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On May 22, the House of Representatives passed the One Big Beautiful Bill (OBBB). The bill contains many health policy provisions aimed at addressing excesses and abuses during the Biden administration. The policies would reform Medicaid by reducing state Medicaid money laundering schemes, introducing work and community engagement requirements, and removing ineligible enrollees. The policies would also significantly increase program integrity in the Affordable Care Act (ACA) exchanges by reversing many Biden administration policies that pursued enrollment at any cost and led to tens of billions of fraudulent spending. The bill also includes a significant expansion of health savings accounts (HSAs).
Based upon estimates from the Congressional Budget Office (CBO), the health provisions would reduce federal outlays on Medicaid and ACA subsidies by about $1.15 trillion over the next decade—a significant down payment to put federal health programs on a more sustainable financial trajectory. Some of the health care provisions, principally the ones that expand HSAs, reduce government revenue. When these provisions are combined with the complete savings from rules proposed by the Trump administration and codified by the OBBB, the overall health care savings would be about $1.25 trillion. This is a sizeable amount but still less than the $1.8 trillion increase in the federal Medicaid and ACA subsidy baselines during the Biden administration.
This document contains a summary and brief analysis of all the health care elements of OBBB. As the legislation moves to the Senate, it is important to maintain the health policy wins within the OBBB while pursuing additional reforms to reduce waste, fraud, and abuse within federal health care programs and preserve Medicaid for the most vulnerable.
Provisions in the Ways and Means Committee Version
Subtitle A—Make American Families and Workers Thrive Again
[Beyond the budgetary effects described for individual sections in Part A, interaction of provisions leads to a further $1.7 billion savings over 10 years, 2025-2034. However, much of Subtitle A is not related to health spending.]
Part 3—Investing in the Health of American Families and Workers
This part of the OBBB includes some of the most pro-consumer, pro-competition reforms in recent history. These provisions would empower millions of Americans with greater control over their health care spending, helping to put downward pressure on prices. Markets work best when people control their own spending and are sensitive to price changes. Unfortunately, the current health system puts more control of personal health care decisions in the hands of employers rather than employees or patients.
This part of the reconciliation package seeks to address this issue by putting more money under the control of workers through expansions of individual coverage health reimbursement arrangements (ICHRAs) and HSAs, which allow consumers to access the care they need. These reforms to ICHRAs and HSAs ultimately fund patients, not the system, and increase American health care freedom.
Enhancing ICHRAs, Renamed CHOICE Arrangements
This bill contains three sections that codify and expand ICHRAs, which allow employers to give workers more control over their health care spending.
[On-budget cost $514 million in reduced tax revenue over 10 years, 2025-2034, for the three following sections.]
Sec. 110201. Treatment of Health Reimbursement Arrangements Integrated with Individual Market Coverage.
This section codifies President Trump’s 2019 ICHRA rule and renames ICHRAs as Custom Health Option and Individual Care Expense (CHOICE) Arrangements. In 2019, the Trump administration finalized a rule to permit employers to provide employees with ICHRAs—a tax-free contribution for workers to purchase health insurance in the individual market. ICHRAs provide workers with greater health insurance options while simplifying the coverage process for employers and potentially reducing their costs.
Sec. 110202. Participants in CHOICE Arrangement Eligible for Purchase of Exchange Insurance Under Cafeteria Plan.
This section allows employees to use pre-tax income to pay their share of premiums when selecting exchange plans.
Sec. 110203. Employer Credit for CHOICE Arrangement.
This section creates a temporary two-year credit for businesses with fewer than 50 employees that offer CHOICE arrangements for the first time—$100 per employee per month in year one and $50 per employee per month in year two. Although these credits are more generous, the policy is similar to a two-year credit enacted by Indiana in 2024. This section also permits employers to provide small businesses with the option to provide employees with a choice between a traditional group plan and a CHOICE arrangement.
Enhancing HSAs
These 10 provisions expand access to HSAs and broaden how individuals can use them for their health care. People can contribute to HSAs only if they have a specific type of health plan—dubbed a high-deductible health plan (HDHP)—and no other disqualifying health coverage. The Internal Revenue Service (IRS) has issued strict guidelines that preclude many people from contributing to HSAs. The OBBB HSA provisions address many of these preclusions and would thus permit more people to contribute to HSAs.
Sec. 110204. Individuals Entitled to Part A of Medicare by Reason of Age Allowed to Contribute to Health Savings Accounts.
[Net on-budget cost: $1.9 billion, including $4.9 billion on-budget cost for Health Savings Accounts tax deduction less $3 billion in Medicare savings]
Currently, individuals who are enrolled in any part of Medicare (including Medicare Part A) are not able to contribute to HSAs, even if they have an HDHP. Seniors are automatically enrolled in Medicare Part A if they take Social Security, even if they do not want Part A because they are still working and covered by their employer’s HDHP. This section of the bill would remove that limitation and allow working seniors who have HDHPs to continue contributing to their HSAs. This would permit more seniors to continue to save money for their health care while not discouraging continued work.
