With Congress returning to DC, we expect to learn more about the Medicaid cuts under serious consideration as part of the budget reconciliation process fairly soon. But, in the meantime, states are starting to crunch some numbers to gauge the impact of the potential Medicaid cuts on their state programs and state budgets. The analysts with State Health & Value Strategies (SHVS) at Princeton University posted a helpful compilation of these state-level analyses, highlighting estimates from eight states (CO, KY, NV, NJ, NM, NC, OK and WI) that they will continue to update. Though not yet part of the SHVS compilation, Illinois and Utah have also posted similar analyses. What do these state estimates show?
They all illustrate that federal Medicaid cuts are a cost shift to states – that is, the policies under consideration in Congress do not actually lower health care costs, they just limit federal funding and leave it to the states to figure out how to solve the problem. States are generally required to maintain a balanced budget, so federal Medicaid funding cuts of the magnitude currently under consideration will require states to make tough Medicaid choices – cut eligibility, reduce benefits, and/or lower provider payment rates – in addition to cuts elsewhere in the state’s budget and/or tax increases.
Each analysis is a little different – some include more policies than others, some include budgetary impacts by county or congressional district in addition to statewide estimates, some illustrate the potential impact on different types of providers, etc. Read on for a high-level summary of the state-level impact of some of the policies under consideration, but each of these analyses is worth reading in full too.
Imposing a Per Capita Cap
One of the policies Congress is considering would fundamentally change Medicaid’s financing from an open-ended, entitlement program to a capped program. Congress would set the cap amount below projected need in order to achieve federal budget savings. Congress could impose a per capita cap on Medicaid spending either for the program as a whole or for particular groups, such as the Medicaid expansion group. Most states that included this policy option in their analyses calculated the impact of an overall per capita cap.
- Colorado: $1.34 to $1.51 billion reduction in federal funding annually
- Illinois: $24 to $39 billion reduction in federal funds from 2026 through 2034
- Nevada: $590.2 million to $3.153 billion reduction in federal funding for the biennium, depending on the growth index
- New Mexico: $14.7 million reduction in federal funding in the first year, and $1.5 billion over 5 years
- North Carolina: $30 billion reduction in federal funding over 10 years
- Oklahoma: no impact to $626.8 million reduction in federal funding in the first year, depending on the base year used
Reducing the Expansion Match
Another policy under consideration is to lower the 90% match for the ACA’s Medicaid expansion population to the state’s traditional Medicaid match. Traditional matches range from 50% to about 77% under the current formula, which results in more federal funding for states with lower per capita income.
- Colorado: the match would go from 90% to 50%, resulting in a loss of more than $1 billion in federal funds annually. The Department of Health Care Policy & Financing writes, “377,019 Coloradans are covered through the expansion population. Costs would be felt by the economy, families going into bankruptcy, as well as hospitals and other providers left with increased uncompensated care costs.”
- Illinois: the match would go from 90% to about 51%, but Illinois’ expansion law included a “trigger” that would end expansion under these circumstances. The Department of Health and Family Services estimates that more than 770,000 people would lose coverage. Every 10% reduction in the enhanced match results in a cost shift of about $815 million to the state. The state would need over $3.2 billion to continue offering this coverage.
- Kentucky: the match would go from 90% to about 71%, resulting in a loss of $1.4 billion in federal funds annually. If the state is unable to fill that hole, and expansion goes away, the Cabinet estimates that 450,000 people would lose Medicaid coverage and the loss to Kentucky’s economy would be $3.8 billion per year. Read the report to see the estimated impact for different regions, including rural Appalachia, and even particular hospitals.
- Nevada: the match would go from 90% to about 60%, resulting in a loss of $1.858 billion in federal funds over the upcoming biennium.
- New Jersey: the match would go from 90% to 50%, resulting in a loss of $2.3 billion in federal funds annually. Read the report to see the impact of various scenarios for the state’s hospitals and health systems and by congressional district.
- New Mexico: the match would go from 90% to about 72%, resulting in a loss of $458.8 million in federal funds annually and impacting 262,000 people.
- North Carolina: the match would go from 90% to about 65%, but North Carolina’s expansion law included a “trigger” that would end expansion under these circumstances. More than 640,000 people would immediately lose coverage and the state would lose $6 billion in federal funds. The Governor writes, “The damage to North Carolina’s health care system, particularly rural hospitals and providers, would be devastating, not to mention to people who can no longer afford to access health care.”
