H.R. 1’s Sweeping Changes For New York’s Health Care System

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H.R. 1’s Sweeping Changes For New York’s Health Care System

On July 4, 2025, Congress enacted the Omnibus Budget and Balanced Budget Act – referred to colloquially as H.R. 1 – a comprehensive federal law that reshapes the financing and administration of Medicaid, state-directed payments, immigrant eligibility for public programs and the Affordable Care Act Marketplace.[1] The law marks the most significant restructuring of federal support for state health programs in more than a decade.

For New York – a state with one of the largest Medicaid programs in the nation, a robust Essential Plan, and reliance on state-directed provider financing – the implications are sweeping. This article examines the major provisions of H.R. 1 and analyzes their expected impact on New York’s health care system, budget, providers and the patients they serve.

Overview of H.R. 1 Provisions Impacting New York

Provided below is an overview of impactful provisions of H.R.1, followed by further discussion of such provisions directly impacting New York:

Termination of the Medicaid managed care organization tax and limitations on provider taxes: Prohibits any new Medicaid provider tax or increases to existing rates for taxes and eliminates the authority for New York’s recently enacted managed care organization tax.[2]
New limits on state directed payments: Limits the scope of any new state directed payments to 100% of Medicare. New York’s existing payments will need to be reduced by 10% per year beginning in 2028, until payments reach Medicare levels.[3]
Loss of premium tax credits that fund the Essential Plan: H.R. 1 makes lawfully present individuals who are not eligible for Medicaid due to their immigration status ineligible for premiums tax credits.[4]
Barring federal payments to prohibited entities that provide abortion services: Imposes a one-year ban on state Medicaid payments to certain health care nonprofits that also offer abortion services.[5]
`Imposition of mandatory Medicaid work requirements: States must condition Medicaid eligibility on compliance with work requirements for adults covered by Medicaid expansion or expansion-like coverage ages 19-64.[6]
Increased frequency of eligibility redeterminations: States must redetermine Medicaid eligibility for adults enrolled through Medicaid expansion once every six months.[7]
Creation of the Rural Health Transformation Program: Establishes a $50 billion fund for rural health care providers.[8]

As New York’s health care system is deeply intertwined with the state’s overall economy and financial stability, these changes will have significant impacts on the state’s ability to sustain and enhance the health care delivery system. H.R.1 is expected to result in New York State losing $10-13.5 billion in annual funding when all the provisions of the law are fully implemented by 2032. Immediate impacts include an increase in uninsured/underinsured New Yorkers (estimated around 450,000) as a result of losing coverage in 2026 and an additional 1 million to lose Medicaid coverage when fully implemented. The loss in revenue for uncompensated or lower payments from underinsured will place additional financial pressure on providers across the state. With better-than-expected revenue collections in the current fiscal year (FY 2026), the state is in a position to advance short-term strategies to mitigate significant financial impacts on the health care system, but such measures are unlikely to be sustainable.

The overall financial health of New York’s health care system remains distressed and now faces a multitude of impacts as a result of H.R.1 that will place additional financial pressures on many providers through increased uninsured patients and cutting off many of the supplemental funding streams that support New York’s most financially distressed providers.

Managed Care Organization Tax and Provider Taxes

In December 2024, the state secured approval from the Centers for Medicare and Medicaid Services to implement a new managed care organization tax to leverage additional federal resources, with tax revenue to be deposited in the Health Care Stability Fund to support Medicaid rate increases and other supplemental funding opportunities.[9] H.R.1 eliminates the authority for New York’s managed care tax authority waiver sooner than projected, resulting in the state’s tax collecting less revenue than anticipated.

Most practitioners had an understanding that using this source of revenue would be challenging. New York’s methodology relied on a similar methodology used in California, which did obtain approval, but was accompanied by a notice that it did not meet the spirit of the regulation and that the Centers for Medicare and Medicaid Services was planning to revise the regulation which would require California to modify their tax structure. When New York State received their approval, it contained the same notice which would require the state to come into compliance with the revised regulation.[10]

In implementing the provisions of H.R.1, the Centers for Medicare and Medicaid Services issued a final rule implementing provisions related to the managed care organization tax and established a transition period for New York to continue to operate the tax until the end of 2026, allowing for three additional quarters of tax revenue. A conservative estimate is that this extension will provide at least $1 billion in additional revenue than originally projected following the enactment of H.R.1, but still less than the total expected revenue to be collected under the program. Importantly, the elimination of the tax eliminates the continued use of this mechanism to support provider investments beyond fiscal year 2028.

