Medicaid Growth

Since Mister Tru_p has decided to take it to the populus or those who have little say, we are on a precipice of an economic fall. That is when we consider some of the other things he has implemented . . . such as tariffs?

Healthcare is not a state issue. It is more of a national issue as the federal government can exercise more control over care and the costs of it. And yes, it would be nice if healthcare was available for all without government intervention. There is no intent of commercial healthcare being made accessible for all by commercial interests.

So, how will this play out for the 20 million or so cut adrift bt Republicans as led by their fearless leader Tru_p? Not well, I suspect. The middle class will be impacted by this also.

Medicaid Enrollment & Spending Growth: FY 2025 & 2026, KFF

Some background

States are facing a more tenuous fiscal climate due to slowing revenue growth and increasing spending demands in state fiscal year (FY) 2026. There have been recent shifts in economic conditions as well as recent federal actions. The cuts include safety net programs, tax code changes [reconciliation law (H.R.1)}, changes to the Affordable Care Act (ACA) enhanced Marketplace subsidies, federal workforce cuts, and tariff change. These contribute to further fiscal uncertainty and the impact of federal changes vary across states. For Medicaid, states are navigating the new “normal” for their programs following the expiration of pandemic-era policies while contending with shifts in state fiscal conditions and longer-term fiscal uncertainty.

The Medicaid provisions in H.R.1 are estimated to reduce federal Medicaid spending by $911 billion (or by 14%) over a decade and increase the number of uninsured people by 7.5 million. The impacts vary by state with spending cuts ranging from 4% to almost one-fifth of all federal Medicaid spending in some states. Provisions in the new law, include work requirements and financing changes (take effect until FY 2027 or later). States noted they are looking ahead to the challenging fiscal climate and the magnitude of federal Medicaid cuts. These will make it difficult for states to absorb or offset the reductions.

Leading up to FY 2026, states experienced significant changes in Medicaid spending and enrollment trends (Figure 1). For a three-year period following the onset of the COVID-19 pandemic, states provided continuous Medicaid enrollment in exchange for enhanced federal funding. This did result in record high Medicaid enrollment, declines in the uninsured rate, and shifts in Medicaid spending. Most states began the process of “unwinding” the continuous enrollment provision in late state fiscal year (FY) 2023. The enhanced federal funding phased down through the end of 2023 (part way through FY 2024). Millions of people were disenrolled from Medicaid and enrollment and spending trends shifted once again. By midway through FY 2025, most states had completed unwinding and returned to more typical renewal operations.

State officials indicated their spending projections reflect what is assumed in their states’ adopted budgets which did not account for the recently passed reconciliation law. Key survey findings include the following:

• Medicaid enrollment declined by 7.6% in FY 2025, driven primarily by the unwinding of the continuous enrollment provision. The completion of unwinding renewals as well as competing upward and downward enrollment pressures are expected to result in flat Medicaid enrollment growth (0.2%) in FY 2026.

• Total Medicaid spending growth was 8.6% in FY 2025 and is expected to slow slightly (7.9%) in FY 2026. States are experiencing significant upward expenditure pressures outweighing the downward pressure from Medicaid enrollment trends. This includes rate increases, higher health care needs among enrollees, post-unwinding, and increasing long-term care, pharmacy, and behavioral health care costs.

• State Medicaid spending growth was 12.2% in FY 2025. It is projected to slow to 8.5% in FY 2026 similar to total  spending growth levels. Most of the state (or non-federal) share of Medicaid spending comes from state general funds, there is considerable variation in how much states rely on non-federal share funding sources and account for those other funding sources.

• Two-thirds of responding states think the chance of a Medicaid budget shortfall in FY 2026 was “50-50”, “likely”, or “almost certain.” A few states are implementing Medicaid spending cuts to address recent budget challenges. Other states may follow as they contend with potential Medicaid budget gaps and look ahead to the implementation of the Medicaid changes in H.R.1.

Medicaid is the primary state program providing comprehensive health and long-term care to one in five people living in the U.S. and accounts for nearly $1 out of every $5 spent on health care (and over half of all spending on long-term care).

The pandemic, and the ensuing federal and state responses, led to significant changes in Medicaid enrollment and spending. Gains in Medicaid as well as ACA Marketplace coverage contributed to significant declines in the uninsured rate. Following the end of the continuous enrollment provision on March 31, 2023 (late FY 2023 for most states), states began the process of “unwinding.” (resuming historically typical eligibility redeterminations and disenrolling individuals no longer eligible for Medicaid), This results in millions losing Medicaid. Most states had completed unwinding by midway through FY 2025, and total Medicaid and CHIP enrollment as of June 2025 was 77.7 million, a 18% decline from total enrollment in March 2023 but still 9% higher than enrollment levels in February 2020.

