A new report from the Urban Institute details the difficult situation state lawmakers and executive leaders will face as they grapple with the loss of federal funding due to HR 1, also known as the “One Big Beautiful Bill Act,” that was signed into law July 4, 2025. While the law did not directly cut funding to schools, the impact of the historic Medicaid and Supplemental Nutrition Assistance Program (SNAP) cuts will be felt by every state to varying degrees. Specifically, because states have to balance their budgets, unlike the federal government, states will have to scramble to make up for lost federal revenue by either cutting coverage, benefits, or provider payments, raising new revenue, or utilizing funds from other state programs to cover the gap. While Medicaid is the second-largest source of state fund outflow, K-12 spending is the largest, leaving these two vital programs in the unenviable position of possibly having to compete for limited financial resources due to HR 1 cuts.
Fortunately, there are a few options for state leaders to leverage school Medicaid programs to help mitigate some of the harm caused by the funding cuts. As of 2026, only 28 states have expanded their school Medicaid programs to allow for reimbursement for services delivered to an eligible student outside of an Individualized Education Program (IEP). This state option allows for more services to be delivered to Medicaid-enrolled students who need support outside what would traditionally be delivered through an IEP, as well as adds an additional funding stream, since these services would now be paid partially through federal Medicaid dollars, instead of only state education funds.
Additionally, states can submit reimbursement requests for a proportion of their administrative activities related to the Medicaid program. As the Centers for Medicare & Medicaid Services (CMS) notes, “[t]he school setting provides a unique opportunity to enroll eligible children in the Medicaid program, and to assist children who are already enrolled in Medicaid to access the benefits available to them.” Due to this unique role, states could rely more heavily on schools to implement administrative activities, such as outreach programs. For example, Colorado school Medicaid programs are allowed to claim administrative reimbursement to conduct outreach, enrollment determination, translation services, agency coordination and other activities to support the Health First Colorado Medicaid program.
It is important to note that while these two strategies could help alleviate some of the federal funding cuts created by HR 1, as the Urban report points out, the issue remains that school Medicaid programs are dependent on eligible students actually being enrolled in Medicaid. In addition, other federally-funded school programs are also tied to Medicaid enrollment. Due to HR 1, children could lose Medicaid coverage due to paperwork errors, the loss of a parent’s coverage (referred to as the “unwelcome mat” effect) including from red tape under work reporting requirements, or direct disenrollment through new prohibitions on eligibility due to citizenship status. Restrictions in benefits or cuts to reimbursement rates could also impact school Medicaid finances. To complicate matters further, Medicaid enrollment is directly linked to funding for other programs, such as the Free School lunch program, in 44 states. Any decline in Medicaid enrollment could cause additional funding loss in nearly every state for vital programs that keep students fed and engaged in learning. As a result, ensuring children remain covered is critical to the success of these strategies. Something we at CCF will continue to track on our state-by-state Medicaid and CHIP enrollment data track.
The implementation of HR 1 will impact many different populations, and students are not immune to the effects of the Medicaid and SNAP cuts. Medicaid helps students get off to a strong start, show up for school and reach their full potential. With state budgets being stretched thin, it is important for state leaders to lean on Medicaid to ensure children remain covered and enrolled and are able to access critical health services where they are – at school.