The “One Big Beautiful Bill” Act (OBBBA) was signed into law on July 4, 2025, marking one of the most sweeping legislative changes since the Affordable Care Act in 2010. For the healthcare sector, this legislation represents a shift in operational requirements, introducing a complex web of new Medicaid work requirements, retroactive tax exemptions for overtime pay, and expanded HSA flexibilities.
Beyond the policy headlines, the OBBBA presents a significant technical challenge for organizations running enterprise systems like Workday, UKG, and Infor. Ensuring compliance is no longer just a legal task; it requires deep functional expertise to reconfigure payroll logic, tracking modules, and benefits administration before strict 2026 reporting deadlines take hold.
Understanding the “One Big Beautiful Bill” and Healthcare
At its core, the OBBBA is a multi-trillion-dollar legislative package that makes the 2017 individual tax cuts permanent while introducing aggressive new incentives, most notably the “No Tax on Overtime” and “No Tax on Tips” provisions. This incentivizes better opportunities for private-sector healthcare, including Health Savings Accounts (HSA) and Direct Primary Care (DPC) providers, while cutting federally funded programs like Medicare and Medicaid.
By combining retroactive tax relief with long-term healthcare restructuring, the OBBBA changes the relationship between labor hours and net pay, making technical compliance a top priority for 2026 and beyond.
What Does This Mean for Enterprise Systems?
| Functional Area | Policy Change | System Configuration Requirement |
| Payroll | No Tax on Overtime (Retroactive) | Create unique Earnings Codes to isolate FLSA premium from base pay. |
| Finance | Provider Tax Limits | Audit state-level Medicaid “Match” funding; project 2026-2027 revenue shortfalls. |
| Benefits | HSA/DPC Expansion | Update eligibility rules to include Bronze/Catastrophic plans as HDHPs. |
| Revenue Cycle | Medicaid Redeterminations | Re-train Patient Access teams for 6-month eligibility checks (formerly 12). |
Payroll complexity
Most systems are currently configured to aggregate total overtime wages. System administrators must create new Earnings Codes to isolate the FLSA-mandated premium portion to ensure accurate payroll information and reporting in systems like Workday and UKG.
With retroactive guidelines dating back to Jan 1, 2025, payroll teams will likely need to perform a year-end adjustment. For 2026, the IRS plans to introduce Box 12 Code TT on W-2 forms, so organizations must prepare their systems to automatically map data from these new codes.
Financial management
The OBBBA fundamentally restructures financial management and reimbursement models for healthcare providers within enterprise systems.
On the one hand, this prohibits new provider taxes and freezes existing ones at 2025 levels, eventually reducing them to 3.5% in expansion states by 2032. This change severely limits a state’s ability to generate the local revenue typically used to secure federal matching funds.
On the other hand, the bill mandates that State-Directed Payments (SDPs) be capped at 100% of Medicare rates in expansion states. Because Medicaid was traditionally used to offset the lower margins of Medicare and uncompensated care, these combined restrictions have driven significant revenue shortfalls.
Benefits administration
With the increase in Dependent Care FSA limits, organizations will now need to make a mid-year or open-enrollment configuration change in their Benefits module. New HSA compatibility also prompts organizations to update their HSA eligibility systems to include a broader group of previously ineligible employees.
Workforce management
For healthcare organizations or those with high-volume hourly populations, the 80-hour monthly “Community Engagement” requirement for Medicaid adds a new layer of data sharing, requiring proof of hours to keep their health coverage.
To ensure hours are accurately recorded and reported, organizations should consider configuring self-service dashboards that allow employees to easily view or export aggregate monthly hours to meet the requirements of state and federal Medicaid agencies.
Core Impacts of the OBBBA
The “No Tax on Overtime” Provision
This provision allows non-exempt hourly workers to deduct up to $12,500 for individual filing and $25,000 for joint filing of qualified overtime compensation from their federal taxable income. Only FLSA-mandated overtime premium (aka the “half” in “time and a half”) is eligible under this provision.
This provision requires enterprise systems such as UKG, Workday, and Infor to be reconfigured to support the allotted overtime premium, allowing users to isolate and report their overtime separately on their W-2 forms.
HSA & DPC Expansion
Newly added “Bronze” and “Catastrophic” plans will be treated as High-Deductible Health Plans (HDHP), allowing those previously not eligible to open Health Savings Accounts. This expansion also allows HSA funds to be used to pay for DPC fees up to $150/month.
1099 Reporting Changes
In the tax and payroll reporting arena, these changes increase both the 1099-K and 1099-NEC reporting threshold from $600 to $2000. These changes, paired with requirements from the Tax Cuts and Jobs Act (TCJA), increase the standard deduction and reduce individual tax brackets.
Medicaid Work Requirements
Effective by 2027, all “able-bodied” adults must prove 80 hours per month of community engagement, such as employment, training, or volunteering, to keep their existing Medicaid coverage.
For care providers, this Big Beautiful Bill healthcare impact transforms eligibility from a static annual event into a regular monthly hurdle, likely increasing coverage churn and the administrative burden for patient access teams.
The OBBBA Execution Timeline
- Retroactive (2025):
- Retroactive tax exemption for federal income tax on overtime.
- Penalty relief for 2025 information reporting errors based on new tip and overtime guidelines.
- Current (2026):
- Dependent Care FSA limits increase to $7,500.
- Introduction of “Trump Accounts”, which establishes a $1,000 one-time federal contribution for children born between 2025 and 2028.
- Direct Primary Care arrangements become HSA-compatible.
- New Form W-2 reporting requirements.
- Long Term (2027 and beyond)
- Stricter Medicaid eligibility redeterminations begins 2027.
In a Nutshell
By implementing incentives such as the “No Tax on Overtime” provision and expanding HSA/DPC flexibilities, the “One Big Beautiful Bill” affects the relationship between labor and employee pay. For healthcare leaders, this is a race against time to reconfigure enterprise systems such as Workday, UKG, and Infor before strict 2026 reporting deadlines and 2027 Medicaid work requirements take effect.
If your team lacks the bandwidth to navigate complex tax logic and new Big Beautiful Bill Medicaid changes, we can help. Partner with Surety Systems to prepare your enterprise systems and ensure a seamless transition for your workforce.
