Shaping the Future, Part I — OBBB Act and Medicaid Policy Shifts
At the ADvancing States HCBS Conference in Baltimore (August 2025), one session stood out as a roadmap for the next decade of long-term services and supports (LTSS): “Shaping the Future: An Overview of Federal Policy Developments.”
Presented by Abby Cox and Rachel Neely (ADvancing States), the session unpacked the sweeping provisions of the One Big Beautiful Bill Act (OBBB, or “OB3”), explained the appropriations landscape, and raised urgent questions for states, providers, and partners about how to prepare now for the policies of tomorrow.
This post — the first of two — focuses on Medicaid policy shifts embedded in OBBB and their implications for HCBS.
Why Federal Policy Updates Matter for HCBS
HCBS delivery is shaped not only by state innovations but by the federal rules that define what’s possible. Congress sets the authorizing environment, CMS sets the implementation rules, and states translate both into programs that providers and workers bring to life.
When Congress passes a law as broad as OBBB, it does more than shift regulations — it redefines the playing field:
Who is eligible for HCBS.
How states can structure waiver programs.
What workforce rules will (or won’t) be enforced.
How rural and underserved areas will receive resources.
For providers, this means new opportunities, but also new compliance lifts. For workers and recipients, it means changes to the way services are accessed, delivered, and monitored.
Budget & Appropriations 101
(Plain-English Edition)
Before diving into OBBB, the presenters reminded us that not all policy vehicles are created equal. Two major pathways dominate:
Budget Reconciliation
Purpose: Adjusts long-term programs (Medicaid, Medicare, taxes).
Scope: Can change existing laws.
Timeframe: Ten fiscal years.
Frequency: Once per fiscal year, typically for major policy shifts.
Annual Appropriations
Purpose: Provides yearly funding for federal agencies and programs.
Scope: Covers one fiscal year at a time.
Timeframe: Must be signed into law by October 1 (or extended with a continuing resolution).
Frequency: Annual, managed by appropriations committees.
Why it matters: OBBB was enacted as part of reconciliation, meaning it rewrote parts of Medicaid law — not just funding levels. But states will still rely on appropriations for the resources to implement its provisions.
OBBB Act: Timeline and Passage
May 22, 2025: House passes H.R. 1, the OBBB Act.
July 1, 2025: Senate passes amended version.
July 3, 2025: House concurs, President signs into law.
The final law is now in effect, with some provisions launching immediately (CMS funding in FY26) and others staged for implementation over the next several years (state funding beginning FY27–28).
Key Medicaid Provisions in OBBB
1. New Standalone 1915(c) Waiver Option
Section 71171 allows states to create a new category of 1915(c) HCBS waiver that does not require participants to meet an institutional level of care (LOC).
Details:
States must establish needs-based eligibility criteria.
Waiver must remain cost neutral compared to institutional care.
States must demonstrate that the waiver will not increase wait times under existing waivers.
Annual reporting is required (costs, service duration, comparison to other waivers, number of participants).
Effective date: July 1, 2028.
Why it matters:
Opens HCBS access to populations who fall below institutional LOC — especially relevant for Traumatic Brain Injury (TBI) populations and others currently excluded.
Less impact for aging and physical disability cohorts already served through existing waivers.
Implementation will require new program design, reporting systems, and workforce strategies.
MEDICAID COMPARISION CHART
Medicaid has several pathways to deliver HCBS. Each comes with different rules around eligibility, targeting, and flexibility. The OBBB Act adds a new option — a standalone 1915(c) waiver without institutional level of care requirements.
TAKEAWAY
The OBBB waiver combines 1915(c) flexibility (caps, targeting, waitlists) with the 1915(i) focus on populations below institutional LOC.
For states, it’s a new tool to address waiting lists and serve populations that currently fall through the cracks — but it comes with heavy reporting and design requirements.
2. Community Engagement /
Work Requirements
Section 71119 requires states to implement Medicaid work or community engagement requirements for certain adult populations.
Applicability:
Adults ages 19–64 enrolled in the expansion group or certain waivers.
Exemptions: Children, adults 65+, medically frail individuals, caregivers of young children or dependents with disabilities.