Sec. 110205. Treatment of Direct Primary Care Service Arrangements.
[On-budget cost: $2.1 billion]
Direct primary care (DPC) is an arrangement where people pay a primary care practice a flat monthly fee for access to its services, avoiding the hassle of insurance for providers and patients. Current rules prevent people from contributing to HSAs if they have DPC arrangements or using their HSAs to pay the monthly fees for DPC arrangements. This provision removes these limitations and permits people with DPC arrangements to contribute to HSAs and to use HSAs to pay for DPC arrangements up to a $150 monthly limit for individuals and a $300 monthly limit for families.
Sec. 110206. Allowance of Bronze and Catastrophic Plans in Connection with Health Savings Accounts.
[On-budget cost: $3.6 billion]
This provision would make it easier for individuals on the ACA to have HSAs. Currently, many bronze and catastrophic plans are not compatible with HSAs. For example, many bronze and catastrophic plans have out-of-pocket limits that exceed IRS limits for HDHPs. This provision expands the definition of HDHPs to include bronze and catastrophic plans, thereby increasing access to HSAs.
Sec. 110207. On-Site Employee Clinics.
[On-budget cost: $1.8 billion]
Many employers have historically had doctors on site at the workplace to help with employees’ medical needs. Individuals are not legally permitted to contribute to HSAs if they receive free or discounted services (other than a limited set) at on-site health clinics. This provision allows individuals covered by HDHPs to contribute to HSAs if they have access to specific free or discounted services at on-site health clinics.
Sec. 110208. Certain Amounts Paid for Physical Activity, Fitness, and Exercise Treated as Amounts Paid for Medical Care.
[On-budget cost: $7.8 billion]
This provision permits individuals to use their HSAs for physical fitness memberships and instructional physical activity programs up to $500 per year for an individual and $1,000 per year for a family. These limits apply monthly, which equates to about $42 a month for a single and $83 a month for a family.
Sec. 110209. Allow Both Spouses to Make Catch-Up Contributions to the Same Health Savings Account.
[On-budget cost: $1.4 billion]
Under current law, individuals age 55 and older can make “catch-up” HSA contributions of an additional $1,000 a year. But if both spouses are 55 and older, they must have separate HSAs. This provision would ease administrative flexibility and permit both spouses to contribute to a single account.
Sec. 110210. FSA and HRA Terminations or Conversions to Fund HSAs.
[On-budget cost: $258 million]
Currently, Flexible Savings Accounts (FSAs) and Health Reimbursement Arrangements (HRAs), which are employer-funded accounts, typically have “use it or lose it” rules that result in wasteful health care expenditures and are less consumer-friendly than ideal. For example, individuals with FSAs lose most of their annual contributions if they do not spend them, contributing to wasteful year-end spending. On top of that, individuals who have unused amounts in FSAs are not permitted to roll over unspent funds into HSAs unless they have an FSA with a “grace period” or that allows a limited “rollover” (no more than $660 in 2025). As a result, leftover FSA and HRA funds revert to employers. This provision allows an employee, at his or her employer’s discretion, to convert FSA and HRA balances into an HSA contribution if the individual is enrolled in an HDHP. The conversion is capped at the annual FSA contribution limit ($3,300 in 2025). This provision would help more people save and grow funds for future health care expenses.
Sec. 110211. Special Rule for Certain Medical Expenses Incurred Before Establishment of Health Savings Account.
[On-budget cost: $140 million]
Currently, HSA funds may be used only to pay for qualified medical expenses that occur after the account has been officially opened. This section would permit HSA funds to be used for medical expenses incurred up to 60 days prior to the account’s establishment, making those earlier expenses eligible as qualified medical expenses.
Sec. 110212. Contributions Permitted If Spouse Has Health Flexible Spending Arrangement.
[On-budget cost: $4.8 billion]
This section allows an individual who is otherwise HSA-eligible to contribute to an HSA if his or her spouse has an FSA. Currently, if their spouse has a health FSA, the other spouse cannot contribute to an HSA.
Sec. 110213. Increase in Health Savings Account Contribution Limitation for Certain Individuals.
[On-budget cost: $8.4 billion]
This section would double HSA contribution limits for individuals who make less than $75,000 annually (or $150,000 in case of families), indexed annually for inflation. It would phase down the added contribution limits through $100,000 for singles and $200,000 for joint filers. This provision would provide a significant financial boost to lower- and middle-income individuals and families, enhancing their ability to control their health care and save for future expenses.
Subtitle B— Make Rural America and Main Street Grow Again
Part 3—Investing in the Health of Rural America and Main Street
Sec. 111201. Expanding the Definition of Rural Emergency Hospital Under the Medicare Program.
