax are the ones that receive the benefit of higher Medicaid payments.
 
The OBBB ensures that Medicaid payment rates, through health insurers, cannot exceed Medicare rates. The legislation would limit state proposals not submitted by the date of enactment to Medicare rates (110 percent of Medicare rates in non-Medicaid expansion states), and it would gradually phase down existing payments that are above Medicare rates until they come into compliance. There is a similar Medicaid payment cap on fee-for-service payments in the program.
 

Implementing Community-Engagement Requirements in Medicaid (Projected Savings ~$326 billion)

 
The OBBB prioritizes work over welfare for able-bodied, working-age adults—helping to preserve resources for the most vulnerable and promoting work, education, and community service. The provision would require states to implement community-engagement requirements for able-bodied working-age Medicaid expansion enrollees without dependents aged 14 and younger. Individuals could meet the requirements through 80 hours a month of work, education, community service, or job training.
 
The provision includes reasonable exemptions from the requirements. It also exempts pregnant women, children, seniors, medically frail individuals, caregivers, tribal members, and those already meeting work requirements under Temporary Assistance for Needy Families or the Supplemental Nutrition Assistance Program.

Ensuring Medicaid Expansion and Obamacare Enrollees Are Eligible and Limiting Obamacare Subsidies to Citizens (Projected Savings ~$276 billion)

The Biden administration was focused on maximizing enrollment in the exchanges and Medicaid expansion, regardless of whether enrollees were eligible. We estimate that states have incorrectly classified at least 5 million people as Medicaid expansion enrollees—costing federal taxpayers about $30 billion this year. We estimate that there are at least 6.4 million individuals in fully-subsidized exchange plans who do not meet eligibility criteria—costing nearly another $30 billion this year. Improper exchange enrollment was driven by expanded subsidies and Biden-era policies that enrolled and re-enrolled individuals without verifying income or other pertinent information. Paragon has a new policy brief detailing how the OBBB will reduce improper exchange enrollment, including its provisions prohibiting automatic re-enrollment and requiring that excessive advanced subsidies be repaid.
 
The OBBB would require states to check Medicaid expansion enrollees’ eligibility twice a year, up from once a year, and would reduce duplicate payments to address the same person covered under Medicaid managed care plans in multiple states. On the exchanges, it would require income verification prior to enrollment, would close a special enrollment period that has been a de facto way for people to enroll throughout the year regardless of meeting eligibility requirements, and would end the perpetuation of improper subsidies by requiring enrollees to submit information once a year to maintain advance payment of the subsidies.
 
The OBBB also limits Obamacare subsidies to only U.S. citizens and lawful permanent residents. It closes loopholes that currently permit asylum seekers, parolees, and those with Temporary Protected Status to receive Obamacare subsidies if their income is below the federal poverty level (FPL), and it disallows Obamacare subsidies for people below 100 percent FPL who are in a five-year waiting period for lawfully present status.

Rescinding Costly Biden Administration Rules (Projected Savings: ~$190 billion)

In a break from typical administrations, the Biden administration promulgated several health care rules with large fiscal costs. The OBBB places a 10-year moratorium on several expensive Biden administration rules, including:

• A rule that exacerbates improper enrollment with weakened verification standards and a lack of coordination for dual enrollment in Medicare and Medicaid;
• A rule that made it more difficult for states to remove ineligible enrollees from Medicaid and perpetuated fraud and improper payments; and
• A rule that mandated a minimum number of nurses per resident in nursing homes, ignoring local workforce realities and threatening access to care, especially in rural communities.

Overall

The OBBB represents a major course correction for federal health policy, reversing the reckless and inflationary Medicaid and Obamacare spending surge under the Biden administration. Rather than cutting these programs, OBBB restores spending to pre-Biden projections by reducing waste, reducing fraud, and better targeting federal resources to the truly eligible and most vulnerable. Through reforms like cracking down on Medicaid money laundering, promoting work and personal responsibility, reducing improper enrollment and subsidies, focusing programs on those eligible and most in need, and reversing costly regulations, OBBB achieves an estimated $1.2 trillion in savings.

The savings shown are from CBO's estimates of the legislation and do not include interactions among provisions. Sections 71115, 71116, and 71117 are included in Addressing the Medicaid Money-Laundering Machine, Section 71119 is included in the Implementing Community-Engagement Requirements in Medicaid, Sections 71103, 71107, 71301, 71302, 71303, and 71304 are included in the Ensuring Medicaid Expansion and Obamacare Enrollees Are Eligible and Limiting Obamacare Subsidies to Citizens, and Sections 71101, 71102, and 71111 are included in the Rescinding Costly Biden Administration Rules.