States scramble to avoid Medicaid shortfalls: Survey
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Rising health costs and nearly $1 trillion of cuts to federal Medicaid spending are forcing states to scramble in order to keep their Medicaid programs from slipping into the red, an annual survey of state officials finds.
Why it matters: Some are responding by imposing new limits on how they pay health providers and could face pressure to cut or limit optional benefits like dental or vision care.
- Medicaid accounts for a large share of state budgets, serving more than 1 in 5 Americans and accounting for nearly a fifth of health care spending.
What they found: A KFF survey of Medicaid officials in all states and the District of Columbia found almost two-thirds face at least a "50-50" chance of a Medicaid budget shortfall in FY 2026.
- The states anticipate Medicaid spending growth of almost 8% in FY 2026, primarily driven by higher costs for long-term care, drug benefits and behavioral health services.
- Meanwhile, they're bracing for the effects of the Republican budget law, which cut federal Medicaid spending by $911 billion over the next decade and prohibited states from imposing new taxes on providers or increasing existing taxes to help cover their costs.
- Federal workforce cuts and tariff changes are adding to the uncertainty, though fiscal conditions and the impact of federal changes vary across states, KFF noted.
Between the lines: States aren't covering as many people as they used to. They've booted millions from the program over the past few years after the expiration of special pandemic-era protections that required them to keep covering certain people.
- But rising costs are offsetting those enrollment declines, including aging populations that need more long-term care.
- Total Medicaid spending growth was 8.6% in the most recent fiscal year and is expected to hit 7.9% in the next fiscal year.
- In response, fewer states increased provider payments or plan to do so, compared with recent years. States are focused on nursing facilities and home- and community-based services more than other provider types, KFF said.
Yes, but: The number of states that added benefits still outpaces the number that cut or limited benefits.
- Many reported expanding behavioral health services, especially outside of institutional settings.
- Interest in expanding Medicaid coverage of pricey GLP-1 obesity drugs is waning, KFF said, though 16 states did offer coverage as of Oct. 1.
- Many states said they've launched initiatives targeting high-cost specialty drugs, such as cell and gene therapies, or other physician-administered drugs.