[Increased outlays: $806 million]
This section expands the kinds of hospitals that can receive the Rural Emergency Hospital designation to include certain hospitals that had closed but have since reopened. The Rural Emergency Hospital designation allows a hospital to receive an additional 5 percent payment from Medicare for certain outpatient services.
Subtitle C—Make America Win Again
[Interaction between health provisions in Subtitle C leads to further on-budget savings of $3.6 billion.]
Part 2—Removing Taxpayer Benefits for Illegal Immigrants
Sec. 112101. Permitting Premium Tax Credit Only for Certain Individuals.
[Fiscal effect included in next section]
This section limits ACA premium tax credits (PTCs) to U.S. citizens and lawful residents. Only lawful permanent residents, certain Cuban immigrants, and individuals under Compacts of Free Association would remain eligible for PTCs.
Sec. 112102. Certain Aliens Treated as Ineligible for Premium Tax Credit.
[Net savings: $67.2 billion, including direct cost reduction of $63.0 billion and increased tax revenue of $4.2 billion]
This section closes loopholes that currently allow asylum seekers, parolees, and those with Temporary Protected Status to receive PTCs if their income is below the federal poverty level (FPL).
Sec. 112103. Disallowing Premium Tax Credit During Periods of Medicaid Ineligibility Due to Alien Status.
[Net savings: $49.7 billion, including direct cost reduction of $49.5 billion and increased tax revenue of $176 million]
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 included a five-year waiting period for lawfully present immigrants to enroll in Medicaid to encourage greater self-sufficiency and discourage immigration for taxpayer-funded benefits. The Obama administration undercut these restrictions by allowing lawfully present individuals who report income below 100 percent FPL to access PTCs during the five-year waiting period for Medicaid.
Sec. 112104. Limiting Medicare Coverage of Certain Individuals.
[Net savings: $5.4 billion, including direct cost reduction of $5.5 billion and reduced tax revenue of $92 million]
This section restricts Medicare eligibility to U.S. citizens, lawful permanent residents, certain Cuban immigrants, and individuals under Compacts of Free Association.
Part 3—Preventing Fraud, Waste, and Abuse
The OBBB includes commonsense program integrity provisions aimed at reducing the massive amounts of improper and fraudulent enrollment and spending that surged under the Biden administration’s approach of maximizing enrollment at any cost. Paragon research documented 4 million to 5 million improper exchange enrollments of people claiming income between 100 percent and 150 percent FPL, with an estimated amount of improper spending between $15 billion and $26 billion in 2024 alone. The Biden administration opened excessive unnecessary enrollment periods and eschewed checks of enrollees’ applications, permitting massive, organized fraud to penetrate the exchanges. Taxpayer dollars were diverted to fraudulent actors and schemes.
Sec. 112201. Requiring Exchange Verification of Eligibility for Health Plan.
[Net savings: $41.3 billion, including direct cost reduction of $36.9 billion and increased tax revenue of $4.4 billion. These provisions are also included in the Marketplace Integrity and Affordability Proposed Rule, which section 44201 in the Energy and Commerce Committee title would codify.]
This section would require exchanges to verify eligibility for PTCs before enrollment, restoring a basic program integrity measure abandoned by the Biden administration. It also encourages greater consumer involvement by requiring individuals to confirm their coverage decisions each year. Paragon has highlighted how automatic re-enrollment has enabled widespread improper and even fraudulent ACA enrollment and puts people at risk of accumulating tax liabilities.
Requiring existing enrollees to take a simple, affirmative step to verify their coverage would reduce enrollment among those who no longer need the coverage. Many individuals do not re-enroll because they move or gain employer-sponsored insurance. Automatic re-enrollment has kept many of these people in the system—at significant cost to taxpayers. A case in point is Crystal Bedford, who was improperly enrolled in the ACA even though she already had employer coverage. By requiring exchanges to verify eligibility earlier in the process—before enrollment takes place—this provision would also reduce the risk of unexpected charges due to unresolved data-matching inconsistencies.
Sec. 112202. Disallowing Premium Tax Credit in Case of Certain Coverage Enrolled in During Special Enrollment Period.
[Net savings: $41.0 billion, including direct cost reduction of $39.7 billion and increased tax revenue of $1.3 billion. These provisions are also included in the Marketplace Integrity and Affordability Proposed Rule, which section 44201 in the Energy and Commerce Committee title would codify.]
The Biden administration significantly expanded peoples’ ability to enroll in coverage at any point in the year through new Special Enrollment Periods (SEPs). Expansive SEPs are harmful, because making enrollment too easy encourages people to wait until they are sick to sign up for insurance, which worsens the risk pool.
