Report: Illinois could face major Medicaid coverage losses, mounting fiscal strain under new federal law

Medicaid is the largest health insurance program in the United States and, in Illinois, covered roughly 3.3 million people while accounting for 30.1% of total state spending in 2025 (Merriman, 2026). The One Big Beautiful Bill Act of 2025 (OBBBA; Public Law 119-21) enacts the most consequential federal Medicaid changes in a decade (e.g., national work requirements, twice-yearly eligibility redeterminations, and lower caps on provider taxes and state-directed payments) phased in between 2027 and 2032. This Policy Brief projects how those provisions will reshape Medicaid coverage and state finances in Illinois

How will the OBBBA reshape Medicaid coverage and costs in Illinois?

The OBBBA is projected to cut both coverage and spending, but its fiscal relief for the state is smaller than headline savings suggest— and may be outweighed by new revenue losses.

• Coverage falls sharply. Illinois could have roughly 441,000 fewer Medicaid enrollees by 2034 (about 14% of current enrollment) with losses concentrated among Affordable Care Act (ACA) expansion adults, who account for roughly 85% of the projected loss and would shed about 51% of that group’s enrollment (see Figure 1).
• Work requirements target a problem that is largely absent. About 92% of Medicaid recipients already work or otherwise meet eligibility requirements (Cutler, 2025), and prior implementations reduced enrollment without increasing employment (Sommers et al., 2019). More frequent redeterminations add administrative burden that tends to fall hardest on the neediest enrollees (Arbogast et al., 2024).
• Savings accrue mostly to Washington, not Springfield. Total Medicaid spending is projected to fall about $3.75 billion per year by 2034 as a result of sharp drops in enrollment.However, Illinois retains only about $0.72 billion (19%), because the federal government finances 90% of expansion-adult costs.
• Provider-tax caps pose the larger fiscal threat. As the maximum hospital and managed-care tax rate falls from 6.0% to 3.5% by 2032, Illinois faces estimated revenue losses of roughly $1-3 billion per year once the phase-down is fully in effect (Wilbur-Mujtaba et al., 2026; Governor’s Office of Management and Budget, 2026; Rao et al., 2026).

Taken together, these coverage losses are highly concentrated rather than broadly shared. Figure 1 breaks the projected 441,000-person decline down by eligibility group, showing that ACA expansion adults absorb most of the loss while enrollment among children holds steady.

Figure 1. Projected Medicaid Disenrollment by Eligibility Group (2034).

Note. Percentages show projected disenrollment as a share of each group’s 2025 enrollment; partial-benefit enrollees are omitted.

What the findings mean for the state

The net effect is likely fiscally adverse. The modest state savings generated by disenrollment are outweighed by new provider-tax revenue losses—before accounting for the higher administrative costs of verifying work status and processing twice-yearly redeterminations. In short, Illinois would cover substantially fewer people while gaining little budget relief, leaving difficult trade-offs among budget reallocations, revenue increases, and reductions in provider payments or services.

These pressures land on an already-fragile provider sector. Nearly 40% of Illinois nonprofit healthcare organizations ran budgetary deficits in 2022, rising to 63% of nursing facilities and 56% of community health systems (ProPublica, 2025). The $193 million Rural Health Transformation Program award to Illinois (Centers for Medicare & Medicaid Services, 2025) is designed for innovation rather than sustaining existing operations, is temporary, and is modest relative to projected losses—so it is unlikely to stabilize the most exposed safety-net providers.

What’s next?

If left unaltered before they take effect, the OBBBA’s Medicaid provisions will substantially reduce coverage while offering Illinois limited fiscal relief; relief that provider-tax losses may erase. Timely scenario planning and administrative safeguards over the next two years can soften the coverage and budget shocks that begin in 2027, but they cannot fully offset a policy change that shifts a growing share of Medicaid costs onto the state.