OBBBA Policy Changes Compounded by Tariff-Driven Costs

By Megan Ferguson, Bob Whittemore and Beth Hyman

The One Big Beautiful Bill Act (OBBBA) is a sweeping package that introduces significant financial and operational worries for healthcare practices, including cuts to Medicaid funding and higher workloads for staff. This puts practices in an even more precarious position as they already face increased costs from tariffs on medical supplies and equipment, which add further margin pressure. 

The bill does contain some positives, however. These include favorable tax changes to encourage investments and a new Rural Transformation Program that partially offsets the expected cuts to federal Medicaid spending.

In light of the challenges stemming from OBBBA and rising costs due to tariffs on medical supplies and equipment, practitioners must take a proactive approach. Understanding the nuances of the bill, assessing its financial and operational implications and preparing for compounded disruptions will be essential to safeguarding practice stability.

Here’s how OBBBA and higher costs from tariffs are expected to impact health care providers.

Medicaid Cuts, Stricter ACA Requirements and Medicare Uncertainty

Perhaps the most immediate concern is the impact on Medicaid. OBBBA includes almost $1 trillion in Medicaid cuts over 10 years. The Congressional Budget Office estimates this could leave about 14 million people uninsured due to eligibility restrictions like new work requirements for most able-bodied adults aged 19 to 64.

For providers, the Medicaid cuts mean more uncompensated care, more complex eligibility checks, and a rise in patients who only discover they’ve lost coverage once they arrive at their doctor’s office, leading to tough, awkward conversations for staff. Some practices may even need to hire care coordinators to navigate eligibility documentation, increasing costs even more.

The deep cuts to Medicaid could also lead to:

• More emergency room visits for conditions usually treated by primary care physicians
• Greater financial strain on patients and practices due to higher costs of emergency care
• More seniors entering nursing homes, compounding staffing shortages, because states may be forced to limit or cut home- and community-based services

The Affordable Care Act (ACA) coverage is impacted as well because of stricter qualification requirements for ACA premium tax credits and termination of auto-enrollment. New annual verification rules are expected to result in many individuals losing coverage and fewer patients seeking care at independent practices.

Medicare will see its own adjustments. Providers will receive a temporary increase of 2.5% in the Medicare physician fee schedule conversion factor from Jan. 1, 2026, to Jan. 1, 2027. This temporary boost is unlikely to offset wider financial pressures.

Additionally, OBBBA is projected to increase the deficit, which under the Statutory Pay-As-You-Go (PAYGO) Act of 2010 could trigger automatic Medicare cuts of up to 4% unless Congress steps in.

New Federal Loan Limits and Fewer Future Physicians

Another provision with long-term implications is the cap on medical student loans. Beginning July 1, 2026, loans will be limited to $50,000 per academic year and $200,000 total.

With average annual tuition exceeding $60,000 at many private medical schools, according to the Association of American Medical Colleges, this cap could discourage students from pursuing medical degrees, worsening the physician shortage, lengthening wait times for patients and adding responsibilities for nurse practitioners and physician assistants.

Tariff-Related Cost Increases

Another stressor comes from tariffs. Recently approved trade measures could drive up the cost of steel and other materials, making new hospital facilities and expansions significantly more expensive. While some medical devices and pharmaceuticals received temporary exemptions, those protections may not last.

The effects of tariffs could be higher patient prices, supply chain disruption and less innovation within the medical supply sector.

Providers should focus on strategic planning to maintain access to affordable goods. Consider diversifying suppliers, renegotiating contracts and exploring alternative materials where feasible.

Favorable Tax Provisions

While the news seems bleak, health care practices may find relief from several tax provisions:

• Bonus depreciation was made permanent at 100%, allowing businesses to immediately deduct the full cost of qualified property and equipment placed in service after Jan. 19, 2025. This reverses the prior schedule that would have phased down to 40% for 2025.
• Section 179 expensing limits go far to incentivize capital investments, as the phaseout threshold went from $2.5 million to $4 million.
• The Qualified Business Income deduction is made permanent at 20% for pass-through entities, a common structure for medical practices.
• Immediate R&D expensing is reinstated for domestic costs through 2029, which would benefit practices involved in medical device development and clinical research

These tax benefits create valuable planning opportunities that practices should weigh against the law’s more restrictive provisions.

Rural Health Transformation Program

The Senate added this $50 billion program ($10 billion over 5 years) to OBBBA at the last minute to partially offset the expected cuts to federal Medicaid spending in rural areas. The first batch of funds will be allocated later this fall, with half distributed equally among states with approved applications. The other half will be determined by the Centers for Medicare & Medicaid Services.

The program provides significant funding for technology-driven solutions to improve care in rural hospitals, including chronic disease prevention and management, remote monitoring, robotics, AI and other advanced tools.

Nevertheless, rural hospitals and rural health care are still expected to struggle, as the overall impact of Medicaid cuts could be devastating. Rural hospitals that rely heavily on Medicaid for revenue will face increased financial strain at minimum and closures at worst.

Health Care Delivery is Changing

The OBBBA will reshape health care delivery in profound ways. Cuts to Medicaid and stricter ACA marketplace requirements will leave many more patients uninsured. In South Carolina alone, the uninsured population from Medicaid cuts will increase by almost 60,000, and just under 200,000 when including those losing ACA coverage, according to the Kaiser Family Foundation.

Additionally, tariffs will raise the cost of providing care, and new educational federal loan caps for professional students could worsen the physician shortage.

At the same time, new tax provisions of OBBBA offer investment opportunities to help alleviate some of these pressures.

The providers most likely to succeed will be those that adapt and innovate by monitoring eligibility changes, exploring new supplier options and fully leveraging tax provisions by investing strategically in equipment and technology.