This section would curb this abuse by prohibiting advanced PTCs for coverage through SEPs based on income. In tandem with Sec. 44201, this provision would eliminate the SEP for individuals claiming income between 100 percent and 150 percent FPL—a policy that was never grounded in the ACA’s original framework and was frequently exploited by bad actors, particularly through fraudulent schemes facilitated by unscrupulous brokers. According to the Centers for Medicare and Medicaid Services (CMS), this SEP alone generated more than 50,000 complaints of improper enrollment and 40,000 unauthorized plan switches in just the first three months of 2024.
Sec. 112203. Eliminating Limitation on Recapture of Advance Payment of Premium Tax Credit.
[Net on-budget savings: $19.6 billion, including direct spending reduction of $17.3 billion and increased tax revenues of $2.3 billion]
The ACA has a perverse structure in which PTCs are based on estimated income, which limits the amounts of PTCs that the government can recover if enrollees receive excess PTCs during the year. As a result, there are massive incentives to manipulate income during application periods. Unscrupulous brokers have exploited this by advising enrollees to underestimate income, pushing billions in extra costs onto taxpayers. Paragon has documented that limits on subsidy recapture have contributed to billions of dollars of improper spending each year. This provision addresses that risk by eliminating caps on repayment of excess advance PTCs, requiring individuals who misreport income to fully account for overpayments.
Sec. 112204. Implementing Artificial Intelligence Tools for Purposes of Reducing and Recouping Improper Payments Under Medicare.
[Increased outlays: $25 million]
This provision requires the Department of Health and Human Services (HHS) to contract with artificial intelligence contractors and data scientists to help Medicare recoup improper payments. The Medicare program processes over one billion claims annually. This provision aims to harness advancements in data processing and AI to identify fraudulent and abusive claims.
Provisions in the Energy and Commerce
Committee Version
Subtitle D—Health
[Interaction between health provisions in Subtitle D leads to further on-budget costs of $1.1 billion.]
Part 1—Medicaid
Medicaid—the joint federal-state welfare program that finances health and long-term care (LTC) services for historically low-income and vulnerable Americans—grew dramatically during the Biden administration. According to CBO’s estimates, the OBBB would result in federal Medicaid spending growing at 2.9 percent a year over the next decade—relative to the 4.6 percent growth assumed in the baseline.
There are two major problems with federal Medicaid policy. First, Washington allows states to establish money laundering schemes that generate large inflows of federal funds without states making any actual contributions. Second, the ACA created a perverse incentive that gives states $9 in federal funds for every $1 of state spending on able-bodied, working-age expansion enrollees—seven times more in federal funds than the average state receives for $1 of spending on traditional enrollees. These two forces, when combined, make expansion enrollees the most financially attractive group for states, offering a very high rate of return on states’ Medicaid financing schemes while shifting the program’s focus off the most vulnerable. The negative consequences are numerous:
State Medicaid money laundering tactics lead states to expand their Medicaid programs in ways they never would if they were paying the bill. This explains why California was able to use federal taxpayer funds to expand Medicaid for unauthorized immigrants and make Medicaid LTC coverage available to its wealthiest residents. Other states have used provider taxes to eliminate any state financial responsibility for the expansion population.
There has been a massive shift in the cost of the program from states to Washington. As states now bear only one-quarter of total Medicaid costs on average, they have little incentive to ensure that spending benefits enrollees.
Corporate welfare increasingly infects the program. In many states, Medicaid payment rates to large hospital systems have risen well above Medicare levels. The highest-paid health insurance CEO runs a company whose business is almost entirely Medicaid managed care. This CEO alone took home nearly $120 million in total compensation in 2023.
Improper payments have reached an alarming level due to these financing incentives. We estimate that improper Medicaid payments totaled $1.1 trillion over the past decade. A Paragon data brief explains how states face strong incentives to misclassify applicants as eligible under Obamacare’s expansion and estimates that states have incorrectly classified at least 5 million people as expansion enrollees—costing federal taxpayers about $30 billion each year.
Subpart A—Reducing Fraud and Improving Enrollment Processes
Sec. 44101. Moratorium on Implementation of Rule Relating to Eligibility and Enrollment in Medicare Savings Programs.
[Savings: $85.3 billion]
The section would delay implementation of the Biden administration’s misguided rule titled “Streamlining Medicaid; Medicare Savings Program Eligibility Determination and Enrollment” until January 1, 2035. The rule exacerbated improper enrollment with weakened verification standards and lack of coordination for dual enrollment in Medicare and Medicaid. As Paragon has previously written, this rule would expand the Medicare Savings Programs, which receives funding from Medicaid for certain low-income enrollees. It would also worsen program integrity by requiring states to accept an enrollee’s self-attestation for income, among other provisions. These self-attestation exceptions favor wealthier individuals like how Medicaid long-term care (LTC) rules encourage the wealthy to purchase exempt assets and arrange finances in order to qualify for the program.
Sec. 44102. Moratorium on Implementation of Rule Relating to Eligibility and Enrollment for Medicaid, CHIP, and the Basic Health Program.
