Introduction
The One Big Beautiful Bill Act (OBBBA), the reconciliation package signed into law on July 4, 2025, is mostly a tax bill, but its health title changes how Medicaid is financed and who stays enrolled. It arrived alongside two other shifts that matter for deal work: the lapse of the enhanced ACA premium subsidies at the end of 2025 and the PBM reform package Congress passed in February 2026. The common thread is payer mix: which companies lose covered patients or supplemental payments, when, and how that flows into EBITDA and multiples.
What the Law Changed in Medicaid
Early proposals floated per-capita caps and block grants, but the enacted law kept Medicaid's open-ended federal match and cut spending through eligibility and financing rules instead. CBO estimates the package reduces federal Medicaid spending by $911 billion over 2025-2034, and KFF's state-by-state allocation of the CBO estimate shows more than half ($526 billion) comes from provisions that apply only to ACA expansion states. Across all its health provisions, CBO projects 10 million more uninsured people by 2034.
| Provision | What changes | Effective | CBO 10-year savings |
|---|---|---|---|
| Work requirements | Expansion adults show 80 hours a month of work or qualifying activity | January 1, 2027 | $326 billion |
| Six-month redeterminations | Expansion adults re-verified twice a year | Renewals from December 31, 2026 | $63 billion |
| Provider tax limits | New taxes barred; expansion-state safe harbor falls from 6% to 3.5% | Freeze now; phase-down from FY2028 | $191 billion |
| State-directed payment caps | Capped at Medicare rates; existing programs cut 10 points a year | New programs now; phase-down from 2028 | $149 billion |
| Cost sharing | Up to $35 per service for expansion adults above 100% of poverty | October 1, 2028 | $7 billion |
The figures come from KFF's breakdown of the law's Medicaid provisions, which also notes a $50 billion Rural Health Transformation Program (FY2026-2030) partly offsetting rural cuts. The phase-in timeline matters most: under a quarter of the cuts fall in the first five years, so 2025-2026 results understate the eventual hit. CMS issued its interim final rule on Medicaid work requirements on June 1, 2026, giving 44 states seven months to build verification systems for the biggest driver of coverage losses.
- State-Directed Payment (SDP)
A Medicaid managed care arrangement in which a state requires health plans to pay providers specified rates, often well above Medicare and frequently funded by provider taxes. The OBBBA caps new SDPs at 100% of Medicare rates (110% in non-expansion states) and steps existing programs down 10 percentage points a year from 2028.
Why Hospitals Feel the Financing Provisions Most
Provider taxes and SDPs work as a financing loop: hospitals pay a tax, the state uses the revenue to draw a federal match, and the money returns to hospitals as supplemental payments well above base Medicaid rates. Capping both ends removes high-margin revenue that sits directly in EBITDA, so for acute care hospital economics the financing provisions can matter more than enrollment losses. Safety-net hospitals, behavioral health operators and home health agencies, where Medicaid is often the largest payer, carry the most concentrated exposure.
ACA Subsidies and PBM Reform Came Through Other Channels
Two changes often credited to the bill arrived separately. The enhanced ACA premium tax credits were left out of the OBBBA and expired on December 31, 2025; a House-passed extension in January 2026 never became law. CMS data show effectuated marketplace enrollment fell 12%, from 21.8 million in February 2025 to 19.2 million in February 2026, with New Mexico the only state to grow; KFF's state-by-state analysis finds premiums net of tax credits rose 58% on average for 2026 sign-ups.
PBM reform came instead in the Consolidated Appropriations Act, 2026, signed February 3, 2026, which delinks Part D PBM compensation from drug list prices by requiring flat service fees from January 1, 2028, and requires PBMs to pass 100% of rebates through to employer (ERISA) plans from about 2029. With CVS Caremark, Express Scripts and OptumRx processing nearly 80% of US prescriptions, the change rewires the economics of the drug pricing supply chain.
What It Means for Healthcare Deals
The practical effect is a wider valuation gap by payer mix. Commercially weighted assets such as ambulatory surgery centers and specialty physician groups look relatively insulated, while Medicaid-heavy hospitals and behavioral health platforms face multiple compression and tighter lender scrutiny. Expect more distressed and strategic-alternative processes among rural and safety-net hospitals as the 2028-2032 phase-downs approach, with buyers pricing on pro forma EBITDA net of at-risk supplemental payments: a live case of the political and legislative risk healthcare models must carry.
The next article covers the current FTC healthcare antitrust landscape and how enforcement reshapes deal timelines.