With respect to other provider taxes, New York is prohibited from implementing new provider taxes. Existing taxes can remain – so long as they meet updated rules related to uniformity – but the state would be unable to increase or restructure those taxes. New York has a number of provider taxes (i.e., the Health Facility Cash Assessment Program) that are not expected to be impacted by this provision, except for the fact that these taxes will no longer be able to be increased or restructured. This provision effectively limits the use of a long-standing mechanism to help states finance their share of Medicaid expenditures.

State Directed Payments

State directed payments often allow for significant increases in Medicaid payments in Medicaid managed care delivery systems. New York was increasing the use of these payments (often referred to as directed payment templates in New York) to support providers, resulting in $1.52 billion in federal funding in the current fiscal year. H.R.1 limits the scope of any new state directed payments to 100% of Medicare rates for expansion states. Expansion states with existing payments above Medicare rates will need to reduce payments by 10 percentage points per year beginning in 2028 until the payments are no greater than 100% of Medicare payment levels. Medicare payment levels are roughly half of the average commercial rate for many services.

As a result of these policies, directed payment templates will need to decrease 10% annually starting in 2028 and existing payments will immediately be subject to an aggregate dollar cap (meaning the overall value of the payment cannot increase above current levels). New York providers will see their directed payment templates reduced over time and the state will need to make difficult decisions to allocate payments from a shrinking pool. Critically, New York loses a critical and effective tool to fund financially distressed safety nets and rural providers.

Restrictions on Noncitizen Eligibility for Subsidized Coverage

Currently, most immigrants who are lawfully present with incomes under 250% federal poverty level are eligible for the New York Essential Plan. Many of these enrollees are New York’s Aliessa population, who are required to be covered by the state under longstanding court order.[11] Prior to the adoption of the Essential Plan, the Aliessa population was covered in state-funded Medicaid. H.R.1 enacts restrictions on noncitizen coverage under the Essential Plan by eliminating premium tax credits for certain lawfully present individuals who are ineligible for Medicaid due to their immigration status. While it is possible for lawfully present immigrants to remain in the Essential Plan, they are not eligible for premium tax credits, and the state will not receive this funding to support the Essential Plan. As a result of reductions to premium tax credit eligibility, New York State will lose $7.5 billion in federal funding and shift additional costs of $2.7 billion annually to support impacted populations to state-only funds.

To mitigate the coverage and funding “cliff” created by these provisions, the state has announced that it will revert the current Essential Plan, which operates under Section 1332 authority, back to the Section 1331 Basic Health Program authority to maximize coverage. As a result of this change, it is expected that the state will leverage the existing Basic Health Plan Trust Fund to support coverage for those individuals that remain eligible for the Essential Plan, but will no longer be able to provide coverage for the recent expansion population – those individuals who are not eligible for Medicaid with incomes between 200% and 250% of the poverty line. If successful, this would present the best case scenario for providers (considering the circumstances) as the impacted populations remain enrolled in the Essential Plan, which pays higher rates than Medicaid (transition to state-only Medicaid coverage would result in a $1.3 billion annual revenue loss for providers due to the difference in rates) and the use of Basic Health Plan trust dollars delays the use of state funds to continue to cover this population. However, as a result of this change, the estimated 450,000 individuals with incomes of 200%-250% of the federal poverty level will no longer be eligible for the Essential Plan, will lose access to premium-free health insurance coverage and will be transitioned to qualified health plans.

Barring Federal Payments To Certain Reproductive Care Providers

H.R. 1 prohibits federal Medicaid funding for all health care services provided by certain providers (described as “prohibited entities”) whose services include abortion, including Planned Parenthood and its affiliates, for a one-year period beginning July 4, 2025. The funding ban applies to all Medicaid services offered by such entities, including cancer screenings, contraceptive care, and family planning. As expected, the provision has been the subject of extensive litigation. While three lawsuits were filed challenging this provision, case developments have resulted in this provision taking effect while litigation continues.[12]

In the wake of the Supreme Court’s ruling in Dobbs v. Jackson Women’s Health Organization,[13] the governor and Legislature have made significant investments and policy changes to protect reproductive rights for New Yorkers and anyone receiving reproductive health care in New York, including providing over $100 million in funding to support abortion providers and reproductive health care statewide. Gov. Kathy Hochul furthered this commitment by allocating up to $35 million in state funds to offset federal losses to New York providers to prevent clinics from laying off workers, reducing services or closing altogether.[14]