[Net on-budget savings: $85.0 billion, including reduced outlays of $82.0 billion and increased tax revenue of $3.0 billion.]
This provision would delay implementation of a misguided Biden administration rule “Streamlining Medicaid, Children’s Health Insurance Program, and Basic Health Program Application, Eligibility Determination, Enrollment, and Renewal Processes” that made it more difficult for states to remove ineligible enrollees from Medicaid and perpetuated fraud and improper payments.
Sec. 44103. Ensuring Appropriate Address Verification Under the Medicaid and CHIP Programs.
[Savings: $17.4 billion]
This provision aims to address the problems of individuals enrolled simultaneously in multiple state Medicaid programs. First, it would require states to use reliable, existing data sources—including address updates from managed care organizations—to track where beneficiaries live. Second, it would require that HHS create, by 2029, a centralized system to flag individuals enrolled in Medicaid programs in multiple states at the same time. A recent Wall Street Journal report indicated that health insurers received $4.3 billion in duplicate payments for Medicaid enrollees enrolled in multiple states simultaneously.
Sec. 44104. Modifying Certain State Requirements for Ensuring Deceased Individuals Do Not Remain Enrolled.
[Savings: less than $500,000]
This provision requires states to check the Death Master File quarterly and remove deceased individuals from the Medicaid rolls.
Sec. 44105. Medicaid Provider Screening Requirements.
This provision mandates monthly checks to ensure that providers terminated by other state Medicaid programs or by HHS are not allowed to bill for services in any state’s Medicaid program.
Sec. 44106. Additional Medicaid Provider Screening Requirements.
[Savings: less than $500,000]
This section requires states to regularly check the Death Master File to ensure that deceased providers are not able to bill Medicaid.
Sec. 44107. Removing Good Faith Waiver for Payment Reduction Related to Certain Erroneous Excess Payments Under Medicaid.
[Net on-budget savings: $7.1 billion, including reduced outlays of $7.4 billion and reduced tax revenue of $224 million.]
This provision aims to reduce improper payments in Medicaid by enabling the HHS Secretary to disallow federal payments from states with high improper payment rates. Currently, the Secretary is required to disallow federal monies if the improper payment rate exceeds 3 percent, but the Secretary can issue “good faith” waivers from such disallowances. To date, this has been a completely ineffective provision as the federal government has never recovered improper payments—even though Medicaid’s improper payment rate in some states exceeds 10 times the 3 percent threshold.
This provision limits the “good faith” waiver. This is a step toward accountability, reducing the risk that waivers become blanket exemptions for chronic state-level noncompliance.
Sec. 44108. Increasing Frequency of Eligibility Redeterminations for Certain Individuals.
[Net on-budget savings: $50.1 billion, including reduced outlays of $53.2 billion and reduced tax revenue of $2.5 billion.]
Medicaid enrollees—particularly the able-bodied, working-age adult expansion category—typically have frequent income changes. Many expansion enrollees will be low income for only a few months as they obtain jobs and have higher income or offers of employer plans, either of which typically disqualify them for Medicaid. The Biden administration prevented states from doing eligibility reviews more than once a year for expansion enrollees, leading to billions in wasteful spending for people who lost eligibility, in part because they obtained other coverage. This provision strengthens program integrity by requiring states to check eligibility every six months.
Sec. 44109. Revising Home Equity Limit for Determining Eligibility for Long-Term Care Services Under the Medicaid Program.
[Savings: $191 million]
Federal law permits people with sizeable assets, including a large amount of home equity, to qualify for Medicaid to have taxpayers finance their LTC expenses. In some states, individuals exempt nearly $1.1 million of home equity from these limits. Last year, California removed its asset test. This provision caps the amount of home equity states can exempt from Medicaid asset tests at $1 million.
Congress should consider further reducing the Medicaid home equity exemption and reducing exempt assets to encourage people to properly prepare for LTC expenses for when they are older. Most states have an exemption of $730,000. Higher home equity exemptions discourage using home equity to fund LTC and increase Medicaid costs commensurately. High asset exemptions, such as for home equity, enable the affluent to “spend down” to qualify for Medicaid, essentially using countable assets to purchase exempt ones that do not affect eligibility.
Sec. 44110. Prohibiting Federal Financial Participation Under Medicaid and CHIP for Individuals Without Verified Citizenship, Nationality, or Satisfactory Immigration Status.
[Savings: $844 million]
This provision would better ensure that Medicaid funds are reserved for eligible individuals by ending federal funding when an individual’s citizenship or immigration status has not been verified. States may still provide coverage during a reasonable verification opportunity period; however, federal dollars are restricted until the applicant’s citizenship or immigration status is verified.
Sec. 44111. Reducing Expansion FMAP for Certain States Providing Payments for Health Care Furnished to Certain Individuals.
