The federal government significantly cut Medicaid benefits when the One Big Beautiful Bill Act was signed into law on July 4, 2025, leaving many people wondering what the changes mean for them. It is estimated that as many as 10.1 million people could lose Medicaid coverage in 2028 as the result of the changes. This article explains how exactly Medicaid currently works, what the changes ahead will be, what you can do if you might be impacted, and what to do next.
What is Medicaid?
Medicaid is a state-run medical services coverage program funded in part (subsidized) by the federal government. Medicaid reduces financial strain on the healthcare system and improves access to primary health care like preventive exams, routine checkups, or women’s health. Overall, Medicaid improves health outcomes.
How is Medicaid Funded?
The federal government gives each state money to run its own Medicaid program. Think of the federal government as a parent and the states as its children. The federal government gives each state an “allowance,” and the state’s “chores” are making the laws about who is eligible for Medicaid, how the system will work, and setting up an agency to oversee and run the state’s Medicaid system.
The Illinois agency that runs the Medicaid program is called IHFS.
If a person is eligible for Medicaid IHFS enrolls them into the system, Illinois will pay for their medical care. Illinois then submits a “bill” for the cost of that care to the federal government, who pays Illinois 50% of that bill. That percentage is called the FMAP (Federal Medical Assistance Percentage). Illinois funds the other share of the expenses by taxing the medical providers themselves, like hospitals or nursing homes.
Medicaid pays the enrollee’s private health insurance premiums for plans through Aetna, BCBS, or other providers, and then the health insurance provider pays for the enrollee’s care, just like for anyone else who doesn’t receive Medicaid.
Who is eligible for Medicaid?
Illinois has two eligibility tracks for Medicaid: AABD and ACA.
AABD Medicaid has been around for a long time and provides care to people who are “adult, aged, blind or disabled” and who lack the assets to pay for their medical care. To qualify for coverage, a person must have the following:
| AABD Unmarried Applicant (2026) Asset Limit | AABD Married Applicant (2026) Asset Limit5 |
| $17,500 Homestead Property (as long as the applicant intends to return, with a value of up to 752,000) Vehicle that is either necessary for employment/daily/medical purposes, or value of up to $4500 Personal Property valued up to $2000 Wedding and engagement rings Term Life Insurance Policy with no value Life Insurance Policy valued up to $1500 $8,434 irrevocable prepaid burial contract Burial Space | $143,172 Homestead Property (occupied by spouse, dependent siblings, minor child, adult child with a disability, caretaker child) Per spouse: 1 vehicle
Personal Property valued up to $2000 Wedding and engagement rings Term Life Insurance Policy with no value Life Insurance Policy valued up to $1500 $8,434 irrevocable prepaid burial contract Burial Space |
ACA Medicaid refers to the “new” Medicaid program created under the Affordable Care Act. It was implemented in January 2014 and covers adults between the age of 19-64 who make less than 138% of the federal poverty level in income.
| ACA Unmarried Applicant (2026) Income Limit | ACA Married Applicant (2026) Income Limit |
| $22,025 | $45,540 |
Illinois prefers to enroll folks in ACA Medicaid because it is much simpler to administer since it has a single test: income. But the bigger reason Illinois prefers ACA Medicaid is that it gets 40% more money for the ACA program. The federal government reimburses Illinois for about 50% of AABD Medicaid costs, but 90% of ACA Medicaid costs. It literally pays to enroll people under ACA rather than AABD.
So if one person is eligible under both programs, Illinois is financially incentivized to enroll them in ACA.
What does Medicaid Cover?
Now that we’ve covered what Medicaid is, how it’s funded and who is eligible, let’s explore what the benefits being a Medicaid recipient are. This section is not comprehensive and highlights commonly covered services.
Nursing Facilities – Medicaid covers 2/3 of all nursing facility days, making it the largest insurance payer for these services in the state.
Childbirth – Medicaid covers approximately 50% of all live births.
Mental Health – Medicaid covers approximately 80% of folks served by community mental health centers. Covered mental health services include psychiatry, psychology, or services provided by a community mental health center.
HIV/AIDS – Medicaid covers about 50% of all HIV care.
Hospital Care – Medicaid covers inpatient and outpatient care provided to eligible customers by a qualifying hospital.
Home Health – Medicaid covers home health services for people living in their own home or with a relative. Services include: nursing care, physical therapy, occupational therapy, and speech therapy. Services must be because of illness or disability and must follow a plan ordered by a doctor.
