Marketplace Pulse: Rural Health Transformation Fund 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 included in the Rural Health Transformation Fund is only a tiny offset (5%) of the federal funding cuts facing rural communities as a result of last year’s H.R.1, the so-called One Big Beautiful Bill Act.
• In 38 states, 90% of the demand for needed care will not be reimbursed through the fund. Total payments to providers from the Rural Health Transformation Fund will cover just 10% of uncompensated care.
• The Rural Health Transformation Fund 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 Fund (RHTF) 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 noted that the RHTF represented a "a generational investment in the health and vitality of rural America."

Half of the fund’s total amount will 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 states’ 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 RHTF seeks to engage states in ‘upstream’ activities with potential to transform rural healthcare delivery in the future, barring assistance to rural health systems and allowing states to use only 15% of awarded dollars to pay healthcare providers. 

The initial allocation of funds was announced on December 31, 2025. The size of the 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 constrained 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 actually ranks the lowest, with an allocation of approximately $66 per rural resident (and less than $10 per resident when accounting for the state’s total population).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 RHTF is to assess how the award compares to projections of reduced healthcare spending and the increased demand for uncompensated care as a result of implementation of H.R. 1. In a big picture sense, the $50 billion to be allocated over the five-year lifespan of the RHTF represents only 5% of the approximately $1 trillion in reduced healthcare spending that is anticipated because 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 cap on provider payments under the RHTF is only 2.7% as large as the projected $283 billion increase in the demand for uncompensated care. (Table 1 and Table 2)

As bad as that national picture is, for many states the shortfall is even worse. California, for example, will receive approximately $1,170,000 from the RHTF 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 RHTF 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 RHTF is less than 5% of projected spending reductions. Only in 20 states is the fund anticipated to equal more than 20% of projected spending reduction. (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, $9.1 billion of which will come from hospitals. Yet they will be able to spend no more than 15% of their RHTF award to make provider payments. That is approximately $210 million, less than 1% of the projected need. In fact, for 29 states, the maximum provider payments allowed under the RHTF will be less than 5% of anticipated need. For all but 12 states it will be less than 10% of the anticipated demand for uncompensated care. (Figure 2)  

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. The reduction in enrollment in the ACA marketplace and associated coverage loss will also affect rural providers adversely.

Nearly half of rural hospitals across the country are either operating in the red or close to it, and more than 400 are at risk of closure. Many others have reduced needed services, such as obstetrics and cancer care. In Texas, more than half of rural hospitals offering chemotherapy stopped doing so in recent years.

In their announcement of the first round of RHTF payments, CMS sought to connect the fund to the deteriorating access situation, suggesting that the program "reflects CMS’ commitment to ensuring rural communities across America have consistent access to high-quality, dependable care." Yet despite these claims and the hopes of many rural residents, the RHTF seems unlikely to contribute meaningfully to the solution of these problems. The fund was not designed to address the present day financial crisis in rural health systems. It is targeted at upstream fixes, while the financial problems of rural healthcare systems are immediate. It is a time-limited fund, while the financial problems with rural health care are not. And the fund is far too small to meet the needs of rural communities and health systems, especially in the largest states.