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H.R. 1, officially the Budget Reconciliation Act of 2025 and widely referred to as the “One Big Beautiful Bill Act” (OBBBA), was signed into law on July 4, 2025. The measure runs more than 900 pages and impacts a variety of federal programs, some immediately and others phased in over several years depending on state-level decisions. Medicaid, called Medi-Cal in California, is among those most significantly affected.
 
The bill advanced through budget reconciliation, a special process that allows budget-related legislation (spending, revenue, or taxes) to pass the Senate with a simple majority rather than the usual 60 votes needed to overcome a filibuster. Republicans hold a narrow majority, and in this case the Senate vote was 50–50, with Vice President J. D. Vance casting the tie-breaking vote.
 
While Medicaid sees some of the most widespread health care changes, OBBBA spans a broad range of federal policy. Beyond health care, it reshapes tax law, adjusts funding for defense and border security, modifies education and student aid, scales back certain energy and climate programs, and expands new savings and benefit accounts. Taken together, the Congressional Budget Office (CBO) projects the law will add nearly $3 trillion to the federal deficit over the next decade, one of the largest projected increases in recent history.
 

Medicaid Cuts and Health Care Coverage Disruption

The OBBBA includes nearly $1 trillion in Medicaid cuts over 10 years. These aren’t across-the-board reductions but rather come with new rules requiring states to tighten eligibility to keep full federal funding. States technically could reject these changes, but doing so would mean forfeiting billions of dollars. That makes widespread adoption all but inevitable. Because Medicaid expansion was the Affordable Care Act’s main driver of reduced uninsured rates, these cuts threaten to reverse much of that progress.

Mandatory Work Requirements

Adults ages 19-64 who receive Medicaid must soon log and report 80 hours per month of work, school, or community service to remain eligible. While most enrollees already work, 64% according to KFF, the challenge lies in the reporting. Many individuals lack reliable internet access or digital literacy, and government systems have a record of glitches. When Arkansas briefly enforced work requirements, 18,000 people lost coverage for failing to report, not for failing to work. California is expected to implement these requirements by December 31, 2026, though states can technically opt in sooner or reject the policy altogether. Today, Georgia is the only state with Medicaid work requirements.

Six-Month Reenrollment Instead of Annual Renewal

Most Medicaid enrollees will soon have to verify eligibility twice a year instead of once, beginning in 2027. That means more opportunities for people to lose coverage simply because of paperwork delays, income fluctuation, or documentation barriers.

Cost-sharing (Copays) for Low-income Adults

Beginning in 2028, adults with incomes above 100% of the federal poverty level (about $15,000 per year) may face copays of up to $35 per visit, depending on the state. Primary care, prenatal, and emergency services are exempt, but the added cost could still deter people from seeking routine care – particularly those working in industries like hospitality, caregiving, and food service where employer coverage is rare.
 

Why California’s Role Matters

California’s decisions matter because of both scale and symbolism. As the largest Medicaid program, what happens in Medi-Cal affects more people than any other state. It also sends a signal to other expansion states that may take cues from California’s approach, whether it prioritizes strict enforcement or seeks ways to minimize coverage disruption.
 

Enhanced Premium Tax Credits (PTCs) Expiration = Employer Pressure Rising

The enhanced ACA subsidies (premium tax credits, or PTCs) first enacted during the COVID-19 pandemic under the American Rescue Plan Act and later extended by the Inflation Reduction Act are set to expire at the end of 2025. These subsidies have made marketplace coverage more affordable for millions of people, particularly middle-income, part-time, and gig workers. Because they’ve been in place for most of the marketplace’s recent history, their sudden removal will create a sharp affordability shock. In 2024 alone, marketplace enrollees received an estimated $124.2 billion in PTCs, according to KFF, a level of support that will shrink substantially once the expansion sunsets. OBBBA did not include an extension of these subsidies, meaning the clock is ticking unless Congress acts in the coming months.

• The enhanced PTCs will no longer be available beginning with the 2026 open enrollment period (for coverage effective January 1, 2026).
• Covered California estimates that without continued enhanced subsidies, 1.7 million enrollees in California could see their net premiums rise by an average of 66% in 2026.
• More workers and their dependents may return to employer-sponsored plans – either employees who find exchange coverage unaffordable or dependents who lose enhanced subsidies and shift back to a parent’s plan. Employers may also revisit Individual Coverage HRA (ICHRA) strategies in response.

 

Hospital Strain and Cost Shifting

As public coverage contracts and uncompensated care rises, hospitals will increasingly look to commercial payers to fill the gap – raising costs for both fully insured and self-funded employer plans.

• Emergency rooms remain the most visible safety net. Hospitals are legally required to treat patients regardless of their ability to pay, and more uninsured patients means more uncompensated care. That shortfall typically gets passed on to those with coverage in the form of higher rates.
• Rural and community hospitals are especially vulnerable because they operate on thinner margins. California stepped in last year with $300 million in interest-free loans to keep struggling hospitals open, but with the state’s budget deficit, doing so again may prove difficult. Other states have even fewer resources to fall back on, leaving many local facilities at risk of closure.

 

Why This Matters in the Group Insurance Market

The OBBBA doesn’t directly change ERISA or the employer mandate, but it will reshape the environment in which group coverage operates:

• As more workers lose public coverage, employers may face added pressure to close access gaps.
• Rising uncompensated care costs are likely to be shifted to commercial payers, including employer-sponsored and individual plans.
• Instability in public programs adds strain on HR teams, both in plan design and in supporting employees who lose coverage.
• California’s early adoption of federal changes could influence other states to follow suit—or highlight the risks of moving quickly.

 

Other Key Issues to Watch

Additional benefit changes in the OBBBA impact employer-sponsored HDHPs, HSAs, and Dependent Care FSAs.

1. Permanent HSA HDHP Telehealth Safe Harbor (2025)
   The COVID-era exception that allowed HSA-qualified high-deductible plans (HDHPs) to cover telehealth visits before the deductible is now permanent. This change means easier access to early or routine telehealth services without jeopardizing HSA eligibility.
2. Expanded HSA Eligibility for Bronze & Catastrophic Exchange Plans (2026)
   For the first time, certain non-HDHP plans will qualify as HSA-eligible. Specifically, ACA on-Exchange Bronze and Catastrophic plans will be treated as HSA-compatible beginning in 2026. This is a notable shift: individuals who buy these plans on the Exchange can now pair them with HSAs, expanding savings options beyond traditional HDHPs. Employer plans are unaffected and must still meet IRS HDHP rules.
3. Dependent Care FSA Limit Increase (2026 and Beyond)
   The annual cap for dependent care FSAs jumps from $5,000 to $7,500 (or from $2,500 to $3,750 if married filing separately). This is the first increase since the 1980s. It’s good news for employees trying to manage child care costs with pre-tax dollars, but it also means employers will need to update plan documents, payroll systems, and communications accordingly to reflect the new limit.

 
Together, these changes mark the most significant federal shifts in public and private coverage in more than a decade. For employers, the next 18 months will bring new compliance tasks, higher potential costs, and pressure to adjust plan strategy. Employers that prepare early will be best positioned to navigate the new OBBBA era.