Implementation Status of H.R. 1's Medicaid Provisions as of October 2026

At a Glance

• The federal budget reconciliation law, known as H.R. 1 or the One Big, Beautiful Bill Act, enacted significant changes to the Medicaid program.
• Updates include major financing and payment changes, an overhaul of eligibility and enrollment policies particularly for low-income adults, and a variety of other provisions.
• Several major changes already in effect include restrictions on Medicaid eligibility for immigrants and bans on most new or increased provider taxes and state directed payments. Work requirement and other eligibility changes are scheduled to take effect in just two months.

The federal budget reconciliation law — known as H.R. 1 or the One Big, Beautiful Bill Act and signed into law on July 4, 2025 — enacted significant changes to the Medicaid program. These include major financing and payment changes, an overhaul of eligibility and enrollment policies particularly for low-income adults, and a variety of other provisions.

These changes, collectively, are expected to cut $1 trillion or more from the program compared to baseline projections and increase the number of uninsured by 10 million over the next decade. They are expected to have massive downstream effects on states, health plans, providers, and patients — even those not directly targeted. One bright spot is the five-year, $50 billion investment in the Rural Health Transformation Program (RHTP) that offers a chance to make major investments in rural health systems and infrastructure.

Because many of the provisions will phase in between now and 2032, the full impact of the legislation will not be known for years. But several major changes are already in effect, including restrictions on Medicaid eligibility for immigrants and bans on most new or increased provider taxes and state directed payments. Work requirement and other eligibility changes are scheduled to take effect in just two months. Following is an update on implementation activities, state and Centers for Medicare and Medicaid Services (CMS) priorities, and key issues to watch.

Work Requirement Implementation and RHTP Rollout Among the Most Pressing H.R. 1-Related Priorities for States

Work Requirements

Work requirements are among the most significant changes to Medicaid eligibility in years and will take effect January 1, 2027, for most states. Implementation requires an operationally complex and resource-intensive effort on a compressed 18-month timeline. It involves upgrading existing eligibility and enrollment systems — many of which are decades old and not built to verify work status or health conditions — incorporating work requirement compliance verification into eligibility determination and renewal workflows, integrating additional data sources, deploying enrollee outreach and communication strategies, and more.

For example, Medicaid agency officials are working diligently to ensure compliance and exclusions/exemptions can be verified for as many enrollees as possible on an ex parte basis (i.e., automatically, using existing data sources). But states vary widely in their capacity to do so reliably by January 1. Many expect to rely on self-attestation for the first year while the infrastructure needed to do automatic verifications is developed, although several states reportedly will not allow self-attestation at all. At the same time, they are finalizing policy choices (e.g., whether they will offer good cause exemptions, how many months they will look back for compliance, what specific activities will count towards compliance, what specific criteria will be used to determine exclusions) — decisions which are expected to influence the level of enrollments in each state.

And although states got a boost on October 29, 2026, when a federal court vacated an operationally complex part of CMS’s interim final rule (IFR) (discussed more below), there is widespread concern that state systems and processes will not be ready by January 1. In a tacit acknowledgement of the challenges states are facing, CMS reportedly provided states with a 13-page checklist of potential mitigation strategies which could help them avoid certain compliance actions.

RHTP

RHTP is also top of mind for states which face an extraordinarily compressed implementation timeline. Year 1 funds, which were announced December 29, 2025, but generally were not finalized or transferred until Spring 2026, had to be obligated by October 30 and must be fully spent by September 30, 2027. States were required to submit annual reports to CMS by August 31, 2026, which serve as the basis for CMS’s "rescoring" process to determine Year 2 awards, which are set to be announced imminently.

The compressed timeline, coupled with restrictions on how the funding can be used, rescore criteria, and the threat of CMS clawing back funds have raised concerns that states will have to prioritize projects and sub-awardees that can get off the ground and achieve specific outcome metrics quickly over potentially more meaningful projects. And while RHTP is a major opportunity to invest in rural health systems, stakeholders generally do not view it as likely to offset negative effects of Medicaid program cuts.

Rulemaking Beyond the Statute

CMS's Community Engagement Interim Final Rule (IFR) includes provisions beyond those included in H.R. 1. Most notably, the IFR required a second prong to the medical frailty exclusion that was not included in the legislation, requiring that, in addition to having one of five qualifying conditions, the condition must "significantly impair" the individual’s ability to work or otherwise comply. This element of the IFR was expected to cause substantial operational complexity and burden on states and was vacated by a federal court on October 29, which ruled that the agency lacked authority to narrow the definition set in statute.¹

The court left other elements of the IFR in place, including a provision that CMS will only allow states to accept self-attestation of exemptions through 2027 and only once during a beneficiary’s period of enrollment — restrictions not included in H.R. 1. Even without the “significant impairment” requirement — meaning a return to H.R. 1’s less stringent requirements allowing enrollees to receive medical frailty exclusions solely on the basis of having a qualifying condition — the IFR's stricter policies are expected to increase average annual coverage losses beyond the 5.3 million individuals that CBO estimated would lose coverage by 2034.