State fiscal conditions have also seen substantial shifts since the pandemic began. State economic conditions worsened rapidly when the pandemic hit but recovered quickly, leading to a period of record-breaking revenue and expenditure growth for states. Favorable state fiscal conditions combined with federal fiscal relief allowed states to build up rainy day funds and make investments and expansions

For FY 2026, states are facing another year of slow revenue growth and uncertainty in their longer-term fiscal outlook. Even so, enacted FY 2026 state budgets did include modest increases in state general fund spending and total state spending. Some state budgets had slight declines in total state spending and other budget strategies such as spending cuts or other cost containment measures. Still states are contending with increasing spending demands from Medicaid, employee health care, education, housing, and disaster response. Changes in economic conditions, recent federal actions, including cuts to safety net programs and tax code changes from the recent reconciliation law, changes to the ACA enhanced Marketplace subsidies, federal workforce cuts, and tariff changes, have generated additional uncertainty. Some states are revising revenue forecasts down-ward. Overall, states appear to be in stable fiscal condition. They are facing tighter budget conditions and longer-term fiscal uncertainty.

Trends in Enrollment Growth

Medicaid enrollment declined by 7.6% in FY 2025. It may flatten in 2025, growing by only 0.2%, in FY 2026 (Figure 2). With the onset of the COVID-19 pandemic and start of the Medicaid continuous enrollment provision, enrollment rose sharply in FY 2021 and grew, though more slowly, through FY 2023. Continuous enrollment provision did end. States began unwinding-related eligibility redeterminations. Medicaid enrollment declined in FY 2024 and also in FY 2025.

Most states either completed unwinding redeterminations by FY 2024 (two-thirds of states) or by midway through FY 2025 (another one-sixth of states). The remainder noting their redeterminations continued through the second half of FY 2025 or would continue into FY 2026. Medicaid enrollment growth may be flat in FY 2026. Medicaid enrollment remains above pre-pandemic levels in many states. There is little variation in state enrollment growth rates for FY 2026. Most states were reporting little to no growth in enrollment.

The unwinding continued as the largest driver of declining enrollment in FY 2025. The completion of unwinding renewals as well as competing upward and downward growth pressures can result in flat enrollment growth in FY 2026.  About two-thirds of responding states reported the unwinding was the most significant driver of Medicaid enrollment declines in FY 2025. Almost half of responding states mentioned recent eligibility expansions, including children’s continuous eligibility changes and Medicaid postpartum coverage changes.

These were putting an upward pressure on enrollment. About a quarter of responding states reported increases in the populations utilizing long-term care. Some specifically pointing to an aging population in their state. For FY 2026, the completion of unwinding renewals across most states is may result in flat enrollment growth. Even so a few states reported continued downward pressure from unwinding. Some states also noted continued upward pressure from eligibility expansions and long-term care enrollment.

Across both FY 2025 and FY 2026, some states mentioned a strong economy as a significant downward pressure on Medicaid enrollment. A few other states noted worsening economic conditions in their state as an upward pressure and signaling the variation and uncertainty in state fiscal conditions at this time. Lastly, about a quarter of responding states mentioned they were expecting recent federal changes, including H.R.1, to have a downward impact on enrollment in future years as provisions go into effect.

Trends in Spending Growth

Total Medicaid spending growth was 8.6% in FY 2025. It is may to slow slightly to 7.9% in FY 2026 (Figure 2). Total spending growth increased when the pandemic and continuous enrollment period began before peaking in FY 2022. It started to slow in FY 2023 and FY 2024. States completed unwinding-related eligibility redeterminations. Despite unwinding Medicaid enrollment declines, total Medicaid spending growth was 8.6% in FY 2025.

It is projected to slow slightly to 7.9% in FY 2026. FY 2025 and FY 2026 Medicaid spending growth rates were calculated as weighted averages across all states to provide a snapshot of overall trends. There was considerable variation in state reporting of annual growth rates. Most responding states reported Medicaid spending projections for FY 2026 reflect the assumptions used in the state’s adopted budget. Many states also noted FY 2026 projections did not reflect any federal policy changes under the recently passed reconciliation law. Most states enacted their FY 2026 budgets before the law’s passage. Many of the Medicaid provisions do not take effect until FY 2027 or later.