Compliance standard:
Minimum 80 hours per month (work, community service, education, or workforce program).
Seasonal workers may average compliance over six months.
Income test: must earn at least the federal minimum wage × 80 hours.
Procedural requirements:
Verification at application and every 6 months.
Ex parte processes for verifying compliance or exemptions.
Outreach, due process, and a 30-day grace period for noncompliance.
Why it matters:
Administratively complex: states will need new tracking and verification systems.
Risks disenrollment of vulnerable populations unable to consistently meet requirements.
Raises questions about applicability to Structured Family Caregiving and similar models, where caregiving duties may not align with “work” definitions.
3. Rule Recissions
(Regulatory Moratoriums)
OBBB halts CMS implementation of certain rules through FY2034:
Eligibility and enrollment rules.
Minimum staffing standards for nursing facilities.
Why it matters:
Removes near-term pressure on states and providers to comply with the paused LTC staffing rule.
Offers breathing room, but also prolongs uncertainty about long-term workforce standards.
4. Rural Health Transformation Program
Section 71401 establishes a $10 billion annual fund (FY26–FY30) for rural health transformation.
Eligibility: States only (not DC or territories). States must submit applications by Dec 31, 2025.
Allocation:
50% distributed equally among states with approved plans.
50% distributed based on rural population, facility distribution, and hospital conditions.
Allowable uses:
Evidence-based interventions for prevention and chronic disease.
Payments to rural providers.
Technology-driven solutions (remote monitoring, robotics, AI).
Workforce recruitment and retention.
IT modernization for rural hospitals.
Support for Opioid Use Disorder (OUD), Substance Use Disorder (SUD), and mental health services.
Why it matters:
Tremendous opportunity for rural states to modernize infrastructure and stabilize rural hospitals.
But Tribes and DC are excluded — a gap that will draw scrutiny.
Applications are due in 2025, long before most states will have capacity aligned — meaning those who prepare early will win.
The FY26 Appropriations Context
As of September 2025:
House and Senate appropriations committees have passed their versions of FY26 funding.
Both propose to maintain stable funding for aging and disability programs, even where the President’s budget proposed cuts.
Final passage is unlikely by October 1; expect a continuing resolution.
For states, this means ongoing uncertainty about the timing of funds to implement OBBB provisions.
What It Means for States & Providers
New Waiver = New Lift
Designing a waiver for individuals below institutional LOC is exciting but administratively heavy.
Requires eligibility criteria, needs-based assessments, and new reporting.
States must plan now if they want to be ready by 2028.
Work Requirements = Red Tape Risk
Monitoring 80 hours/month is costly and prone to errors.
Providers and workers may face new documentation burdens.
Risk of churn or disenrollment among vulnerable populations could destabilize care continuity.
Rural Transformation = Urgency
$10B annually is significant, but only for states who apply by December 2025.
States must align hospitals, providers, and technology vendors now.
Providers in rural areas should be proactive partners in shaping state applications.
Regulatory Moratorium = Breathing Room
Relief from minimum staffing rules eases near-term compliance pressure.
But providers must avoid complacency — workforce shortages remain the system’s greatest vulnerability.
My Reflection
The OBBB Act is both one of the most ambitious Medicaid laws in recent memory and a clear signal of where Congress is steering HCBS. For me, three reflections stand out:
Timelines matter. Federal funding begins in FY26, but states will be expected to implement by 2028. That gap is a chance to prepare — or a trap for those who wait too long.
Workforce impacts are everywhere. Whether through paused staffing rules, new rural funds, or work requirements, the direct care workforce remains the fulcrum.
Opportunity and burden coexist. OBBB creates new levers for states to expand access, but also new compliance lifts and reporting requirements that could overwhelm already thin state capacity.
The bottom line: States that begin designing today will be the ones ready to implement tomorrow. Providers, vendors, and advocates must engage early to ensure that these new flexibilities translate into real improvements for workers and care recipients.
Further Reading
Stay tuned for Part II of this series, where I’ll cover Aging Policy, OAA Reauthorization, ACL restructuring, and federal grant-making shifts — and why they matter just as much as Medicaid for the future of HCBS.