[Savings: $11.0 billion]
Using Medicaid money laundering schemes, states have been able to receive federal funds without state contributions. Some states, such as California, have then taken these funds to expand Medicaid for unauthorized immigrants. This provision reduces the federal medical assistance percentage (FMAP) by 10 percentage points for states that provide Medicaid coverage for illegal immigrants or cover illegal immigrants through state-based programs. Federal policymakers should ensure that resources are reserved for U.S. citizens and lawful residents.
Subpart B—Preventing Wasteful Spending
Sec. 44121. Moratorium on Implementation of Rule Relating to Staffing Standards for Long-Term Care Facilities Under the Medicare and Medicaid Programs.
[Savings: $23.1 billion]
In 2024, the Biden administration mandated a minimum number of nurses per resident in nursing homes. These one-size-fits-all staffing quotas ignored local workforce realities and threatened access to care, especially in rural communities. The rule could have forced facilities to reduce admissions or close entirely, thereby harming the very seniors it was intended to help. This provision would place a moratorium on this rule through 2034 and in doing so would better protect access to care and restore flexibility for providers to meet patient needs responsibly.
Sec. 44122. Modifying Retroactive Coverage Under the Medicaid and CHIP Programs.
[Savings: $6.4 billion]
People eligible for Medicaid can enroll at the time they need medical care and typically can have the program pay for their medical expenses for the previous three months. This provision would limit Medicaid retroactive coverage to one month prior to the application date.
Sec. 44123. Ensuring Accurate Payments to Pharmacies Under Medicaid.
[Savings: $2.5 billion]
This provision would strengthen transparency by requiring all pharmacies to participate in the National Average Drug Acquisition Cost survey, CMS’s pricing benchmark that reflects the average invoice prices that retail community pharmacies pay to acquire prescription drugs. By requiring participation, instead of allowing voluntary reporting, the provision would ensure more accurate data on drug acquisition costs. It would help states set fairer, more consistent Medicaid reimbursement rates and protect taxpayers from inflated pharmacy payments.
Sec. 44124. Preventing the Use of Abusive Spread Pricing in Medicaid.
[Savings: $261 million]
This provision would prohibit “spread pricing” in Medicaid, a practice in which pharmacy benefit managers (PBMs) retain the difference between what they charge Medicaid for a drug and what they reimburse the pharmacy.
Sec. 44125. Prohibiting Federal Medicaid and CHIP Funding for Gender Transition Procedures for Minors.
[Savings: $830 million]
The provision would prohibit federal reimbursement under the Medicaid and CHIP program for permanent transgender services. Contrary to some claims, the OBBB would continue coverage for mental health services for people with gender dysphoria.
Sec. 44126. Federal Payments to Prohibited Entities.
[Increased outlays: $261 million]
This provision would prohibit Medicaid payments to large nonprofit providers primarily engaged in family planning or reproductive services that received $1 million or more in Medicaid funding in 2024 and provide abortions outside of the exceptions provided by the Hyde Amendment. This provision applies to both direct providers and their affiliates.
Sec. 44131. Sunsetting Eligibility for Increased FMAP for New Expansion States.
[Net on-budget savings: $12.1 billion, including reduced outlays of $12.7 billion and reduced tax revenue of $628 million]
Much of the Left’s focus on health policy over the past 15 years has been Medicaid expansion. The American Rescue Plan Act contained a temporary five percentage point FMAP bonus for states that had not yet expanded Medicaid if they adopted the expansion. Paragon research has shown that Medicaid expansion worsens Medicaid’s structural problems and diverts resources from the most vulnerable. Although current expansion states would retain their bonuses, this change would prevent further use of federal dollars to incentivize expansion of an already overstretched program.
Sec. 44132. Moratorium on New or Increased Provider Taxes.
[Net on-budget savings: $87.5 billion, including reduced outlays of $89.3 billion and reduced tax revenue of $1.8 billion]
The federal government permits states to tax classes of providers up to 6 percent of their revenue and use that revenue as the state share of money. Paragon has identified provider taxes as a central component of Medicaid’s legalized money laundering apparatus. States have long used provider taxes to game the system, recycling federal dollars through inflated payments to draw in more federal funding. This provision would freeze existing provider tax rates and prohibit states from enacting new provider taxes. By capping this practice, the provision would stop a corrupt financing scheme from increasing.
Sec. 44133. Revising the Payment Limit for Certain State Directed Payments.
[Savings: $72.5 billion]
This section seeks to limit state-directed payments (SDPs), which are payments that states require Medicaid managed care organizations to make to providers, typically hospital systems. Provider taxes provide the fuel for these payments, which increased substantially during the Biden administration. The Biden administration issued a rule that SDPs could go to average commercial rates—amounts that average more than 2.5 times Medicare rates. Thus, in many states, for many providers, Medicaid is now paying more than Medicare rates. The provision would limit new SDPs at 100 percent of Medicare rates for states that expanded Medicaid to able-bodied, working-age adults and 110 percent of Medicare rates for states that did not expand.
