As of January 1, 2026, nine governors had released proposed budgets for state fiscal year (SFY) 2027. With the phase down of federal funding and substantial policy changes approved in the 2025 budget reconciliation act (P.L. 119-21, OBBBA), these proposals offer insights into how governors plan to manage mounting fiscal pressures, navigate new federal mandates, and position their programs for long-term sustainability.
Today, Health Management Associates Information Services (HMAIS) published its first preliminary review of proposed SFY 2027 budget proposals. The initial installment includes budgets from Alaska, Colorado, Florida, Mississippi, New Mexico, South Dakota, Utah, Virginia, and Wyoming, with the latter two proposals covering the fiscal 2026–28 biennium.
HMAIS will release periodic updates as additional governors publish their budget proposals—the same rolling approach we used in 2025 (here and here). Because 15 states enacted 2025–27 biennial budgets last year, HMAIS also might review substantial mid-biennium health-related adjustments or supplemental funding.
The remainder of this article provides a snapshot of several notable themes and emerging trends detailed in the full report.
Implementation of New Federal Requirements
State leaders are preparing budgets for SFY 2027 at a time of heightened fiscal stress and structural uncertainty. Entering 2026, governors are facing reductions in federal funding, particularly in Medicaid and Supplemental Nutrition Assistance Program (SNAP) funding. In addition, they are preparing for new federal requirements that will begin to take effect later this year, including narrower flexibilities for financing and Medicaid community engagement policies and more frequent eligibility redeterminations.
Against this backdrop, governors are using FY 2027 budget proposals to comply with OBBBA’s mandates and to stabilize their safety net programs and realign state operations around stricter fiscal realities.
Medicaid Work Requirements. Virginia’s proposed budget includes funding to implement federal Medicaid community engagement requirements, including a recommendation to add nine new authorized positions in SFY 2027 and 12 more in fiscal year 2028 to meet workload demands. In addition, South Dakota’s governor proposed amending the state’s 2026 budget to secure funding to implement these requirements.
Eligibility and Redetermination. Several governors are proposing investments to support heightened eligibility checks across Medicaid, SNAP, and Temporary Assistance for Needy Families (TANF). For example, Colorado Gov. Jared Polis’s budget proposes $19.1 million to improve the state’s eligibility system for programs such as Medicaid, SNAP, and TANF. Utah’s proposed budget includes a recommended allocation of nearly $16.5 million to the Department of Workforce Services for “H.R. 1 Medicaid Eligibility Administration,” and nearly $10 million for the “H.R. 1 SNAP Administrative Services.”
SNAP Changes. States are backfilling lost federal funding and investing in error reduction and system modernization. New Mexico Gov. Michelle Lujan Grisham’s proposed budget, for example, includes $37 million to replace the decrease in federal funding for SNAP administration ($4 million of which will support 150 new full-time positions), as well as $8.9 million for systems improvements to reduce payment errors in SNAP. South Dakota Gov. Larry Rhoden’s proposed budget includes $5.5 million to offset a reduction in SNAP federal funding.
Strategic Cost Containment
Considering OBBBA implementation and the effects that it will have on their budgets, our first review of governors’ budget proposals signals that states are taking an aggressive posture toward limiting expenditure growth in 2026 and 2027. Initial proposals include targeted reductions, tighter utilization management, and restrictions on benefits.
Since the 2025 legislative session, Colorado has taken multiple steps to prepare for declining federal revenue. For example, Governor Polis’s proposed budget accounts for multiple actions approved through an amended executive order that would reduce spending to brace for OBBBA’s impacts. Examples include:
- Reducing provider rates to 85 percent of the Medicare reimbursement rate
- Establishing limits on Community First Choice services
- Adjusting the home health nursing and therapy services payment methodology
- Introducing cost controls for Medicaid benefit categories that have shown disproportionate growth
- Implementing a $3,000 annual cap on adult Medicaid dental benefits and a $750 annual cap on dental benefits for individuals in the Cover All Coloradans program
- Changing the Cover All Coloradans behavioral health program from managed care to fee for service
- Reviewing provider fees in anticipation of possible State Directed Payment approval from the Centers for Medicare & Medicaid Services (CMS)
Former Virginia Gov. Glenn Youngkin’s budget—now inherited by Abilgail Spanberger following her inauguration January 17, 2026—includes multiple cost-containment proposals, such as:
- Anticipated adjustments to capitation rates after a review of Medicaid managed care organizations
- A $2,000 annual limit on adult dental services Medicaid coverage
- Elimination of both automatic rate increases for psychiatric residential treatment facilities and qualifying addiction and recovery treatment services providers and automatic biennial inflation increases for medical assistance providers
- Restrictions on emergency maternity services to Medicaid enrollees who are ineligible for Medicaid because of their citizenship status
- Standardized hourly limits across home and community-based services waivers
- Actions related to “ensuring appropriate utilization” of services, such as applied behavioral analysis and crisis services
States are expected to include additional cost-containment tools throughout 2026 and beyond as OBBBA’s fiscal effects become clearer over the coming months and years.
What to Watch
The budget proposals indicate the resources that executive agencies need and preview governors’ policy agendas for the year ahead. Stakeholders should track program reductions and rate changes, eligibility system investments, and shifts in care models.
In addition, some of the announced budget proposals consider federal awards to states under the Rural Health Transformation Program (RHTP). For example, the Alaska Department of Health budget request addresses the state’s RHTP implementation plans, and Wyoming’s budget proposal outlines RHTP priorities. Many states are preparing RFP processes to operationalize their RHTP strategies and make progress on the goals of their initiatives.
Connect with Us
As federal funding uncertainties continue, states and other stakeholders will need to adapt their delivery systems, administrative structures, and financing models throughout OBBBA’s multiyear rollout. HMA offers expertise, analytics, and strategic advisory services needed to navigate this evolving landscape. For details contact Andrea Maresca and Kathleen Nolan.
The full state of the states and governor budget report is available to HMAIS subscribers. In addition, HMAIS maintains a Rural Health Transformation Program (RHTP) Tracker that incorporates details of each initiative and the first year award.
