Marketplace Pulse: Rural Health Transformation Program Will Not Meet the Moment for Rural Healthcare Systems

The Marketplace Pulse series provides expert insights on timely policy topics related to the health insurance marketplaces. The series, authored by RWJF Senior Policy Adviser Katherine Hempstead, analyzes changes in the individual market; shifting carrier trends; nationwide insurance data; and more to help states, researchers, and policymakers better understand the pulse of the marketplace.​

• The $50 billion to be distributed to states through the Rural Health Transformation Program is only a small share (5%) of the projected $1 trillion reduction in healthcare spending that states will have to absorb over the next 10 years as a result of the implementation of H.R.1. and the expiration of the enhanced Premium Tax Credits in the ACA marketplace.
• In most states, the maximum possible amount of payment to healthcare providers from the Rural Health Transformation Program will cover less than 10% of the projected increase in the demand for uncompensated care.
• The Rural Health Transformation Program is too upstream, too short term, and too small to meaningfully address the immediate and worsening financial problems of many rural health systems across the country.

Congress created the Rural Health Transformation Program (RHTP) as a partial response to concerns about the impact of the One Big Beautiful Bill Act (H.R.1) on the financial stability of rural healthcare systems. Under the terms of the program, a total of $50 billion will be awarded to states between 2026 and 2030. In announcing the awards, CMS Administrator Dr. Mehmet Oz described the RHTP as "a generational investment in the health and vitality of rural America."

Half of the fund’s total amount is to be allocated evenly among states, while the other half will be divided based on states' level of uncompensated care, land area, rurality, quality of application, and willingness to make certain policy changes of interest to the Administration. A newly created Office of Rural Health Transformation has been established to administer the awards.

The awards made under the RHTP are designed to engage states in upstream activities with the potential to transform rural healthcare delivery and rural population health at some point in the future. The fund limits assistance to rural health systems and allows states to use only 15% of their awarded dollars ($7.5 billion in total, nationally) to directly pay healthcare providers. The rest of the funds are to be used for activities outlined in state applications that target specific topics such as increasing use of digital health, developing and expanding provider networks, attracting workforce, and improving transportation.

The initial allocation of funds was announced on December 31, 2025. The size of the 2026 awards was roughly $200 million per state and ranged from a high of more than $281 million for Texas to a low of $147 million for New Jersey. It has been widely observed that the decision to allocate half of the funds evenly neglected recognizing the differences between states, leading to a very wide range in the amount of funding per rural resident. For example, while Texas received the largest award in absolute dollars, on a per rural resident basis it ranks the lowest, with an allocation of approximately $66 per rural resident. Conversely, states with smaller populations, such as Rhode Island, Alaska, and Wyoming, received awards that equate to payments per rural resident that approach $1,000 or more. 

One way to think about the potential impact of the RHTP at the state level is to assess how the award compares to total state projections of reduced healthcare spending and increased demand for uncompensated care that will result from the implementation of H.R. 1 and the expiration of the enhanced premium tax credits (ePTCs). This is clearly a lower bound estimate, since the reduction in healthcare spending and increased demand for uncompensated care in rural areas is smaller than for the state as whole. On the other hand, it is possible that some of the RHTP funds will be spent in non-rural areas, especially in states with small rural populations. More importantly, the RHTP represents the only new source of federal funding for states to potentially offset the healthcare spending reductions that will be triggered by H.R. 1 and the expiration of ePTCs. In that sense, comparing the size of the grants to overall state need is relevant. Also, we lack state specific estimates of rural hospital and healthcare system impacts that include the combined effect of H.R.1 and the expiration of the enhanced marketplace tax credits.

The $50 billion to be allocated over the five-year lifespan of the RHTP represents only 5% of the approximately $1 trillion in reduced healthcare spending that is anticipated due to the implementation of H.R.1 and the expiration of the Affordable Care Act’s (ACA) enhanced premium tax credits. The $7.5 billion that represents the overall cap on provider payments under the RHTP is only 2.7% as large as the projected $283 billion increase in the demand for uncompensated care (Tables 1 and 2).  

As bad as that national picture is, for many states the shortfall is even worse. California, for example, will receive approximately $1.2 billion from the RHTP over the five years of the program if the state's annual payments stay constant. Yet it faces a projected reduction in healthcare spending of $107 billion between 2026-2034. Texas, Florida, and New York face similar gaps. For these four states, the total amount of funding they can anticipate from the RHTP over the next five years will be less than 2% of the healthcare spending reduction that they anticipate between 2026 and 2034. In 17 states, the RHTP is less than 5% of projected health care spending reductions. There are only 20 states where the fund is anticipated to equal more than 20% of projected spending reductions. (Figure 1)

Comparing the 15% cap on provider payments to the anticipated demand for uncompensated care paints an even darker picture. Texas, for example, is facing a projected $30.7 billion in increased demand for uncompensated care. Yet the state will be able to spend no more than 15% of its RHTP award to make provider payments. That is approximately $210 million, less than 1% of the projected need. In 29 states, the maximum provider payments allowed under the RHTP will be less than 5% of anticipated need. For all but 12 states the maximum provider payments under the RHTP allocation will be less than 10% of the anticipated demand for uncompensated care. (Figure 2)  

As noted above, this is a lower bound estimate. If we consider rural areas only, the impact of the RHTP is greater. For example, rural hospitals are projected to face a $87 billion decline in revenue and a $23 billion increase in uncompensated care sought by the uninsured over the next decade due to H.R. 1 and expiration of the enhanced premium tax credits. The RHTP maximum provider payment allowance of $7.5 billion is nearly 10% of the projected national reduction in revenue and close to one third of the projected $23 billion increase in the demand for uncompensated care in rural hospitals. 

Rural health systems are disproportionately dependent on publicly subsidized coverage such as Medicaid and the ACA marketplace. The financial picture for rural providers will worsen with the implementation of H.R.1, which affects Medicaid funding both through the implementation of work requirements and restrictions on provider taxes and state directed payments. The reduction in enrollment in the ACA marketplace and associated coverage loss will also affect rural providers adversely.

Acknowledgements:

The author would like to thank Frederic Blavin, senior fellow in the Health Policy Division at the Urban Institute, and Stephen Zuckerman, institute fellow in the Health Policy Division at the Urban Institutes, for their insights and contribution to this piece.