Sec. 44134. Requirements Regarding Waiver of Uniform Tax Requirement for Medicaid Provider Tax.
[Net on-budget savings: $34.2 billion, including reduced outlays of $34.6 billion and reduced tax revenue of $484 million. These provisions were included in the Preserving Medicaid Funding for Vulnerable Populations—Closing a Health Care-Related Tax Loophole Proposed Rule and thus the true savings would be double this amount.]
Provider taxes are required to be uniform and broad-based within the provider class. These requirements are aimed at reducing 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. This provision directly targets a core Medicaid financing abuse Paragon has exposed: California’s use of Medicaid’s managed care provider tax to bring in a massive amount of federal funds through a tax that overwhelmingly affected Medicaid providers.
This provision would codify a Trump administration proposed rule that tightened the criteria for what counts as a “generally redistributive” tax. In essence, this would prevent states from imposing lower tax rates on low-volume Medicaid insurers or providers and higher rates on those with greater Medicaid volume—one of the key tactics in Medicaid money laundering schemes. It also requires non-compliant tax waivers to be corrected, with penalties for states that refuse. This reform builds on Paragon’s work to end opaque, manipulative financing schemes that inflate federal spending without improving care.
Sec. 44135. Requiring Budget Neutrality for Medicaid Demonstration Projects Under Section 1115.
This provision would establish long-overdue budget neutrality requirements for Medicaid Section 1115 demonstration waivers—an idea Paragon has championed as essential to restoring fiscal discipline in the program, as most Medicaid spending occurs through waivers. It would require HHS to certify that demonstration projects do not result in greater federal spending than would have occurred under standard Medicaid rules, preventing states from using waivers as backdoor funding expansions. It would also create a clear framework for reinvesting legitimate savings.
Subpart D—Increasing Personal Accountability
Sec. 44141. Requirement for States to Establish Medicaid Community Engagement Requirements for Certain Individuals.
[Net on-budget savings: $276.0 billion, including reduced outlays of $279.9 billion and reduced tax revenue of $3.9 billion. The savings estimate above was based on a start date of January 1, 2029. With a start date of December 31, 2026, we expect the savings to increase by about $80 billion]
This provision 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 adults without dependents—a reform supported by Paragon. Individuals could meet the requirements through 80 hours a month of work, education, community service, or job training.
Notably, the provision would take effect on December 31, 2026, while providing flexibility for states to implement work requirements sooner. In addition, the provisions would create Development of Government Efficiency Grants to support states in implementing the community engagement requirements and supporting increased administrative costs.
The provision includes reasonable exemptions from community engagement requirements, ensuring that the policy targets only able-bodied adults without dependents. It 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 Nutritional Assistance Program.
Sec. 44142. Modifying Cost Sharing Requirements for Certain Expansion Individuals Under the Medicaid Program.
[Savings: $13.0 billion]
This provision would require states to implement modest cost-sharing for Medicaid expansion adults with incomes above 100 percent FPL, with exemptions for primary care, prenatal care, pediatric services, and emergency services. Modest copayments can discourage low-value consumption of care, and this flexibility allows states to learn from each other. The ACA requires cost-sharing in exchange plans for those above 100 percent FPL, so this provision would better align cost-sharing requirements for individuals with incomes above 100 percent FPL in the Medicaid program with those in exchanges in the same income bracket.
Part 2—Affordable Care Act
Sec. 44201. Addressing Waste, Fraud, and Abuse in the ACA Exchanges.
[Net on-budget savings: $106.3 billion, including reduced outlays of $101.0 billion and increased tax revenue of $5.3 billion. These provisions were included in the Marketplace Integrity and Affordability Proposed Rule and thus the true savings would be double this amount. The savings shown in Section 112201 and Section 112202 would be captured by these savings and would not be added to them.]
This section essentially codifies the Trump administration’s important proposed Program Integrity and Market Affordability rule. Paragon has previously written a policy brief on this rule and how it would reverse the Biden administration’s approach of removing guardrails—many of which had been in place since the Obama administration. This section would:
- Reduce the open enrollment period back to the timeframe originally proposed by the Obama administration: from November 1 to December 15.
- Remove the special enrollment period (SEP) for anyone claiming income between 100 and 150 percent FPL. This SEP incentivizes people to wait until they are sick before enrolling, worsening the risk pool and driving premiums up. HHS estimates that keeping this SEP in place could raise premiums between 0.5 and 3.6 percent. Furthermore, its implementation has made the exchanges even more vulnerable to abuse, fraud, and adverse selection.
- Prohibit exchanges from accepting self-attested income.
- Increase plan design flexibility and allow issuers to offer more affordable options, ultimately lowering premiums. Expanding the permissible actuarial value range was a successful policy during President Trump’s first term, expanding choice and competition in the individual market.
