As states brace for cuts to optional home care and hospital bottlenecks due to Medicaid reductions in the federal budget reconciliation bill, nursing homes will need to handle the overflow – but whether most facilities across the U.S. are prepared for the surge is another matter.

This scenario is especially true in states where the future of funding cuts to home and community-based services (HCBS) – optional Medicaid benefits that allow individuals to receive long-term care in their own homes rather than in institutional settings like nursing homes – remains unknown.

Medicaid cuts contained in the One Big Beautiful Bill Act (OBBBA) that was signed into law this month are estimated to be around $1 trillion over the next decade, and there are concerns that optional Medicaid benefits may be on the chopping block.

To be sure, all states currently have waivers for these benefits, thus allowing individuals with disabilities to choose the setting such as home care, assisted living or a nursing facility. However, these waivers may be at risk of being reduced, or the amount per recipient cut, in many states. Since waivers of HCBS care aren’t federally mandated, they are deemed optional under Medicaid.

This population group uses Medicaid’s self-directed care program to hire staff to enable individuals with disabilities to live independently. Without it, nursing homes are the likely option of care.

In rural states like Idaho – where more than 20,000 people depend on these waivers – advocates warn that if HCBS waiver funding is cut, thousands of people could be forced into nursing homes.

“Where are you going to put these 20,000 people?” asked Mel Leviton of the Idaho State Independent Living Council, noting that Idaho state only had about 6,000 nursing home beds.

And while institutional care is a mandatory Medicaid benefit, HCBS is not – creating an imbalance that could worsen under funding cuts.

“For some adults, Medicaid will step in and help pay for care at home, or if care at home is not available, for care in nursing homes,” said Rachel Werner, executive director of the Leonard Davis Institute of Health Economics at the University of Pennsylvania. “With the cuts to Medicaid funding, we are expecting that the availability of care in both of those settings will diminish, and it will be harder for people to get the care they need to live independently.”

All Medicaid recipients through Idaho’s Aged & Disabled waiver meet “nursing home level of care,” according to Robert Vande Merwe, executive director at the Idaho Health Care Association (IHCA). And this could rapidly increase the rolls of those seeking nursing home care as they get removed from HCBS.

“There are plenty of empty nursing facility beds, but there is not enough staff to take many more patients,” Vande Merwe told Skilled Nursing News. He estimates that the average state-wide occupancy for nursing homes in Idaho stands at about 70%.

‘Diminished’ care options as hospital provider taxes get cut

And an equally severe concern among consumer and nursing home provider advocates is the reduction in provider taxes for hospitals, which will hurt hospitals financially – there is already talk of Republican legislators who voted for OBBBA floating more legislation to protect rural hospitals from shutdowns.

“When the hospital provider tax is cut in half it will leave a large hole in the Medicaid budget that will likely impact all Medicaid programs,” Vande Merwe said.

And while the exact impact is still unknown at this time, there will be a rise in the number of people seeking nursing home care.

That said, Vande Merwe added, “I am certain that 20,000 individuals will not transfer to SNFs.”

To support the additional population being diverted to nursing homes, more beds and more staff will be needed. And without Medicaid funding increases, that may be difficult to materialize.

“The big beautiful bill is going to put Idaho legislators in a big ugly dilemma,” he said. “Medicaid rate increases are not regular in Idaho. The recent increases to the Medicaid rates of home care/PCS and assisted living were funded by an increase in the hospital provider tax … They are unlikely to raise taxes to fill the hole.”

Of course, advocacy groups such as the IHCA are pursuing lawmakers on the matter.

“We will start communicating with Idaho decision makers right away,” Vande Merwe said.

And while lawmakers such as Sen. Mike Crapo (R-Idaho) argue that OBBBA protects essential benefits for children, pregnant women, and individuals with disabilities, others fear the bill’s restrictions on provider taxes could leave states with less federal funding. That could pressure states like Idaho to cut optional benefits, including HCBS, dental and vision care, physical therapy, and other services vital to maintaining independence for many.

Meanwhile lawmakers in other rural states – such as Sen. Josh Hawley (R-Mo.) – plan to introduce new legislation that will repeal limits on provider taxes and lift the cap on state-directed payments – which allow states to direct how providers are paid by privately run managed care plans – giving states more flexibility to increase federal Medicaid funding and control payments to providers.

“Now is the time to prevent any future cuts to Medicaid from going into effect,” Hawley said in a statement. “I want to see Medicaid reductions stopped and rural hospitals fully funded permanently,” he added.

In Pennsylvania, the impact could be worsened by the sheer size of its aging population, according to Zach Shamberg, CEO and president of Pennsylvania Health Care Association (PHCA).

“[W]ith potential cuts to other HCBS programs and a ‘rollback’ of the hospital provider assessment, beginning in 2028, it’s safe to assume that nursing homes will be directly impacted by overall funding cuts and diminished care options across the commonwealth,” Shamberg told SNN. “With the passage of the One Big Beautiful Bill Act, we must begin planning now to ensure our access to care crisis is not exacerbated by future cuts and uncertainty.” 

In terms of population age, Pennsylvania is the fifth-oldest state in the U.S, Shamberg noted.

“Any strain on the health care continuum will undoubtedly affect long-term care,” he said. “Today, nursing home beds are either empty or being taken ‘offline’ due to staffing challenges and insufficient Medicaid reimbursement. If rural hospitals begin to close, or other health care settings start to falter, our commonwealth’s nursing homes simply cannot bear the brunt of the fallout without significant investment and workforce development.”

Some rural states equipped to take overflow

Not all rural states are in Idaho’s or Pennsylvania’s position, partly because the waiver programs for HCBS program were protected in the latest 2025-27 state budget signed into law prior to the passage of OBBBA.

In states like Wisconsin, the HCBS waiver program “remains strong,” Rick Abrams, CEO of Wisconsin Health Care Association/Wisconsin Center for Assisted Living (WHCA/WiCAL), told SNN.

And if need be, Wisconsin should be able to take on any overflows from hospitals, he said.

“As such, we’ve got flexibility in ensuring that every Wisconsin resident who needs nursing home care receives it regardless of their geographic location and regardless of their payment source,” Abrams said, adding that Wisconsin’s nursing home occupancy stood at 71.2%.

However, nursing home bed capacity does not necessarily mean that there is ready access in every corner of Wisconsin, Abrams said, who said WHCA/WiCal is working closely with nonprofit nursing home organizations and state agencies to put in place a contingency plan.

“To address this important issue, we are starting work with the Department of Health Services and our colleagues at LeadingAge Wisconsin to ensure that there is the utmost flexibility in the transfer of beds and, if need be, bringing new beds on line to address any pockets of lack of access and/or to create special units for patients presenting with complex medical, mental health and/or behavioral health conditions,” he said.