Medicaid Work Requirements

H.R.1 requires all states to condition Medicaid eligibility on compliance with work requirements for adults covered by Medicaid expansion or expansion-like coverage ages 19-64 as of Jan. 1, 2027.[15] Qualifying activities include 80 hours per month of work, a defined work program for recipients of the Supplemental Nutrition Assistance Program, community service, part-time education or some combination of the above. Individuals denied Medicaid due to work requirements are not permitted to receive marketplace tax credits for as long as the individual meets Medicaid eligibility criteria other than work requirements.

A particular focus area of this provision is the exemption of medically frail individuals from work requirements. Congress sought to protect vulnerable individuals from losing coverage by expressly exempting medically frail individuals from work requirements. In doing so, H.R.1 provides for minimum standards for individuals who are medically frail, meaning they experience serious physical and intellectual disabilities, complex medical conditions, behavioral health problems and/or a substance use disorder. Historically, the Centers for Medicare and Medicaid Services has deferred to states to define medical frailty – a definition that will matter a great deal for Americans who may qualify for exemptions from the work reporting requirements.

This is one of the most significant provisions of H.R.1 and has an outsized impact in New York. New York has estimated that work requirements and other eligibility provisions could increase the uninsured by 500,000 by 2029 – and over 1 million annually after work requirements begin. Coverage losses will fall heavily on lower-cost expansion adults, driving up average Medicaid costs and uncompensated care for providers. It is also expected to add $500 million in new state costs, representing a 20% increase in state costs to administer the Medicaid program. Defining medical frailty, and determining who qualifies for such exemptions, is another important task added to states’ growing list of action items as new policies implemented under H.R.1 begin to take effect.

Six-Month Eligibility Redeterminations for Certain Adults

H.R. 1 requires Medicaid redeterminations for expansion and expansion-like adults to occur twice a year, starting Dec. 31, 2026. This is a major departure from previous Medicaid eligibility rules, whereby states may redetermine eligibility for expansion enrollees no more frequently than annually or unless information received by a state indicates a change in circumstances.

While the fiscal impact is expected to be less than the impact of work requirements, the requirement is expected to significantly increase administrative expenses for staffing to support consumers as they try to renew their coverage every six months, additional mailings for renewal forms, notices and other communications to educate enrollees on this new requirement or staff for increases in requests for administrative.

Rural Health Transformation Program

In late 2025, New York was awarded $212 million in federal funding for the first year of Rural Community Health Integration to improve health care access for rural patients and communities. New York’s approved application dedicates funding to rural health integration, strengthening rural health and primary care, creating “rural roots” to enhancing the workforce and improving technology and cybersecurity in rural areas. Based on the information available at the time this article was prepared, a summary of the key components of New York’s program is below:

Rural Community Health Integration: Through this initiative, the state Department of Health is creating a process that focuses on fostering partnerships among rural hospitals, community health centers, post-acute care providers including long-term care facilities, emergency medical services, public health departments and behavioral health providers. The goal of this initiative is to develop coordinated integrated rural health networks that facilitate comprehensive care coordination and address both health and social needs that improve outcomes in rural areas. A safety net hospital must be included in the network, and any organization type can be a partner under this initiative.
Strengthening Rural Communities With Technology-Enhanced Primary Care: This program aims to support small rural physician practices in achieving patient centered medical home recognition through the National Committee for Quality Assurance. This initiative facilitates the adoption of artificial intelligence tools for improved care in existing practices and provides technical support for efficiency and care gaps. AI solutions will be embedded to help both newly recognized and previously certified patient-centered medical home practices with a focus on solo or small physicians’ groups with one to three members who have not yet adopted patient centered medical home recognition and those practices who lost certification.
Rural Roots: New York State seeks to develop a comprehensive strategy designed to build a sustainable health care workforce that addresses both immediate health care needs and long-term capacity building through recruiting and training more practitioners in rural areas. This initiative seeks data-driven community approaches to identify specialty gaps, involves targeted recruitment, education, early career (6th-12th grade) exposure, enhanced clinical rotations and employer-based training. There is a special focus on emergency medical services education through regional remote supported training technologies.
Investments in Technology Innovation and Cybersecurity Enhancements for Rural New York: New York State seeks to expand telehealth, improve e-consult capabilities, improve care coordination alerts between health care agencies for emergency preparedness, strengthen cybersecurity and facilitate emergency preparedness across rural health care facilities. This initiative will provide funds for strategic efforts to partner rural health care facilities and practices with the Statewide Health Information Network for New York and cybersecurity experts, offering technical assistance to providers. The program will support systems that develop cloud-native, AI-enabled modular platforms that generate actionable predictive analytics functionality.

