Insights

As of October 22, 2025, all but two states—North Carolina and Pennsylvania—had enacted budgets covering fiscal year (FY) 2026, even as the federal landscape has shifted dramatically throughout the year. In particular, passage of the 2025 Budget Reconciliation Act (OBBBA) and the ongoing federal budget impasse are creating significant downstream pressures on state budgets and the programs they support.

A new report from Health Management Associates Information Services (HMAIS) examines enacted state budgets. Of the 48 enacted budgets, 16 cover the 2025‒27 biennium, and three states—Kentucky, Virginia, and Wyoming—approved budgets in 2024 for the FY 2024‒26 biennium.

The HMAIS report highlights state Medicaid funding priorities, initiatives states are pursuing to adapt to new federal Medicaid and other healthcare policy changes, and reforms to strengthen and ensure the sustainability of programs, particularly in states that expect a reduction in the federal share of their Medicaid program.

OBBBA’s Impact on State Budgets

Congress has yet to reach agreement on the federal fiscal year 2026 spending bills, and there are emerging signals of the challenges this impasse will create for states and federally funded public services. For example, this week the US Department of Agriculture’s Food and Nutrition Service notified every state that Supplemental Nutrition Assistance Program (SNAP) benefits will be withheld because of the funding lapse. This unprecedented situation puts immediate pressure on states and community organizations, which may need to intervene to fill gaps in essential services and benefits.

In addition to the funding impasse, OBBBA introduces major changes, particularly for the Medicaid program, including:

• Medicaid Community Engagement/Work Requirements: All states must implement these requirements for certain Medicaid members by December 31, 2026, requiring rapid infrastructure and system changes.
• Eligibility and Redetermination: States must conduct Medicaid eligibility redeterminations every six months for expansion populations, with new verification requirements and narrowed definitions for “qualified” immigrants. States will need to pressure test their systems for increased volume and may need additional capacity to prevent and minimize backlogs.
• Cost Sharing: By 2028, states must apply a cost sharing requirement for Medicaid expansion adults with incomes above 100 percent of the federal poverty level, with some service exemptions. In 2026, states will need to begin efforts to ensure their systems can track this requirement.
• Provider Taxes and Payments: Freezes on provider tax programs, phased reductions in allowable tax rates, and caps on state-directed payments will reduce flexibility and funding.

In addition, the Rural Health Transformation Program and new federal drug pricing initiatives present both opportunities, such as new funding streams, and risks, including administrative complexity and compliance expectations.

Given the scope of federal changes, states face urgent decisions. They must quickly assess and act on these opportunities, often without dedicated budget allocations.

These federal changes, combined with the budget impasse, are forcing many states to revisit approved budgets, adapt policies, and plan for new initiatives and revise programs that were already in effect—often within short timelines and with limited resources.

State-Level Challenges and Adjustments

Notably, most states enacted their budgets before the passage of OBBBA. As a result, these budgets do not fully account for the new federal requirements, funding changes, and administrative expectations that OBBBA introduces. While many OBBBA provisions will not take effect for at least a year, states must now accelerate planning and make rapid adjustments to comply with new mandates. For example, states are expected to expediently and efficiently implement systems and policies to ensure compliance with OBBBA’s statutory requirements, particularly for the Medicaid program.

HMAIS has examined state budgets that will guide states through the next fiscal year, while also watching closely how they respond to new demands during the first full state legislative cycle under OBBBA.

The HMAIS report describes a mix of budget conditions and actions. Many states continue to invest in ongoing healthcare priorities as well as new initiatives, including targeted rate increases for behavioral health, dental, and maternal health services. In addition, states are addressing inefficiencies in program administration broadly. In healthcare specifically, they are revisiting approaches to financing healthcare service delivery to drive more value from organizations, such as implementing alternative payment models in Medicaid programs, as well as considering tools to improve patient outcomes and consumer experiences.

States are using a variety of tools in their Medicaid budgets to manage these pressures, as well as implementing more general cost-reduction and efficiency measures, including:

• Special Legislative Sessions. Some state legislatures, including Colorado’s and New Mexico’s, have reconvened to address emerging gaps.
• Hiring Freezes. Several states, including Alaska, Colorado, Maryland, Massachusetts, New Hampshire, and Washington, have announced hiring freezes, which could complicate OBBBA preparation efforts.
• Pausing or Ending Planned Programs and Benefit Coverage. Oregon announced that it will end its juvenile justice Medicaid reentry program to conserve funding. North Carolina will not cover new weight-loss drugs because of its budget shortfall. The HMAIS report indicates that officials in other states also have signaled that they are planning for similar updates to their programs if required to address budget shortfalls.
• Medicaid Provider Rate Updates. Colorado rolled back a planned Medicaid provider rate increase, while Idaho is decreasing all Medicaid provider rates by 4 percent.
• Coalitions and Advisory Groups. Other states, including Rhode Island, are convening groups charged with analyzing how the federal cuts may affect their state programs and advising the legislature on feasible responses to the changed landscape.

What to Watch

Healthcare organizations are essential partners as states navigate the current federal budget uncertainty and implement OBBBA requirements. Given the challenges cited above, healthcare organizations should be prepared to collaborate and position to anticipate future needs as the exact components of the various policies are in development.

Recommendations for states and healthcare organizations include:

• Do not delay planning. While federal policymakers are developing guidance and regulations, the OBBBA language provides significant information on what states need to do and initial expectations for reporting. States and their partners should be developing options and contingency plans to make expeditious decisions once details are available.
• Monitor and anticipate state actions and develop responses that are ready to go if needed. For example, states may need to make rate reductions, limit enrollment for optional programs, and communicate with beneficiaries about new requirements. Partners should plan to adapt to these changes and assist providers and beneficiaries as needed.
• Prepare for changes in workload. States will need to design, develop, implement, and report on new Medicaid eligibility and enrollment requirements. They will need a workforce that is trained and can read into the policies, systems, and related needs. States will expect their partners to collaborate on efficient approaches to meet workload demands.
• Engage with state officials. States need thoughtful partners to manage and implement the forthcoming changes that will affect Medicaid partners and beneficiaries. Healthcare organizations should bring experience and data-informed ideas and input to facilitate state approaches and decision-making.

Connect with Us
With federal funding reductions and ongoing uncertainty at the national level, states need to pay heightened attention to the frontline of essential healthcare and human services, implementation of OBBBA, and means of addressing gaps left by federal delays. As we approach the 2026 election year—with many governors up for reelection—state budgets will serve as a blueprint for leadership and policy priorities in the next cycle.

HMA is on the frontlines, working with states and healthcare partners to navigate these complexities. HMA has expertise, tools, and insights—from budget contingency planning supports to analysis of public coverage program enrollment and market insights.

The full report is available to HMAIS subscribers. For questions contact our experts below.