25 States Sue Over Medicaid Work Rules as OBBBA Cuts Near Key Deadlines

WASHINGTON, Twenty-five Democratic-led states sued the Trump administration on June 29 over Medicaid work requirements embedded in the One Big Beautiful Bill Act, court filings reviewed by Stateline show, escalating a legal fight that is running on a parallel track with a fast-approaching implementation calendar.

The lawsuit comes as states, hospitals, and federal health agencies prepare for deadlines that will reshape the joint federal-state insurance program for some 71 million Americans. The first major threshold falls Oct. 1, when narrowed eligibility rules for certain non-citizens take effect. By Dec. 31, states must conduct Medicaid eligibility redeterminations every six months rather than every 12, a change critics say will push eligible people off the rolls through paperwork failures alone. Work requirements of 80 hours per month kick in for most expansion enrollees starting Jan. 1, 2027.

President Trump signed the legislation into law on July 4, 2025. The nonpartisan Congressional Budget Office estimated at the time that it cuts federal Medicaid funding by roughly $1 trillion over 10 years and that 11.8 million people would lose coverage directly, with an additional 3.1 million losing marketplace plans, according to an analysis published by the American Psychological Association Services.

A RAND Health analysis published in early 2026 and cited by Stateline put the total loss to state Medicaid budgets at $665 billion over the next decade. California and New York face the steepest dollar cuts, $112 billion and $63 billion respectively, while states with smaller Medicaid populations or lower reliance on provider-tax financing strategies are expected to see minimal net impact.

The provider-tax restriction is a central flash point. The law limits states' ability to impose taxes on hospitals, nursing homes, and managed care organizations and use that revenue to draw down federal matching funds. The National Association of Counties, in an analysis of the legislation, noted the bill represents "a mixed outcome, with significant cost shifts to states and certain counties, mainly in Medicaid, indigent and uncompensated healthcare and SNAP administration and benefits matching."

A separate legal battle is already in federal appeals court. Planned Parenthood Federation of America and affiliated providers in Massachusetts, Utah, and Maine sued Health and Human Services Secretary Robert F. Kennedy Jr. after the law blocked Medicaid reimbursements to nonprofit family planning providers for one year. The 1st U.S. Circuit Court of Appeals allowed that provision to take effect in September 2025 while lower court litigation continues, according to reporting by PBS NewsHour. Seven states, California, Colorado, Massachusetts, New Jersey, New Mexico, New York, and Washington, have since directed state funds to cover a portion of lost federal reimbursements.

On the SNAP side, the law extends the existing 80-hours-per-month work requirement to beneficiaries up to age 64, up from 54. The Congressional Budget Office estimates roughly 800,000 older adults would lose food assistance in a typical month as a result, per analysis from the NAACP Legal Defense Fund. The law also shifts a portion of SNAP benefit costs to states with payment error rates above 6 percent, beginning in fiscal year 2028.

The White House has disputed projections from critics. A fact sheet released June 29, 2025, called it a "myth" that the legislation removes American families from Medicaid, arguing that work requirements exclude medically frail individuals and parents of children under 14.

Research from prior state-level experiments complicates that argument. A study cited by the Center for American Progress found that when Arkansas imposed similar documentation requirements, Medicaid coverage dropped significantly in the first six months among people who were actually eligible, with no measurable change in employment rates.

Meanwhile, Congress faces its own approaching fiscal deadline. The House Appropriations Committee has scheduled a markup of the Transportation, Housing and Urban Development spending bill for July 17, with the full fiscal year 2026 appropriations process needing to conclude by Oct. 1 to avoid another continuing resolution or shutdown, according to the National Low Income Housing Coalition.

Sources cited:
- Stateline (https://stateline.org/2026/03/04/state-medicaid-budgets-will-decline-by-665-billion-under-new-federal-law-report-finds/)
- National Association of Counties (https://www.naco.org/news/us-congress-passes-reconciliation-bill-what-it-means-counties)
- PBS NewsHour (https://www.pbs.org/newshour/politics/appeals-court-to-hear-arguments-on-law-cutting-medicaid-reimbursements-for-planned-parenthood)
- American Psychological Association Services (https://updates.apaservices.org/update-on-proposed-cuts-to-medicaid-funding)
- Center for American Progress (https://www.americanprogress.org/article/the-truth-about-the-one-big-beautiful-bill-acts-cuts-to-medicaid-and-medicare/)
- National Low Income Housing Coalition (https://nlihc.org/resource/senate-plans-vote-today-republicans-reconciliation-bill-while-appropriators-begin-laying)
- NAACP Legal Defense Fund (https://www.naacpldf.org/case-issue/trumps-one-big-beautiful-bill-act-explained/)