Conclusion

H.R. 1 represents fundamental reengineering of Medicaid financing, Affordable Care Act coverage support and state flexibility in health system funding. For New York, the combined effects – reduced federal financial participation, curtailed eligibility for low-income and immigrant populations, and constrained provider funding mechanisms – will create long-term operational and fiscal challenges. Short-term strategies, such as using Basic Health Program trust fund reserves, may delay immediate disruption. But by 2032, New York is expected to lose $13.5 billion annually, reshaping the state’s health care landscape for providers, payers, and patients.

Health law practitioners, policymakers, and health care stakeholders must prepare now for an era of reduced federal support, heightened administrative burdens, and increased uncertainty in Medicaid financing. The resilience of New York’s health care safety net will depend on coordinated state action, strategic use of remaining federal tools and continued advocacy for policy reforms that protect vulnerable populations.

This article appears in Health Law Journal, a publication of the Health Law Section. For more information, please visit nysba.org/health.

Meghan McNamara is a partner with Manatt Health in the firm’s Albany office. She closely monitors evolving state and federal policy impacting health care providers both in New York and nationally, and interfaces routinely with key leadership at the New York State Department of Health, the governor’s office, and the Legislature.

Michael Paulsen is counsel with Manatt Health in the firm’s Albany office. As an experienced attorney and government relations professional with a focus on health care, he provides legal, regulatory and legislative counsel to health care providers and represents providers on matters with the New York State Department of Health and Department of Financial Services.

Endnotes:

[1] Pub. L. No. 119-21 (2025).

[2] §§ 71115 and 71117 of H.R. 1 (P.L. 119-21).

[3] § 71116 of H.R. 1 (P.L. 119-21).

[4] § 71301 of H.R. 1 (P.L. 119-21).

[5] § 71113 of H.R. 1 (P.L. 119-21).

[6] § 71119 of H.R. 1 (P.L. 119-21).

[7] § 71107 of H.R. 1 (P.L. 119-21).

[8] § 71401 of H.R. 1 (P.L. 119-21).

[9] The MCO Tax Revenue Expenditure Plan was revenue projected to support $300 million in safety net hospital funding and $700 million in Medicaid provider rate increases per year in fiscal year 2026-27.

[10] Letter from Roy Howe, director, Financial Management Group, Dept. of Health and Human Services, to Ami Bassiri, Medicaid director, deputy commissioner, New York State Department of Health (Dec. 20, 2024), available at: https://www.health.ny.gov/health_care/medicaid/rates/dfrs/docs/2024-12-20_cms_letter.pdf.

[11] In Aliessa v. Novello, the Court of Appeals ruled that New York is constitutionally obliged to provide legally present immigrants with the same Medicaid coverage as citizens, despite their ineligibility for federal matching funds. The Aliessa population is generally recognized as legally present individuals, such as green card holders, those with pending asylum applications or parolees, who are eligible for state-funded health coverage, despite their ineligibility for federal matching funds.

[12] All ligation challenging Section 71113 has been voluntarily dismissed as of March 17, 2026. See Planned Parenthood Federation of America v. Kennedy, 1:25-cv-11913-IT (D. Mass.); State of California v. U.S. Department of Health and Human Services ( HHS), 1:25-cv-12118, (D. Mass.); Family Planning Association of Maine v. HHS, 1:25-cv-00364 (D. Me. 2025).

[13] 597 U.S. 215 (2022).

[14] Press Release, New York State Office of the Governor, Gov. Hochul Steps In To Protect Critical Health Care Provided by Planned Parenthood in Face of Federal Cuts (Oct. 24, 2025), https://www.governor.ny.gov/news/governor-hochul-steps-protect-critical-health-care-provided-planned-parenthood-face-federal.

[15] States can implement earlier via an SPA or § 1115 waiver, or delay until Dec. 31, 2028, with secretary approval.