This rule represents both a significant cleanup operation and a return to responsible governance. Paragon’s findings, confirmed by CMS, estimate that 4 million to 5 million people were improperly enrolled in ACA plans in 2024 alone, costing taxpayers $15–$26 billion in a single year. In a proposed rule earlier this year, CMS confirmed Paragon’s methodology as technically sound and our estimates as potentially conservative.
Part 3—Improving Americans’ Access to Care
Sec. 44301. Expanding and Clarifying the Exclusion for Orphan Drugs Under the Drug Price Negotiation Program.
[Increased outlays: $4.9 billion]
This provision would make needed corrections to the Medicare Drug Price Negotiation Program by allowing manufacturers to maintain an exemption for multiple orphan drug indications rather than just one. It also clarifies that the negotiation timeline does not begin until a drug receives its first non-orphan use. These changes help preserve incentives for developing treatments for rare diseases—an area Paragon has emphasized as particularly vulnerable to unintended consequences from government price controls. This provision is a step forward in protecting American innovation in treating rare diseases.
Sec. 44302. Streamlined Enrollment Process for Eligible Out-of-State Providers Under Medicaid and CHIP.
[Increased outlays: $219 million]
This provision would support improved access to specialized care for children on Medicaid and CHIP by streamlining the enrollment process for qualified out-of-state pediatric providers. Reducing duplicative screening helps ensure that children can more easily access treatments not available in their home state, without compromising program integrity.
Sec. 44303. Delaying DSH Reductions.
[Increased outlays: $159 million]
This provision would delay scheduled $8 billion annual reductions to Medicaid Disproportionate Share Hospital (DSH) payments from FY2026-FY2028 to FY2029-FY2031 and extends DSH funding for Tennessee through 2028. DSH payments are intended to support hospitals serving large numbers of low-income patients, though Paragon’s work has shown that these subsidies can be duplicative—especially when combined with state Medicaid financing tactics that inflate hospital payments to draw in extra federal funds. Paragon recommends that the DSH cuts be permitted to take effect in states that adopted the ACA’s Medicaid expansion, where federal subsidies have increased dramatically.
Sec. 44304. Modifying Update to the Conversion Factor Under the Physician Fee Schedule Under the Medicare Program.
[Increased outlays: $8.9 billion]
This provision would replace the scheduled split physician fee schedule conversion factor with a single, inflation-adjusted factor tied to the Medicare Economic Index starting in 2026.
Sec. 44305. Modernizing and Ensuring PBM Accountability.
[Savings:$403 million]
This provision would require PBMs in Medicare Part D to share information with plan sponsors about their business practices, including how formulary and coverage decisions may impact affiliated pharmacies. Additionally, it would direct CMS to define “reasonable and relevant” contracting terms to enforce the “any willing pharmacy” requirement, which allows qualified pharmacies to participate in Part D networks.
The provision would also prohibit PBM compensation based on a drug’s list price. There is a growing disparity between the list price of the drug and the net price of the drug the insurer actually pays. Many beneficiaries pay cost sharing based on the list price of the drug not the true price, which inflates beneficiary costs.
Added-in Manager’s Amendment
Appropriate Cost-Sharing Reduction Subsidies
[Based on previous CBO estimates, we expect the savings from the CSR appropriation to be around $50 billion.]
The ACA contains two subsidy programs—one for premiums and one to reduce cost-sharing. The cost-sharing reduction (CSR) subsidy is available to exchange enrollees who selected silver plans and have income below 250 percent FPL. CSR subsidies reduce deductibles, copayments, and out-of-pocket limits, effectively raising the actuarial value of silver plans. The CSR subsidies are sent directly from the U.S. Treasury to insurers.
The ACA authorized the CSR program but did not include a valid appropriation for its funding. A court ruled that the Obama administration made illegal CSR payments to insurers. The Trump administration complied with the ruling and halted CSR payments. In response, insurers that still had the CSR obligation significantly increased silver plan premiums. This raised the premium subsidy, which is based on the second-lowest-cost silver plan in a given area. The termination of CSR payments—and insurers’ response of “silver-loading”—led to an overall increase in ACA subsidies and caused silver premiums for unsubsidized enrollees to soar.
The Managers Amendment to the bill appropriated funds for CSRs. The provision contains a limitation on these subsidies being used for health plans that cover abortion, except in cases of rape, incest, or when the life of the mother is endangered. We estimate doing so would lower silver premiums by about 15 percent and would lower the overall subsidization of the ACA market and thus deficits by an estimated $50 billion over a decade. Analysts across the political spectrum acknowledge that a properly funded CSR program would improve the ACA’s efficiency, although Democratic politicians have preferred the silver-loading status quo. A CSR appropriation is sound policy that would lower ACA premiums as well as lower federal deficits.
