States Already Cutting Medicaid, Massive Federal Cuts Yet to Come

The budget reconciliation bill, HR 1, contained drastic cuts to states’ Medicaid funding and coverage. While most of these cuts have not yet gone into effect, many states are already fearing economic downturns or recession spurred in part by rising costs and tariffs. In response, some of these states have already started cutting Medicaid spending, leading to access issues for people who get vital coverage from the program. 

In many areas, finding Medicaid providers can be difficult. Medicaid’s payment rates are lower than Medicare’s or other insurance and may drive some providers away from treating patients with Medicaid coverage.

This is the risk in North Carolina where the Medicaid program is cutting provider pay by a minimum of 3%, citing funding gaps. Similarly, Washington is cutting hundreds of millions from its Medicaid program, though state officials claim that the cuts will not reduce eligibility or coverage. 

States Cannot Weather Economic Downturns Without Cutting Programs 

Unlike the federal government, states are generally unable to weather economic downturns without cutting major programs. Medicaid is among the largest state expenditures. For example, in Nevada, Medicaid accounts for 25% of the state’s budget. And state spending on Medicaid has grown in the past few years. 

While all states maintain rainy day funds that can help mitigate revenue losses in the short term, they are not enough to cover big, long-term gaps in funding.

Bigger Cuts on the Horizon 

Not every state is cutting Medicaid yet, but they eventually will. Most of the provisions in the 2025 budget reconciliation bill—HR 1—have yet to go into effect and these cuts will have a devastating impact on state budgets. KFF analysis shows that HR 1 will cut federal Medicaid spending by $1 trillion over ten years. States might be able to pick up some of those costs, but not all.

The effects will not be even across states. Another KFF analysis shows that expansion states with large numbers of rural residents will be hit the hardest. Medicaid covers 1 in 4 adults in rural areas, a higher share than in urban areas, and plays a large part in financing rural health care services. 

States facing huge Medicaid shortfalls may be forced to cut optional Medicaid services or eligibility. Of particular concern are the Home- and Community-Based Services (HCBS) that allow people to age in place safely. These benefits have been targeted in the past when state budget pressures arose.

Administrative Costs Will Also Rise 

Because HR 1 puts new administrative barriers like work reporting requirements in place, state costs will also rise. States will be paying millions of dollars to establish new processes for potential Medicaid enrollees to report their work or exemptions. These processes are extremely expensive to create and maintain; for example, Georgia’s recent implementation of such a requirement has spent twice as much on administration—$54 million—as on providing actual Medicaid coverage according to the watchdog Government Accountability Office (GAO). 

It Is Not Too Late to Change Course 

Amidst the serious economic news, rising health care costs, and looming Medicaid cuts, we urge policymakers to shore up Medicaid programs nationwide, reverse the devastating cuts HR 1 has set in motion, and encourage rather than discourage providers to participate in the program. 

Further Reading

Read more about state Medicaid cuts. 

Read more about the risk to HCBS. 

Read more about the costs of Medicaid administrative barriers.