Over the next 10 years, federal spending on Medicaid will decrease by $900 billion because of policy changes that are part of H.R. 1, the tax and spending law recently passed by Congress. States could see their federal funding drop by millions — or billions. North Carolina has predicted it will lose $40 billion in funding in the next 10 years, while Minnesota has predicted it will lose $200 million annually. States use these funds to administer Medicaid, which provides health care to more than 70 million people. With the loss of funding, states will also pay more to administer the Supplemental Nutrition Assistance Program (SNAP), putting additional pressure on state budgets.
In some states, governors and state health departments have announced plans to mitigate the impact of the funding cuts and anticipated budget shortfalls, with more action expected during 2026 state legislative sessions and end-of-year special sessions. The changes will affect Medicaid enrollees, state budgets, and health systems and providers.
The Cost of New Medicaid Requirements for States
H.R. 1 includes several requirements that impact all state Medicaid programs, while other provisions are limited to states that expanded Medicaid coverage for adults with incomes at or just above the federal poverty level ($26,650 to $36,800 for a family of three). Many of these, including work requirements and more frequent eligibility redeterminations, will create greater administrative burden and costs for states, just as they are facing federal funding cuts. States will be tasked with creating systems to verify work status, bolstering their eligibility verification systems, and improving data systems.
Further complicating matters, some provisions take effect immediately or require states to start preparing now for implementation. However, most state budgets for the current fiscal year were adopted before the bill was passed. New Mexico’s governor called for a special legislative session to address lost state revenue and ensure the state Medicaid agency has the resources needed to implement H.R. 1 provisions. Arizona’s Medicaid program has requested $71.4 million from the governor for implementation.
Experts warn that states are not prepared for these changes. Evidence from states that have implemented work requirements shows that administrative burden was not considered during the initial planning. State administrative costs from implementation ranged from $6 million in New Hampshire to $271 million in Kentucky.
How States Are Responding to H.R. 1
H.R. 1 represents the largest federal funding cut in Medicaid’s history. However, states have previously attempted to contain rising health care costs amid budget uncertainty. Earlier efforts included reducing provider reimbursement rates, eliminating benefits, and introducing cost sharing for enrollees, to mixed effect. Evaluations of these changes found increased Medicaid disenrollment, fewer people using primary care, more people reporting medical debt, and worsened health outcomes.
Federal changes to Medicaid funding, through H.R. 1, will press states to again make similar changes. In recent months, state leaders in Idaho and North Carolina announced they will cut provider reimbursement rates across the board. Cuts will range from 3 percent to 10 percent, with some variation by service and provider type. Colorado’s governor announced the state would suspend Medicaid rate increases that went into effect in July.
Former state health secretaries predicted that states may cut optional benefits, like dental, behavioral health, and home- and community-based services, to reduce spending. Colorado announced it will cut some spending on dental care while North Carolina is anticipating service eliminations and staff cuts. Similar actions are expected when state legislatures convene in 2026.
States that have expanded Medicaid under the Affordable Care Act can now introduce cost sharing to enrollees without submitting requests to the federal government. So far, Montana and New Hampshire have taken steps to introduce cost sharing, through premiums representing 2 percent to 5 percent of annual income. Evidence suggests Medicaid premiums add administrative burden for states and the premiums paid by enrollees may not offset the costs. For example, in Arkansas, introducing cost sharing in Medicaid increased spending by $30 per enrollee per month.
What Medicaid Changes Mean for Patients and Providers
The actions states take in response to H.R. 1 will likely make it harder for Medicaid enrollees to access and afford care while placing greater burden on state officials and providers, particularly safety-net providers.
Medicaid rates paid to providers have historically been lower than rates from other payers, resulting in providers being less likely to accept new Medicaid patients. Rate reductions could lead providers to exit the Medicaid program and make it harder for enrollees to find care, further worsening access to services like behavioral health that are already facing workforce shortages. Lower rates also will place greater financial strain on safety-net providers, like community health centers, where Medicaid reimbursements account for more than 40 percent of revenue.
Introducing cost sharing and eliminating benefits will change how enrollees interact with the program. Eliminating benefits will mean patients can’t access the services they’ve come to rely on and will use emergency departments more. To date, only a few states have outlined their responses to federal funding cuts, but all will have difficult decisions to make as the requirements of H.R. 1 take effect and the financial outlook for the next fiscal year becomes clear.
