Health provisions in One Big Beautiful Bill could impact upcoming budget deal
The One Big Beautiful Bill (HR1, aka OBBB), passed by the GOP-controlled U.S. House on May 22, 2025, significantly alters federal healthcare funding, impacting Minnesota’s health care system. This omnibus spending bill, which funds the entire government, aims to curb the rapid growth of federal spending that exploded during the COVID-19 pandemic. Within health care, HR1 targets states like Minnesota with generous Medicaid benefits, introducing stricter enrollment rules and spending cuts to address improper payments due to fraud and abuse. These changes could reshape how Minnesota delivers and finances health care, potentially cutting costs and redirecting wasted money toward the truly needy.
These are a few of the thornier health care sections that could impact budget negotiations here in Minnesota. The sections below relate to HR1 and section references can be found here and here.
Section 44132 No New Sick Taxes
Minnesota taxes all health care and dental care with a state-only sick tax. In 1994, this tax rolled out to fund MNCare, aimed at increasing access to low-income Minnesotans with children. In 2011, Governor Mark Dayton expanded Medicaid to cover this population, basically making the sick tax unnecessary, so Dayton (a Democrat) killed the tax. Gov Walz later reversed the decision, keeping the sick tax and increased it in 2023.
MNCare is primarily funded through the Minnesota Healthcare Access Fund with a federal Basic Health Plan for lower-income people who do not qualify for Medicaid. This account is also fed by the Minnesota-only “sick tax” (assessed on all health care costs). Democrats in the Minnesota Senate have already proposed an 11% hike in the sick tax.
Because Medicaid is a near 50-50 match between state and federal monies, the increased state taxes are matched by federal funds in a controversial funding scheme now under fire by federal regulators.
Funding for undocumented enrollees through MNCare continues to split the DFL in Minnesota and derailed a budget deal hammered out that eliminated coverage for undocumented adults. The federal Congressional Budget Committee has taken aim at California for a similar program. MNCare operates under a federal 1332 waiver. DFL proposals to expand it to include undocumented aliens and upper-income individuals could cause several problems for the continuation of the waiver under HR1 and existing law.
These conflicts could undermine MNCare’s ability to provide affordable health insurance, particularly for low-income residents, unless the state secures alternative funding or the Senate significantly modifies the bill.
Section 44125 Prohibiting federal Medicaid and CHIP for sex change operations and treatments on children that are permanent and irreversible
This policy change would cut Medicaid and CHIP funding for permanent gender transition on children and teens under the age of 18. Mental health services for gender dysphoria would continue.
When Minnesota passed the Trans Refuge Law in 2023, it made Minnesota a destination state for minors seeking puberty blockers, “cross-sex” hormones, permanent hair removal, voice therapy, and surgical interventions such as mastectomy, phalloplasty, metoidioplasty, vaginoplasty or labiaplasty.
Provisions in the bill prohibit medical professionals from cooperating with law enforcement from other states, complicating the ability for regulators to verify whether Minnesota is complying with federal law.
Section 44104 Prohibits the state from paying insurance companies to cover dead people on Medicaid.
Minnesota would be required to check the Death Master File quarterly and remove dead people from the Medicaid rolls. This proposal was contained in bills carried by Rep. Backer, Sen Drazkowski and Senator Utke. American Experiment supported these bills and testified for the successful passage of Rep Backer’s bill in the House.
Section 44141 Some Medicaid recipients would be required to work, go to school or volunteer to stay on Medicaid
Able-bodied working-age adults on Medicaid would be required to work, go to school (including job training) or pitch in on community service projects for 80 hours per month. Minnesota would be eligible for grants to stand up the program and support recipients.
The requirement would exempt pregnant women, children, seniors, disabled and medically frail, caregivers, members of tribal nations, and those who already qualify for requirements under Temporary Assistance for Needy Families Program or SNAP (food assistance).
Section 44108 Increases frequency of Medicaid eligibility redeterminations
People tend to roll on and off Medicaid as their work situation changes. This “churn” produced when eligibility redeterminations find people died, moved or now make too much money or have private insurance. American Experiment supports more frequent redetermination, so Minnesotans do not have to pay Medicaid costs for people who don’t need it anymore. In a 2024 study, American Experiment found that the number of people on Medicaid who should have been removed tripled in the years 2019-2022 (5.8% to 18.5%).
The Biden administration prohibited redeterminations more than once a year. Minnesota has struggled to accomplish this. This provision would require Minnesota to check eligibility every six months.
States like Minnesota should understand that federal health care policy doesn’t just apply to them when they want it to. Just as Presidents Obama and Biden and their allies in congress dramatically expanded spending through rule and statute, President Trump and a republican congress can balance things in the opposite direction. For decades, Minnesota operated state-based programs like MNCare with relatively little federal oversight, but when Minnesota federalized them through Obamacare funding sources, it made a deal that ties federal funding to federal law. Resisting any enhanced eligibility determinations and integrity safeguards will risk the funds they are trying to protect.