State Medicaid budgets will decline by $665 billion under new federal law, report finds
State Medicaid budgets will be reduced by a total of $665 billion over the next decade, after President Donald Trump’s One Big Beautiful Bill Act cuts federal investment in the health insurance program, according to a new analysis.
Researchers from RAND Health, a policy and research nonprofit, analyzed state and federal data to estimate how much the loss of federal money will affect state Medicaid budgets, publishing their findings late last month. Medicaid is the public health insurance program for people with low incomes, jointly funded by state and federal money.
Overall, the net impact on state budgets, apart from their Medicaid programs, will be a reduction of $86 billion, according to the report. That number is lower than the total reduction in Medicaid budgets because while some states will have to spend more money from their general funds to cover Medicaid losses, others will have to spend less.
New federal rules such as work requirements for some Medicaid enrollees are designed to reduce the number of people on Medicaid, which means states that cover those people would no longer have to pay their share of those medical bills, saving them money. But many states use financial strategies, such as “provider taxes,” to qualify for extra federal Medicaid money. The new law limits their ability to do that, and that will force them to dip into their general funds to cover the loss of revenue.
“The effects of the law on Medicaid budgets and enrollment are substantial, but will vary widely across states, and in some cases may be at least partially offset by savings to the state general fund,” said Preethi Rao, a senior economist at RAND and lead author of the study, in a statement.
By 2034, Medicaid will have 7.6 million fewer enrollees, the authors estimated. The federal government will save about $714 billion from 2025-2034.
Arizona, Iowa and Nevada will see their Medicaid budgets reduced by more than 15%.
California and New York will see the biggest total drop in their Medicaid budgets, $112 billion and $63 billion, respectively.
At the other end of the spectrum, states that don’t rely as heavily on financing strategies like state-directed payments and provider taxes, won’t see such a significant impact. Florida is likely to see less than half a percent change to its Medicaid budget, the report found. North Dakota and Nebraska are also likely to see minimal impacts because their losses are expected to be offset by increased federal rural health funding.
State general funds in Tennessee, Mississippi, Oklahoma and Kentucky could see more than a 2% savings due to lowering Medicaid enrollment or reducing the types of care covered, the report found.
A few states with small Medicaid populations are expected to see an increase in their budgets due to that rural health program funding, including Wyoming and South Dakota.
“As states plan for the upcoming changes in funding and eligibility, understanding these state-specific differences will be important,” Rao said.
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