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News
The One Big Beautiful Bill Act's caps on state-directed payments could cut Medicaid spending by tens of billions of dollars, with 17 states facing reductions of 10–25% of their total annual Medicaid budgets. A new Health Affairs analysis estimates a $51.8 billion annual reduction across 36 states. Experts warn this could shrink patient access and drive up costs for commercially insured patients.
The One Big Beautiful Bill Act (OBBBA) is set to deliver a serious financial blow to state Medicaid programs. A new analysis published in Health Affairs estimates that upcoming caps on state-directed payments (SDPs) will reduce annual Medicaid spending by $51.8 billion across 36 states — and for 17 of those states, the cuts could represent anywhere from 10% to 25% of their total Medicaid budgets. Nebraska, Louisiana, and South Carolina face the steepest losses, with total state Medicaid spending potentially dropping by more than a quarter.
States may be able to soften the blow through temporary "grandfathered" status, which would phase in reductions starting January 2028 — but that status isn't guaranteed. And a separate CMS proposal to expand SDP caps beyond the four service areas outlined in the OBBBA could make things significantly worse, with estimates suggesting cuts many times larger than those already projected.
By the Numbers:
Why it matters: Lower Medicaid reimbursements could push providers to limit the number of Medicaid patients they see, reducing care access for vulnerable populations — while also driving up prices for commercially insured patients as providers seek to offset losses.
