HMA Solutions
What Medicaid Policy Changes Should Healthcare Leaders Be Paying Attention to Right Now?
Medicaid policy is undergoing a massive regulatory shift driven by the One Big Beautiful Bill Act (OBBBA) legislation.
To maintain financial stability, compliance, and continuity of care during these Medicaid policy changes, healthcare leaders must focus their attention on four highly critical, interconnected policy domains.
Changes to Section 1115 Demonstration Waivers
The federal approach to approving, extending, and evaluating Section 1115 waivers is experiencing a significant pivot, holding space for true innovation and pilots.
Shifting Federal Alignments: CMS is reshaping the criteria for waiver flexibilities. For instance, recent guidance has rolled back certain previous pathways used to cover health-related social needs (HRSNs) under Section 1115 authority. CMS issued a letter to State Medicaid Directors explaining its planned revisions to the program.
Strategic Scenario Planning: As outlined in HMA’s analysis on The Medicaid Pivot: New Developments in Section 1115 Demonstration Policy, state changes or extensions will trigger comprehensive CMS reviews. Leaders must transition toward alternative authorities (such as 1915(c) or managed care options) while monitoring emerging federal priorities around substance use disorders (SUD) and carceral reentry initiatives
Updated Eligibility & Community Engagement/Work Requirements
The eligibility path for Medicaid enrollees is tightening dramatically, introducing significant risks of coverage disruption that will create coverage churn in state insurance markets.
Mandatory Community Engagement: Under federal mandates, able-bodied adults without young children must demonstrate at least 80 hours per month of qualifying activities (employment, education, or community service).
Accelerated Churn Risks: As evaluated in HMA’s report on the Medicaid Community Engagement Interim Final Rule, states are shifting to an accelerated six-month redetermination cycle for expansion populations. Managed care organizations (MCOs) and health systems face immediate operational hurdles to track compliance and prevent massive lapses in continuous enrollment.
Focus on Managed Care Oversight & Program Integrity to Reduce Fraud, Waste, & Abuse
Federal regulators are pairing stricter oversight with direct financial consequences to reduce administrative inefficiencies and improper payments and crack down on fraud and abuse.
Error Rate Financial Sanctions: Beginning in FY 2030, states exceeding a 3% eligibility error rate face severe pullbacks in federal funding for files lacking insufficient verification data.
Aggressive Auditing and MCO Risk: Enhanced program integrity frameworks require monthly network audits to root out terminated providers and quarterly data matching for deceased enrollees. Healthcare leaders must brace for tighter risk adjustments, standardized plan requirements, and intensive fraud, waste, and abuse (FWA) strategies.
Changes to State Directed Payments (SDPs) & Reimbursement
CMS is fundamentally altering provider reimbursement limits and closing localized financing mechanisms to ensure a more regulated environment.
Medicare-Linked Caps: Moving away from average commercial rate benchmarks, CMS is establishing rigid ceilings. As captured in HMA’s brief on Proposed Changes to Medicaid State Directed Payments, new limits cap SDPs at 100% of Medicare rates for expansion states and 110% of Medicare rates for non-expansion states.
Choking Provider Tax Revenue: Effective October 2026, states are restricted from implementing new provider taxes beyond July 2025 thresholds. Furthermore, as detailed in HMA’s commentary on Medicaid State Directed Payments: CMS Proposes Major Changes to Financing and Oversight, existing provider taxes in expansion states will steadily choke down from 6% to 5.5% in 2028, and ultimately down to 3.5% by 2032, forcing health systems to rapidly recalibrate their financial baselines.
How HMA Helps Leaders Respond
Health Management Associates (HMA) turns high-stakes statutory mandates into functional, compliant operational strategies. We offer end-to-end strategic guidance, actuarial analytics, and technical assistance:
- Strategic Planning & Financing Modeling: Developing innovative strategies to model state-directed payment caps, analyze provider tax restrictions, and structure financial baseline adjustments.
- Operational & Workflow Overhauls: Redesigning eligibility systems to execute 6-month redeterminations and building automated tracking platforms for community engagement.
- Program Integrity & Compliance: Aligning FWA shielding strategies and conducting pre-audit assessments to mitigate the risk of eligibility error-rate penalties.
- Workforce & Stakeholder Alignment: Delivering targeted training and managing cross-functional change management to ensure seamless communication between state agencies, MCOs, and providers.
With a deep bench that includes 10 former Medicaid and CHIP directors and active project experience across more than 35 state programs, HMA equips healthcare leaders to navigate this shifting regulatory landscape with absolute confidence.