- Oklahoma: the match would go from 90% to about 67%, resulting in a loss of $453 million in federal funds annually.
- Utah: the match would go from 90% to about 62%, but Utah’s expansion law included a “trigger” that would end expansion under these circumstances. The Department of Health and Human Services estimates that 83,000 people would lose coverage and the state’s Medicaid program would lose $1.4-1.5 billion annually. If Utah changed its trigger law and continued expansion at the state’s regular match, they would need $400-500 million annually. In a companion report, the Department shows that about a quarter of the expansion population experienced homelessness in 2024, and reducing the expansion match would also result in eliminating Medicaid housing supports.
Limiting Use of Provider Taxes
Congress is also reportedly considering changing the rules about how states can generate the state share of Medicaid costs by limiting or eliminating the use of provider taxes. Under current law, provider taxes are an allowable source of the state share for Medicaid costs if they are broad-based, uniform, and do not include a “hold harmless” provision for providers. Under current regulations, the hold harmless requirement does not apply when tax revenues comprise 6% or less of net patient revenues, known as the “safe harbor” limit. Congress is considering lowering the safe harbor limit, or eliminating it entirely.
- Kentucky: The Cabinet estimated several impacts of changing federal rules around provider taxes, including reducing the safe harbor threshold from 6% to 4%, 3%, or removing it entirely. These estimates show a range of potential impact from to $660 million to $3.88 billion annual loss to providers. The cuts would hit hospitals and nursing facilities hardest. A reduction from 6% to 4% safe harbor threshold would also mean a cut of $19 million per year to supports for community living too.
- Nevada: The Department estimated that a reduction in the safe harbor threshold from 6% to 4% would result in a $693 million reduction in supplemental payments for hospitals, a $30 million reduction in state revenues for children’s behavioral health, and a $95.5 million reduction in supplemental payments for skilled nursing facilities over the biennium.
- New Jersey: The Department estimated that a reduction in the safe harbor threshold from 6% to 4% would result in a loss of $3.4 billion annually.
- Oklahoma: The Health Care Authority estimated that lowering the safe harbor threshold to 3% would impact Medicaid expansion funding because state law requires a transfer of $130 million to the Medicaid program and such a reduction would limit the amount transferred to just $32 million.
- Utah: The Department estimates that lowering the safe harbor threshold to 2.5% would result in a total funds loss of $300-400 million.
Imposing Work Requirements
Congress is also considering imposing a work requirement on all or part of the Medicaid program, though because the specifics of such a proposal have not been made publicly available, many of the state analyses describe the possible work requirements but say they cannot estimate the impact without more information.
- Illinois: The Department estimates that between 344,000 to 633,000 people would lose coverage, mostly due to administrative reasons.
- Nevada: The Department estimates that, based on experiences in Arkansas and Georgia, 70,400 to 112,600 low-income adults’ coverage could be affected, reducing spending by $441 to $705.6 million over the biennium.
- New Jersey: The Department estimates that up to 700,000 low-income adults’ coverage would be at risk, and members with mental illness, substance use, certain disabilities, and members caring for children or elderly relatives would be most at risk. The Department estimates about $250 million in annual federal funding would be at risk.
- New Mexico: The Health Care Authority estimates a reduction in federal funds of $548.7 million and a coverage loss of about 64,000 people.
- Oklahoma: The Health Care Authority estimates a reduction in program expenditures of $10 million annually, potentially impacting coverage for 230,000 adults.
Eliminating or Lowering the FMAP Floor
Congress is also considering lowering the FMAP floor from 50% to some other percentage or eliminating the floor entirely. Ten states are at the 50% floor for FY2026 and a handful of other states hover around the floor each year. CBO estimates that eliminating the floor would cut Medicaid spending by about $530 billion over the next ten years.
- Colorado: The Department estimates that eliminating the FMAP floor would result in an annual reduction of federal funds to the state ranging from $900 million to $1.54 billion, with a new FMAP of about 37% to 42%.
- New Jersey: The Department estimates that eliminating the FMAP floor would result in an annual reduction of $2.2 billion, with a new FMAP of just 38%.
We’ll review any other state analyses as they are posted. The Congressional Budget Office (CBO) is the official arbiter of the federal budgetary impacts of the proposed changes, but it is critical for policymakers to be aware of the implications of these proposed cuts for their constituents too as the impact will be felt more acutely in some states.