Medicaid is America’s largest payer of long-term services and supports (“LTSS”). It covers the majority of costs for nursing home care and home- and community-based services (“HCBS”) for America’s senior adults and those with disabilities.
The “One Big Beautiful Bill Act” of 2025 introduced significant changes in the Medicaid long-term care scheme. In 2026, the impact of the OBBBA will produce funding pressures and policy shifts that, when coupled with demographic realities, create challenges for providers as they work to maintain accessible and sustainable quality of care to their patients.
Here are 5 “hot spots” to keep an eye on as we move into the new year.
1. Adjusting To The Cap/Reduction in Provider Taxes. “Provider taxes” will be capped or reduced, straining states’ ability to fund Medicaid LTSS/HCBS. The OBBBA included a full stop on new provider taxes after July 4, 2025, followed by a roll down of these taxes to be phased in over time. These assessments have been imposed since the 1980s by states on providers such as long-term care (“LTC”) facilities and hospitals to fund state-level Medicaid funding. The 1990s saw limitations placed on both tax rates and the uses of revenue the assessments generated. Still, states have been heavily reliant on the provider taxes to furnish the bulk of state Medicaid expenditures.
In FY 2023, the states paid for 31% of the nation’s total Medicaid expenditures of $894 billion. (http://congress.gov/crs-product/R42640) One of the goals of the OBBBA is to reduce the federal deficit by $880 billion by 2034. The reduction in the state-level provider taxes will leave states with fewer fiscal tools to secure care for an aging senior population, which continues to increase.
In an environment of rising cost pressures and less “elbow room” to find revenue, states are expected to implement a variety of measures, including increased compliance monitoring and increased use of technology to increase efficiency in government administrative costs. For example, many states have already begun use of online portals for patient-direct submissions of Medicaid LTSS/HCBS applications and applicant income and resource verifications. The OBBBA will require more frequent verification. Seniors and LTC providers will need to develop strategies to assist elderly residents and those with less exposure to technology to meet these requirements. Providers will need to develop innovative approaches across all operational elements to remain financially healthy so that this vulnerable segment of America maintains access to quality care.
2. Placing “Bets” In The Face Of Political And Fiscal Policy Battles. Medicaid funding is no stranger to controversy in the halls of state government. Long-term care is one of the costliest Medicaid pieces on every state’s budgetary balance sheet. Some states have tried to implement reimbursement rate cuts and at least one was met with sufficient legal and political pushback to pause that effort. To no one’s surprise, and perhaps taking cues from the OBBBA itself, this will be among the more common approaches among the states as the impact of the OBBBA continues to unfold.
Providers must anticipate a smaller pool of Medicaid funds and even stricter Medicaid agency treatment of applications. As providers identify and cut “non-essential” costs to counter expected reductions from the state Medicaid programs, they may also need to explore adjustments in service offerings, opportunities to streamline operations, and ways to increase AR recoveries. One of the most important areas of provider attention in developing these strategies will be investment in the direct care workforce.
3. Effectively Managing Staffing And Retention. One of the potential bright spots for providers in the OBBBA is its moratorium on federal minimum staffing standards. The minimum standards prior to the OBBBA required 3.48 hours of direct nursing care per resident per day. Facilities usually seek to maintain high levels of direct patient care. As skilled-nursing facility labor costs typically constitute between 70-80% of the facility’s operating budget, many are also in rural settings or other circumstances that pose challenges to meeting the pre-OBBBA minimum staffing standards.
While competition from hospitals and other clinical settings for quality nurses and other direct care professionals poses its own pressures on staff retention, LTC providers are especially prone to losing treasured clinical and care staff, owing in no small part to the funding pressures that particularly affect LTC facilities. These losses directly impact care coordination, disease management, wound care, and all of the patient quality-of-care factors that drive provider revenue.
Facility flexibility in allocating direct-care hours (vs. the federal minimum standards that are now, for now, on the shelf) may afford an area for LTCs to develop incentives to increase job satisfaction, retain care staff, and most effectively manage patient outcomes in ways that benefit residents, adding operational stability and allowing strategic focus on other areas for growth.
4. Watching And Waiting As Demographic Demand Grows. Some states are instituting or expanding waiting lists for HCBS waivers. Demand simply exceeds capacity for at-home programs. This forces some higher acuity patients into LTC settings. Other delays are caused by workforce shortages. For example, some states face shortages in state assessors or contract vendors to perform level of care assessments. Hospitals are pushing some of these higher acuity patients to LTCs due to LOC delays.
Rural counties in states like Alabama see HCBS approvals but a lack of home care providers. One of the state’s longest tenured home health providers left Alabama altogether in 2023 due to budget constraints. “Care deserts” are developing in some places. The well-documented growth in the senior segment of the American population continues.
The funding pressures of the OBBBA are compounded by simple demographic inertia. It will be crucial for providers to maximize their opportunities wherever they may be found.
5. Minding the Gate. For LTC providers, 2026 poses a historic challenge to develop ways to ensure that the most likely candidates for successful Medicaid eligibility are also the most likely candidates for bed space. The OBBBA creates an environment that makes screening critical.
Retroactive coverage window will shrink from 90 days to 60 days, effective January 1, 2027. Expect Medicaid-accepting LTC providers to become more creative and more urgent about patient mix and management of whom they admit, with an emphasis on those residents who will qualify for Medicaid fastest. Because such systems take time to develop and implement, providers who have not focused on such strategies will do well to sharpen their focus early in 2026.
The One Big Beautiful Bill Act poses a wide array of challenges for LTC and HCBS providers who rely on Medicaid funding in 2026. The complexity of these factors is substantial. The year should prove to be a watershed in the development of provider-level strategy for years to come.
