Timeline: When 2025 Budget Reconciliation Law Takes Effect & Actionable Strategy for Healthcare Finance 

Healthcare organizations are preparing for major changes to federal funding, Medicaid eligibility rules, and administrative systems. But these changes don't hit all at once. The 2025 federal budget reconciliation law includes a staggered implementation timeline that gives providers some short-term benefits—like tax relief starting in 2025—while saving some painful cuts for later. Heavy Medicaid funding reductions start in January 2027, and the most severe cuts begin in 2028.

Certain implementation details and exemptions are still unclear. But at a high level, the timeline of upcoming changes looks like this:

• New limits and restrictions on provider taxes and state-directed payments start in 2025.
• Increasing restrictions and oversight mechanisms take effect primarily in 2027, many of which are focused on Medicaid program integrity and work requirements.
• Additional administrative and payment reforms are scheduled for 2028-2029.

Strategic Priorities for Finance and A/R

The bottom line: Prepare for the increased financial pressure that comes from lower government payouts and fewer insured patients. Finance and operations leaders who can proactively manage costs, diversify revenue sources, and scalably improve their full revenue cycle operations will put themselves in the best position to succeed.

Impacts will vary by state, patient mix, and services provided. With your own patient and payer mix in mind, consider how you can:

• Diversify revenue streams: reduce dependence on Medicaid, Medicare, and ACA expansion programs facing cuts
• Strengthen your balance sheet: build reserves for increases in charity/uncompensated care, and begin multi-year cost reduction initiatives now
• Invest in efficiency: use any temporary payment increases or tax relief to invest in RCM operational efficiency and technology
• Enhance revenue cycle workflows: improve eligibility verification, prior authorization, patient intake, coding, charge capture, collection processes, and A/R processes
• Strengthen financial assistance and counseling: improve financial assistance, patient financial counseling, and patient billing support operations
• Scenario planning: model various implementation timelines and compliance outcomes, including revenue impact from reduced state supplemental payments, increases in uncompensated care, and significant coverage gaps

Timeline: When Key Changes Take Effect

July 4, 2025

Moratorium on new and increased provider taxes: States are prohibited from establishing any new Medicaid provider taxes or increasing the rates of existing taxes. States are also prohibited from using certain taxes, like taxes on managed care plans, that were previously allowed.

Caps on state-directed payments (SDPs): SDPs for inpatient hospital and nursing facility services are capped at 100% of Medicare payment rate for expansion states and 110% for non-expansion states.

October 1, 2025

Rural health transformation grants: Rural healthcare providers can apply for a share of the $50 billion fund set aside for rural health for fiscal years 2026-2030. Funds can be used to promote healthcare interventions, expand the rural healthcare workforce, or improve operational systems.

How to address 2025 changes

· Review current Medicaid contracts and payment structures
· Diversify payer mix to reduce Medicaid dependency
· Engage with state Medicaid officials on transition planning
· Assess eligibility for rural designation and apply by Dec. 31, 2025

January 1, 2026

Elimination of financial incentive for Medicaid expansion: The Federal Medical Assistance Percentage, or FMAP, increase for two years after a state newly adopts Medicaid expansion is no longer available. 

Temporary payment increase: Implements a one-year increase of 2.5% to the Medicare Physician Fee Schedule conversion factor for services between Jan. 1, 2026 and Jan. 1, 2027.

Expansion of HSAs (Health Savings Accounts): Bronze and catastrophic plans can now pair with HSAs, and direct primary care (DPC) services are also HSA-eligible.

Expiration of enhanced premium tax credits: Enhanced subsidies, passed in 2021 to help enrollees under certain income levels afford health coverage, will lapse in January 2026. Unless the tax credits are extended, premiums will increase by 75% or more on average. Of the 24 million+ covered by ACA plans, the Congressional Budget Office (CBO) estimates that 4.2 million Americans will become uninsured as a result.

December 31, 2026

More Frequent Eligibility Redeterminations: States must verify Medicaid eligibility every 6 months, rather than annually, for expansion adults starting with renewals on or after Dec. 31, 2026.

2027 - New Medicaid Rules and Systems

January 1, 2027

Introduction of work requirements: States are required to condition Medicaid eligibility for expansion adults (ages 19-64) on working or participating in qualifying activities for 80+ hours per month or attending school half-time. Parents of children 13 and under, as well as medically frail individuals, are exempt from this requirement. People who are denied Medicaid coverage for failure to meet work requirements are now ineligible for subsidized ACA Marketplace coverage.

Limited retroactive coverage: Retroactive Medicaid coverage is now restricted to one month prior to application for expansion enrollees and two months prior for traditional enrollees. This is down from three months of retroactive coverage, as long as the enrollee would have been eligible during that time period.

Limits on state waivers: States that use 1115 waivers must demonstrate they are budget-neutral, i.e. will not increase federal expenditures compared to costs without the waiver. These waivers are used for state-level healthcare initiatives like continuous eligibility, workforce development, and social determinants of health.

October 1, 2027

New limits on provider taxes: Reduces the safe harbor limit for expansion states by 0.5% annually starting in fiscal year 2028 until reaching 3.5% in FY 2032. This will affect most of the country: 48 states and DC have at least 1 provider tax/fee that exceeds 3.5%.

How to prepare for 2027 changes

· Model patient volume losses due to new work requirements (potentially 15-25% 
of expansion population)
· Expect revenue cycle disruptions from coverage gaps
· Strengthen financial counseling and assistance program capacity

2028 and Beyond - Payment Reductions and Operational Efficiency

January 1, 2028

Reduction in state-directed payments: Existing payments will decrease 10 percentage points annually until they reach the allowable Medicare-related payment limit. In the absence of published Medicare payment rates, the limit is set at the Medicaid fee-for-service payment rate.

ACA verification requirements: Pre-enrollment verification is now required for enrollees to receive premium tax credits.

Medicaid provider screening requirements: States must check at provider enrollment or reenrollment and on a quarterly basis to determine whether providers enrolled in Medicaid are deceased. 

October 1, 2028

New cost sharing requirements: States are required by law to impose cost sharing (up to $35 per service) on certain adults enrolled in Medicaid expansion states. Some services would be exempt from cost sharing, including primary care, mental health treatment, substance use disorder (SUD) treatment, family planning, emergency care provided in a hospital emergency department, and institutional long-term care. 

How to prepare for 2028 and beyond

· Renegotiate vendor contracts and staffing model
· Implement cost sharing collection systems
· Update financial counseling for new patient responsibilities
· Consider impact on access and utilization patterns

October 1, 2029

Reducing duplicate enrollment: The Department of Health & Human Services (HHS) is required to establish a system to prevent simultaneous enrollment in multiple states.

Improper Medicaid payments: Erroneous payments, like payments made for ineligible individuals and overpayments made for eligible individuals, will receive less federal financial participation to rectify the situation. This also expands the definition of “improper payments,” so more situations fit into this category. 

Prepare for the Future of RCM

These 2025 policies and expected rising patient responsibility will squeeze practice margins. Address inefficiency now and turn the most difficult revenue to collect into an economy of scale with Collectly’s AI RCM and patient billing platform. Our AI-powered end-to-end suite features pre-service check-in, eligibility verification, cost visibility, modern self-service payments, and automated post-visit outreach that adapts in real time. 

Native EHR integrations, real-time analytics, and flexible payment plans help you improve cash flow and reduce cost to collect -- fast. Billie, our AI agent, answers billing questions 24/7 across chat, SMS, email, and voice -- clearing confusion and accelerating payments without adding headcount. Learn more about the Collectly platform here.