July 17, 2025

Analyzing the “One Big Beautiful Bill” – State Impact Remains Unclear

On July 17, 2025 by Mark Schulz

The passage of the federal "One Big Beautiful Bill" (OBBB) introduces substantial reforms to Medicaid, Medicare, and the Affordable Care Act premium tax credits, focusing on cost containment, program integrity, and greater state flexibility.

Key Provisions

Key provisions include the introduction of work requirements, tightened eligibility verification, financial incentives for states to ensure accurate administration, and revisions to federal subsidies—measures aimed at reducing federal expenditures to balance tax cuts and other spending priorities.

While certain elements of the bill are designed to support workers, the broader fiscal restructuring has sparked concern about the long-term viability of safety-net programs vital to older adults. These shifts could affect access to services, the operations of senior care providers, and overall resident wellbeing—especially for Medicaid providers, nursing homes, and non-profit healthcare organizations.

At the state level, Minnesota’s response remains in flux. Governor Walz's staff has indicated that the federal legislation might prompt a second special legislative session later this year, though no formal plans have been announced. As of now, the impact on aging services in Minnesota is unclear. Providers are encouraged to refrain from making operational or budgetary changes until more definitive guidance is issued by state leadership.

LeadingAge Analyses

We wish to acknowledge and thank LeadingAge National for its swift and thorough efforts in developing summary information following the passage of the OBBB on July 4, 2025. Their timely analysis provided critical insights that greatly supported the creation of the below information on the bill’s wide-ranging impacts.

Provider Taxes and State Directed Payments

• Limits on Medicaid Provider Taxes
  • The law bans new or increased provider taxes not imposed before July 4, 2025, and reduces hold harmless thresholds beginning in 2027. These constraints may reduce state funding capacity for supplemental payments to providers, impacting Medicaid-supported services.
• Redefinition of Redistributive Taxes
  • New definitions and limitations prevent provider tax models that overly burden Medicaid services, targeting states using steeply redistributive tax structures. Affected states face reduced tax revenue, which could affect provider incentives and service funding.
• Limits on State Directed Payments (SDPs)
  • SDPs approved by May 1, 2025, are capped and will be reduced by 10% annually from 2028. Future SDPs must align with Medicare rate benchmarks, limiting states' flexibility to use SDPs as a funding tool and possibly restricting provider payment enhancements.

Rural Health Transformation Program

• Rural Health Transformation Program ($50B over 5 years)
  • The law creates a $50B fund for rural health systems from FY2026 to FY2030, distributed through state-submitted transformation plans. Though the program may not fully offset Medicaid cuts, it offers aging service providers a potential, though limited, funding opportunity if included in state plans.

Medicaid Eligibility Changes

• Retroactive Eligibility Reductions
  • Retroactive Medicaid eligibility is shortened to one month for expansion enrollees and two months for traditional enrollees starting in 2027. Providers may face higher uncompensated care costs and must expedite Medicaid application processes to reduce financial risk.
• Increased Medicaid Redetermination Frequency
  • Beginning in December 2026, Medicaid expansion enrollees will undergo eligibility redetermination every six months instead of annually. This increases administrative burden on states and risks coverage loss for aging services staff and housing residents.
• Mandatory Medicaid Work Reporting
  • Medicaid expansion enrollees must meet 80 hours/month of work or engagement, with complex exemption criteria and state system burdens starting in 2027. This could lead to coverage loss for residents and employees, further straining safety-net providers.

Affordable Housing for Older Adults

• Permanent Enhancement of Low-Income Housing Tax Credit (LIHTC)
  • The new law increases state LIHTC allocations by 12% and lowers the 4% credit bond financing threshold from 50% to 25%. These changes, effective after December 31, 2025, are expected to generate 1.2 million affordable homes over 10 years and will significantly aid developers in addressing senior housing shortages.
• Green and Resilient Retrofit Program (GRRP) Rescission
  • H.R. 1 rescinds $138 million in unobligated funds from HUD’s GRRP, terminating HUD’s contractual support for multifamily property improvements. While existing GRRP awards remain intact, awardees now bear full responsibility for completing their projects without HUD technical assistance.
• Medicaid and SNAP Work Requirements
  • H.R. 1 imposes work requirements for Medicaid recipients aged 19–64 in expansion states, affecting potentially hundreds of thousands in HUD-assisted housing. It also raises the SNAP work requirement age limit to 65 and removes key exemptions, threatening food and healthcare access for vulnerable older adults.

Tax Policy

• Permanent Exclusion for Employer Student Loan Repayments
  • Employer payments on student loans are now permanently excluded from taxable income, removing the prior expiration in 2025. This boosts long-term employer flexibility in supporting staff education benefits.
• No Tax on Overtime Provision
  • A new temporary deduction (2025–2028) allows workers to deduct up to $12,500 ($25,000 for joint filers) in overtime income, subject to reporting and income limits. Implementation details are pending IRS guidance, but the provision could affect workforce reporting and payroll processes.
• Bonus Depreciation and Section 179 Expensing
  • Restoration of 100% bonus depreciation and expansion of Section 179 (up to $2.5 million) will enhance cash flows for projects involving heavy capital investments. This benefits value-add strategies in sectors like senior living, enabling improved financial viability for improvement-heavy properties.
• Employee Retention Credit (ERTC) Limitations
  • The law cuts off acceptance of ERTC claims for Q3 and Q4 2021 unless submitted by January 31, 2024. It also extends IRS audit authority and imposes due diligence penalties on promoters, increasing scrutiny and enforcement surrounding COVID-related tax credits.
• 529 Plan Expansion for Credentialing
  • Tax-free 529 distributions can now be used for postsecondary credentialing expenses related to non-degree programs. This change supports workforce development in sectors like aging services by covering certifications such as CNA training.
• 1% Floor for Corporate Charitable Giving
  • Corporate charitable contributions will only be deductible if they exceed 1% of taxable income, capped at 10%. This change, effective for tax years after 2025, is expected to reduce corporate giving by $4.5 billion annually, potentially harming nonprofit funding.
• Excess Compensation in Tax-Exempt Organizations
  • The new law broadens the definition of employees subject to the excess compensation tax to include any individual earning over $1 million, not just the top five earners. This could increase the tax burden for tax-exempt organizations starting in 2026.
• Increased Reporting Thresholds for Contractors
  • The 1099 reporting threshold for independent contractor payments increases from $600 to $2,000, adjusted for inflation. This reduces administrative burdens for businesses starting in 2025.