Impact of the House-passed budget reconciliation bill on occupational therapy practitioners and students
On May 22, the House of Representatives passed the One Big Beautiful Bill Act, a wide-ranging budget reconciliation bill, by a vote of 215-214. The Senate is now considering the bill, where multiple changes are expected. While the bill has hundreds of provisions, AOTA is closely tracking four that could impact occupational therapy and occupational therapy professionals.
Medicaid
This legislation includes at least $625-$700 billion in Medicaid cuts over the next decade. Most of these cuts are due to new work or community engagement requirements and stricter Medicaid eligibility verification measures. According to estimates from the Congressional Budget Office (CBO), these provisions could result in roughly 7.6 million people losing Medicaid coverage.
Medicaid is a critical program that provides healthcare coverage to over 70 million Americans, including children, individuals with disabilities, and those requiring long-term care services. Medicaid funding also supports behavioral health services and substance use disorder treatment, ensuring access to essential care for vulnerable populations. The program is crucial to ensuring that Americans receive necessary healthcare services, such as occupational therapy, and it supports individuals who may not have other options for health insurance.
While the bill does not significantly alter how the federal government funds State Medicaid Agencies, the CBO estimates that states will receive at least $100 billion less in federal Medicaid funding over the next 10 years than they would under current policies. Occupational therapy services are classified as an “optional” benefit under Medicaid, except for children ages 0-21, leaving OT services particularly vulnerable if states reduce Medicaid benefits. AOTA is collaborating with coalition partners on long-term advocacy strategies to designate OT and other therapy services as mandatory benefits under Medicaid to help preserve access to therapy services for all Medicaid recipients.
AOTA is extremely concerned by the number of people who may no longer have access to occupational therapy and other healthcare services if the House-passed bill were to be signed into law. If CBO projections are correct, more than 10% of the current Medicaid population could lose access to healthcare through the Medicaid program. We have been working with policymakers, encouraging them to consider other reforms to help reduce fraud, eliminate excessive regulations, and improve patient outcomes, while protecting Medicaid coverage for the vulnerable populations we serve.
You can write to your Members of Congress and urge them to preserve access to Medicaid services.
Medicare Part B Payments
The Medicare Physician Fee Schedule (MPFS), the mechanism through which Medicare outpatient therapy services are paid, has faced year-over-year cuts and is not currently adjusted for inflation. While the flawed payment system has also hurt other healthcare providers, therapy providers have received some of the steepest reductions.
Because of ongoing advocacy by groups like AOTA, the bill includes a provision that would add $9 billion to the MPFS over the next 10 years. It would do this by increasing the MPFS conversion factor for CY2026 by 75% of the Medicare Economic Index (MEI) – a measure of medical inflation. For 2025, the MEI is projected to be 3.5%, resulting in a 2.63% payment increase for 2026. In subsequent years, payments would be increased by 10% of the previous year’s MEI.
AOTA continues to strongly advocate for comprehensive reforms to the Medicare Physician Fee Schedule to address the decades-long erosion of payment for occupational therapy services. We view this provision in the One Big Beautiful Bill Act as a first step that offers some relief from ongoing cuts and gives Congress time to pursue more comprehensive reform. However, support for this provision in the Senate is not certain. AOTA is working with our House and Senate champions to ensure this increase to the Fee Schedule is included in the final bill.
You can write your Members of Congress and ask them to include this increase to the Medicare Physician Fee Schedule in this bill, or any other relevant legislation under consideration.
Financial Aid for Higher Education
The One Big Beautiful Bill Act also significantly changes higher educational financial aid for undergraduate and graduate students. Starting in 2026, all subsidized student loans—where the government currently pays the interest while the student is in school and for six months after graduation—will be eliminated. These loans will be converted to unsubsidized loans, where interest will accrue immediately for undergraduates and graduate students. Additionally, the Graduate PLUS loan program--one of the main ways students pay for their graduate education--would be eliminated for new graduate borrowers starting in the 2026-2027 academic year and then eliminated entirely for the 2029/2030 academic year. Eliminating Graduate Plus Loans could severely limit access to graduate education, particularly for students who cannot secure student loans from the commercial market.
Other changes in the legislation include changes to the current Income Driven Repayment (IDR) plans. Under the current system, borrowers can have their loan balances forgiven after 10-25 years. The reconciliation bill changes the IDR plan to be forgiven after 360 qualifying payments, or 30 years. The bill also sets a lifetime limit for a single borrower of $200,000 for federal student loans of any type. Finally, this legislation changes the required number of hours in which Pell Grant recipients must be enrolled to be considered a full-time student, from 24 to 30 for an academic year.
No Taxes on Overtime Bonus Pay
The One Big, Beautiful Bill Act includes a “No Tax on Overtime” provision allowing certain workers to deduct qualifying overtime pay from their federal taxable income for tax years 2025 through 2028. This deduction applies to overtime compensation required under the Fair Labor Standards Act (FLSA), which generally mandates that hourly, nonexempt employees receive time-and-a-half pay for hours worked beyond 40 in a week.
This provision could offer meaningful end-of-year tax relief for occupational therapy practitioners (OTPs) paid hourly. According to AOTA’s 2023 Workforce and Compensation Survey Report, 72% of occupational therapy assistants who responded to the survey and 38.5% of occupational therapists were compensated through hourly pay. However, this new benefit may vary depending on employment setting and classification. Many salaried or exempt OTPs may not qualify for overtime under the FLSA and, therefore, would not be eligible for the deduction.
The proposed deduction would be capped at $10,000 for individuals and $20,000 for married couples filing jointly. It would begin to phase out for higher earners, starting at $100,000 for individuals and $200,000 for joint filers. Additionally, this exemption would apply only to federal income taxes - workers would still owe Social Security and Medicare taxes on their overtime income and any applicable state or local taxes.
AOTA will continue to monitor this legislation and advocate for policies that support the financial well-being of the occupational therapy workforce.
Next Steps
The Senate will undoubtedly make many changes to the House-passed bill, after which negotiations will occur between the House and Senate on final language before the bill is signed into law. The House and the Senate would like to pass the final bill before the Fourth of July.
You can stay up to date by following AOTA’s advocacy news section and checking out the latest opportunities for advocacy at AOTA’s Legislative Action Center.