OBBBA’s Impact on Medicaid
Budget Cuts
The first impact that OBBBA ushered in is $51,000,000,000 in budget cuts to Medicaid. Up to 500,000 individuals are at risk of losing healthcare coverage by 2034 due to the loss in funding. That’s about 11% of Illinoisans on Medicaid. Of the population receiving Medicaid:
- 44% are children
- 9% are seniors
- 7% are adults with disabilities.
Work Requirements
Starting January 1, 2027, ACA enrollees ages 19-64 and adults with dependents 14 and older will be subject to work requirements. Certain populations will be exempt, including people with disabilities, individuals with mental health diagnoses, and individuals with substance use disorders. ACA enrollees will be required to substantiate their work requirements at 6-month redeterminations rather than annual redeterminations.
Copays and Cost Sharing
Starting October 1, 2028, ACA Medicaid will require anyone with income above 100% of the poverty level to pay $35 copays on all care, with the following exception: primary care, prenatal care, family planning services, and emergency services.
ACA enrollees with incomes above 100% of the Federal Poverty Level (FPL) will be subject to expanded cost-sharing, with an out-of-pocket cap of 5% of an individual’s annual income.
Gutting Reproductive Health
OBBBA has a funding ban that is technically neutral on its face (banning funding to “prohibited entities”) but is specifically engineered to hit Planned Parenthood and essentially only Planned Parenthood. The criteria (nonprofit, provides abortions beyond rape/incest/emergency exceptions, received at least $800,000 in Medicaid payments in 2023) describes exactly one national organization: Planned Parenthood.
The ban is not just about defunding abortion services; it cuts off ALL Medicaid reimbursement to these entities for everything they do. So a Planned Parenthood clinic providing any of the following receives zero Medicaid reimbursement:
- Birth control
- STI testing and treatment
- Cancer screenings (pap smears, breast exams)
- Annual wellness visits
- Pregnancy tests
- Family planning counseling
The majority of Planned Parenthood clinics are located specifically in low-income and underserved communities where other providers are scarce. For many Medicaid patients they are the only practical option for reproductive healthcare. More than 800,000 patients are people of color.
This change is a longstanding goal of the anti-abortion movement repackaged as a Medicaid funding provision. By burying it in a budget bill rather than passing standalone Planned Parenthood defunding legislation — which is an initiative that has always failed prior to OBBBA! — supporters found a vehicle to achieve the same result.
Discrimination Against Non-Citizens
Effective October 1, 2026, the definition of “qualified aliens” (non-citizens eligible for Medicaid benefits) will change to lawful permanent residents, certain Cuban immigrants, and individuals living in the U.S. through a Compact of Free Association (CoFA). Refugees, parolees, asylees, victims of trafficking, and other groups currently considered qualified aliens will no longer qualify
What Can You Do Now?
The most important thing Medicaid enrollees can do now is make sure that they have provided up to date contact information to the State of Illinois Department of Healthcare and Family Services (HFS) to stay up to date with the changes in Medicaid, especially the changes that will impact them specifically.
Be sure to use an address where mail always reaches you. Otherwise, you could miss important correspondence and could risk losing your Medicaid coverage.
To verify or change your contact information, visit abe.illinois.gov and click ‘Manage My Case’, or Fill out the Medicaid Address Change Form.
What’s Next
States like Pennsylvania are fighting back. Pennsylvania state representative L’Tasha D. Mayes recently held a press conference citing Pennsylvania’s recent court decision striking down the state’s 44-year Medicaid abortion funding ban as unconstitutional. While this means that Planned Parenthood still won’t be funded by federal money, it opens the door to states using their own funds to cover reproductive, sexual health, and family planning services.
States like California, Colorado, Connecticut, Massachusetts, New Jersey, New York, Oregon and Washington have already committed state funds to backfill the federal Medicaid reimbursement gap for Planned Parenthood. California leads with $90 million in emergency state funding signed by Governor Newsom in February 2026, while Connecticut allocated $8.5 million and Oregon’s legislature allocated $7.5 million in emergency sessions.
Illinois has also acted: on December 23, 2025, the Illinois Department of Healthcare and Family Services announced a $4 million investment in Medicaid family planning services to offset the loss of federal Medicaid reimbursement for Planned Parenthood, covering services like contraception, STI testing and treatment, cancer screenings, and other family planning services.
On the legal front, a coalition of 23 attorneys general, including Illinois, won a preliminary court injunction ordering the federal government to continue reimbursing Planned Parenthood clinics for covered care provided to Medicaid enrollees.