Additionally, two proposed rules on H.R. 1’s Medicaid financing and payment provisions also impose stricter restrictions than what is included in the law. Specifically, CMS’s proposed rule on provider taxes, “Amending the Indirect Hold Harmless Threshold of Health Care-Related Taxes Proposed Rule” includes a number of overlapping (and in some cases, redundant) provisions that, taken together, would bring virtually all taxes on the health care sector under the scope of H.R. 1 restrictions and CMS oversight — including those with little or no connection to Medicaid — significantly limiting state taxing authority.

Similarly, CMS’s proposed rule on SDPs, “Medicaid Managed Care State Directed Payments and Medicaid Fee-For-Service Targeted Medicaid Practitioner Payments Proposed Rule,” would impose additional SDP limits beyond the H.R.1 restrictions. By limiting a broader set of taxes and SDPs than outlined in H.R. 1, CMS estimates that the proposals would achieve $756 billion in federal savings through 2034, compared to the approximately $340 billion initially estimated by CBO.

Growing State Budget Burdens

H.R. 1's Medicaid changes are landing at a time when many states are already under considerable fiscal strain, including fallout from “conformity” to the federal tax code which was revised in H.R. 1 to include significant corporate and personal income tax breaks and other factors beyond the law. On top of Medicaid cuts, H.R. 1's SNAP provisions are expected to add significant new costs to state budgets for FY 2027 and future years.

Budget constraints and the broader fiscal environment leave states with limited ability to make up for federal Medicaid funding cuts with state spending. Critically, one of the most important tools states have historically used to raise revenue for Medicaid — provider taxes — has been severely limited. This means states will have to turn to more traditional, broad-based tax increases, or, more likely, make Medicaid or other program cuts.

Looming Medicaid Cuts

As of October 2026, most states have not yet enacted dramatic, headline-grabbing Medicaid budget cuts, but are expected to face more direct Medicaid budget pressures as provider tax reductions phase in beginning in federal fiscal year 2028 (October 1, 2027), and grandfathered SDPs are reduced beginning January 1, 2028. And while some states are better positioned fiscally or less affected by H.R. 1 changes than others, many will have to begin making tough budget decisions as they negotiate and finalize FY 2028 budgets.

State Medicaid can reduce payment rates, reduce benefits and services, or reduce eligibility (within federal limitations). All of these are likely to occur in some form in most states, with eligibility cuts at the forefront. Eligibility reductions affecting the Affordable Care Act Medicaid expansion population generally yield limited state savings because the federal government pays 90% of those costs, and losing healthier members can increase per-member managed care costs. States may therefore turn first to across-the-board provider rate reductions; limits on optional benefits including adult dental, audiology, optometry, or physical therapy; and HCBS cuts or reductions, such as fewer hours, lower rates, reduced waiver slots, or narrower services.

Looking Ahead

Several major implementation questions will come into sharper focus over the next year as CMS finalizes rules, states operationalize work requirements, and new fiscal pressures begin to affect state budget decisions. Among the key issues to watch:

• Coverage losses associated with work requirements, more frequent eligibility redeterminations, and other eligibility restrictions will become more visible in the first half of 2027 and may vary widely by state based on their policy and implementation choices and administrative capacity.
• Budget debates at the state level will likely intensify as federal financing changes are finalized and begin to phase in, with Medicaid cuts to follow. The size and scope of the cuts are likely to vary significantly by state.
• CMS rulemaking and guidance will further shape state implementation and budget decisions as CMS signals its clear intention to use rulemaking not only to implement H.R. 1, but to tighten federal oversight and impose additional limits beyond or in addition to statute — for example, regarding Section 1115 budget neutrality, financing methods, and Medicaid managed care.
• RHTP results and spending priorities should start becoming clearer in late 2026 and 2027, but transparency will vary by state, and it’s not clear when or if CMS will publish information on progress or results.

A Couple of Wildcards

While CMS and states work to implement the law and stakeholders need to prepare accordingly, two other wildcards will continue playing out: ongoing litigation and potential statutory changes.

Litigation will remain a key area to watch. As noted above, a major provision of CMS’s work requirement IFR was already vacated by a federal court, ² and at least one other pending lawsuit challenges this and other IFR provisions.³ Additional litigation is likely if CMS finalizes proposed rules on provider taxes, SDPs, or other major Medicaid rules in ways stakeholders view as exceeding the agency’s statutory authority.

Legislatively, we expect the incoming Democratic majorities in the House and Senate to aggressively push for changes and even outright repeal of H.R. 1. But the Trump administration will almost certainly veto any such measures should they clear Congress, making the issue more of a messaging topic than a near-term policy objective.

However, measures shy of outright repeal — such as proposals to delay implementation of certain provisions — may gain traction. For example, Republican Sen. Josh Hawley of Missouri introduced legislation just after H.R. 1 was enacted to repeal the provider tax and SDP provisions and increase RHTP funds. It may be possible to see bipartisan agreement, and even administration acquiescence, on targeted delay or similar provisions shy of outright repeal, especially if state budgetary projections and coverage loss look bleak.