States report several factors driving growth in total Medicaid spending, including rate increases, higher health care needs among enrollees post-unwinding, and increasing long-term care, pharmacy, and behavioral health care costs. Many responding states note enrollment trends were a significant downward pressure in FY 2025 and FY 2026. Beyond enrollment, states did not mention many downward pressures in FY 2025 or FY 2026 A few states noted downward pressure from pharmacy rebates. However, states are simultaneously experiencing several significant upward expenditure pressures that outweigh the downward pressure from enrollment trends, causing increases in total Medicaid spending (and as a result, spending per enrollee):  

• Over half of responding states cited managed care or provider rate increases as an upward pressure on total spending in FY 2025, FY 2026, or both.

• Almost half of states noted that the enrollees that retained coverage during unwinding have higher health care needs (or higher acuity) and utilize more services than those disenrolled.

• Over one-third of states reported increases in long-term care enrollment and/or increases in utilization of long-term care as an upward pressure on total spending in FY 2025, FY 2026, or both.

• Over one-third of states also reported rising pharmacy costs as a factor driving changes in total spending, with some states noting cost pressure particularly due to emerging high-cost specialty drugs.

• About a quarter of states reported increasing behavioral health costs, including growing use of intensive or specialty behavioral health services or certified community behavioral health clinics (CCBHCs) expansions, as another factor contributing to increases in spending.

• About a quarter of states noted inflation or general increases in health care costs as an upward pressure on total spending. KFF’s annual employer health benefits survey found premiums for employer coverage increased in 2025 and are expected to increase further in 2026, with employers noting similar cost pressures such as new prescription drugs, prevalence of chronic disease, and higher utilization of services. 

• States also reported that these recent cost pressures were making it challenging for states to set managed care capitation rates in FY 2026.

State Medicaid spending growth was 12.2% in FY 2025 and is projected to slow to 8.5% in FY 2026, reaching total spending growth levels and marking the end of shifts caused by the pandemic-era enhanced FMAP (Figure 3). The state (or non-federal) share of Medicaid spending typically grows at a similar rate as total Medicaid spending growth unless there is a change in the FMAP. During the Great Recession, state Medicaid spending declined due to fiscal relief from a temporary FMAP increase provided in the American Recovery and Reinvestment Act (ARRA).

It did increase sharply when that fiscal relief ended. The pattern repeated during the COVID-19 pandemic, when state Medicaid spending declined in FY 2020 and FY 2021 then increased at a slower rate than total spending in FY 2022 due to the pandemic-era enhanced FMAP. State spending growth increased in FY 2023 and peaked in FY 2024 as the enhanced FMAP was phased down. Following the expiration of the enhanced FMAP, state Medicaid spending slowed in FY 2025 and is expected to continue to slow in FY 2026 to match total Medicaid spending growth.

Most of the state (or non-federal) share of Medicaid spending comes from state general funds. There is considerable variation in how much states rely on other non-federal share funding sources and how they account for those other funding sources. Without adjusting for accounting differences across states, states reported general funds accounted for a median of 70% of the non-federal share in FY 2026 enacted budgets. Provider taxes accounted for 18% and funds from local governments. Other sources accounted for 6% (this is relatively similar to 2018 data on non-federal share funding sources reported by the Government Accountability Office (GAO) and 2024 data on general fund spending from the National Association of State Budget Officers (NASBO)). There was substantial variation in the extent to which states relied on various funding sources, considerable variation in state accounting procedures, and also how states categorized specific non-federal share revenue sources.

For example, a few states noted provider taxes and/or local government funds went directly into the general fund, making it difficult to parse out the individual funding sources. The reconciliation law includes new limits on provider taxes. It prohibits all states from establishing new provider taxes, increasing existing taxes, and reducing existing provider taxes for states adopting the ACA expansion. As these changes restrict a key source of state Medicaid funding. How states finance the non-federal share will likely shift in the coming years.  

Almost two-thirds of responding states at the time of the survey thought the chance of a Medicaid budget shortfall in FY 2026 was “50-50”, “likely”, or “almost certain.” This is a slight increase from last year’s survey. It found over half of states were facing a Medicaid budget shortfall, highlighting the increasing uncertainty in state fiscal conditions. A few states have also begun implementing budget management strategies like spending cuts or cost containment measures. States are facing uncertainty in their longer-term fiscal outlook due to slowing revenues, increasing cost pressures, shifting economic conditions, and recent federal changes. More states may consider Medicaid cuts as they contend with current Medicaid budget gaps and look ahead to the implementation of the Medicaid changes in the reconciliation law.