Signed into law on July 4, 2025 (Public Law 119-21), the One Big Beautiful Bill Act (OBBBA) is a sweeping tax reform that reshapes healthcare funding, taxation, and planning—and carries significant implications for businesses and healthcare organizations. For Baldwin CPAs’ healthcare clients, the Act demands revised compliance strategies and forward-looking financial guidance. Baldwin’s own overview of the Act highlights its breadth and its immediate impact on planning assumptions beginning with the 2025 tax year, with filings due in spring 2026. Read the full breakdown here.
Medicaid Funding Adjustments: Accounting & Compliance Impact
- Provider Tax Safe Harbor Reduction
The Act lowers the Medicaid provider tax “safe-harbor” from 6% to 3.5% by 2032 and prohibits new provider taxes altogether. States relying on these mechanisms for enhanced federal matching may face budget pressures, prompting Medicaid revenue reductions that must be tracked precisely in accounting systems.
- Work Requirements and Cost-Sharing Increase
Expansion population recipients aged 19–64 must now meet 80 hours per month of work, volunteerism, or schooling; some exceptions apply. Expansion enrollees may face up to $35 per service cost-sharing, and states must renew eligibility every six months instead of annually. These changes are likely to reduce enrollment and alter cash flow assumptions, making eligibility audits and patient collections more complex.
- Rural Hospital Fund of $50 Billion
The law increases funding to rural providers through a $50 billion Rural Hospital Fund, up from $25 billion. Healthcare entities must forecast timing and recognition of these funds amid broader Medicaid reductions.
- Coverage and Program Cuts
The Act slashes over $1.2 trillion from Medicaid and SNAP over a decade; it also halts ACA premium tax credits at year-end, potentially expanding uninsured populations. These shifts intensify bad-debt risks and necessitate adjustments to budgeting and reserves.
Executive Compensation & Excise Tax: Strategic Repercussions
While OBBBA doesn’t restructure Section 4960 directly, healthcare organizations, particularly tax-exempt entities, must closely review pay arrangements:
- Executive Compensation Review
New excise taxes on excess compensation remain relevant. Expert guidance advises reviewing employment agreements, including those of non-C-suite staff, to mitigate exposure.
- HSA Flexibility and Benefit Adjustments
Employers gain expanded Health Savings Account flexibility, potentially offering alternative compensation channels that lower taxable payroll while enhancing benefits.
- Charitable Giving and Donor Engagement
Nonprofits should collaborate with donors regarding new charitable giving floors and promote multi-year giving strategies to navigate deduction uncertainty .
Impacts on Healthcare-Related Businesses and Tax-Exempt Organizations
- Permanent Bonus Depreciation & R&D Expensing
The Act makes 100% bonus depreciation and R&D expensing permanent, reinforcing capital investment incentives for healthcare infrastructure and innovation.
- Planning Amid Medicaid Headwinds
With likely increases in uninsured patients and eligibility complexity, providers must review cash-flow planning, deferred revenue management, and bad-debt provisions.
Accounting & Tax Compliance Recommendations
- Track Medicaid Revenue Changes
Ensure systems reflect new cost-sharing amounts, enrollment fluctuations, and eligibility verifications to maintain compliance and forecast accuracy.
- Excise Tax Preparedness
Monitor high-compensation packages and maintain documentation by entity group to support any future audits.
- Capitalize on Depreciation
Update capital budgeting to leverage permanent depreciation benefits for new equipment and facilities.
- Audit Readiness
Prepare audit trails for eligibility checks, staff ratios, provider tax recalculations, and rural funding allocations.
Conclusion
The One Big Beautiful Bill Act represents a transformative federal overhaul with far-reaching consequences for healthcare taxation, Medicaid funding, business planning, and nonprofit compliance. Navigating these shifts demands precise accounting, proactive strategy, and trusted expertise. With Baldwin CPAs, your organization gains a partner prepared to support your compliance journey and help you turn challenges into opportunities.
Baldwin CPAs Can Help
Need guidance navigating OBBBA’s complex ripple effects on healthcare taxation and business planning? Baldwin CPAs specializes in tax compliance, strategic planning, and accounting for healthcare providers.
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Frequently Asked Questions about the One Big Beautiful Bill Act and Healthcare Taxation
What is the One Big Beautiful Bill Act?
The One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, is a sweeping federal tax law that reforms Medicaid funding, adjusts executive compensation rules, and introduces new tax planning opportunities for businesses, including healthcare providers and tax-exempt organizations.
How does the Act change Medicaid funding for hospitals and providers?
OBBBA phases down the Medicaid provider-tax safe harbor from 6 percent to 3.5 percent by FY 2032, restricts new provider taxes, and requires more frequent eligibility verification. It also permits higher patient copays and introduces work requirements for some enrollees. Together, these changes reduce federal matching funds and could increase uncompensated care for providers.
What does the Act mean for executive compensation at healthcare organizations?
Starting in 2026, tax-exempt hospitals and systems must apply the §4960 excise tax to any employee with pay over $1 million, not just the top five. For public healthcare companies, the §162(m) deduction cap also tightens, requiring aggregation across controlled groups. These changes make compensation planning and documentation critical.
Are there benefits for healthcare organizations in the new law?
Yes. The Act permanently restores 100 percent bonus depreciation for qualified property placed in service after January 19, 2025, and reinstates immediate expensing for domestic R&D costs. These provisions benefit hospitals, clinics, and med-tech innovators by improving cash flow and lowering effective tax rates.
How are Health Savings Accounts (HSAs) affected?
The Act permanently restores the telehealth safe harbor for HSA-eligible high deductible health plans and, beginning in 2026, allows HSA funds to cover qualified Direct Primary Care (DPC) membership fees. These provisions expand flexibility in healthcare benefit design for employers and patients alike.
