Medicaid: What to Watch in 2025

At the start of 2025, many issues are at play that could affect Medicaid coverage, financing, and access to care. Medicaid is the primary program providing comprehensive health and long-term care to one in five low-income Americans. While Medicaid was not discussed much on the campaign trail, there are expectations that big changes will likely be proposed through executive actions by the Trump administration and as part of a tax and spending debate in Congress. Even without Congressional action, the Trump administration can make significant programmatic changes through administrative action (including state demonstration waivers, regulations, and other guidance). Other areas to watch with Medicaid implications include state budgets and long-term care workforce challenges.

Federal Funding Cuts and Financing Reforms

The most significant changes to Medicaid in 2025 could include federal funding cuts and financing reforms. According to documents reported on by Politico, House Republicans are considering $2.3 trillion in Medicaid cuts from policy changes that include: imposing a per capita cap on federal Medicaid spending, reducing the federal government’s share of costs for the Affordable Care Act (ACA) expansion group, imposing Medicaid work requirements, reducing the minimum federal matching rate for Medicaid expenditures, changing the match rate for the District of Columbia, and repealing the incentive for states to newly adopt the Medicaid expansion that was passed in the American Rescue Plan Act. These policy changes would fundamentally alter how Medicaid financing works and federal spending reductions of this magnitude would put states at significant financial risk, likely forcing them to cut the number of people covered, cover fewer benefits, and cut payment rates for physicians, hospitals, and nursing homes. If the House and Senate pass a budget resolution with a $2.3 trillion target for Medicaid, Congress will need to come up with detailed legislative policy proposals to hit that target through the budget reconciliation process.

Under current law states are guaranteed federal matching dollars without a cap for qualified services provided to eligible enrollees. The match rate (the share that the federal government pays, known as the federal medical assistance percentage or “FMAP”) varies across states based on per capita income. States receive a higher match rate for some services and populations, most notably, the 90% enhanced match for the ACA expansion population, and sometimes, Congress adjusts the match rate upwards during economic downturns.

Work Requirements

With a second Trump administration and Republican control of Congress, work requirements are likely to be back on the agenda—through federal legislation or state Medicaid waivers. During the first Trump administration, 13 states received 1115 waiver approval to condition Medicaid coverage on meeting work and reporting requirements. Only Arkansas implemented work and reporting requirements with consequences for noncompliance; however, the waiver ended in 2019 when a federal court found the work requirement approval unlawful. 18,000 people lost coverage in Arkansas, primarily due to failure to regularly report the fact that they were working or document eligibility for an exemption. These approvals were either rescinded by the Biden administration or withdrawn by states, and Georgia is the only state with a work requirement waiver in place (following litigation over the Biden Administration’s attempt to stop it). Several states have continued to pursue work requirement waivers despite data showing that most Medicaid adults are working or face barriers to work. Among adults with Medicaid who are under age 65 and do not have Medicare or Supplemental Security Income (SSI), 91% are working, or are not working due to an illness, caregiving responsibilities, or school attendance. A Congressional Budget Office analysis of a recent work requirement proposal shows that the policy would reduce federal spending due to reductions in enrollment and increase the number of people without health insurance but would not increase employment.

Other Waivers and Administrative Changes

Beyond work requirements, the previous Trump administration’s Section 1115 waiver policy emphasized eligibility restrictions and capped financing. Eligibility restrictions included permitting states to charge premiums and lock out enrollees who are disenrolled for unpaid premiums. Waiver priorities shift across presidential administrations and the new Trump administration’s waiver priorities will likely differ significantly from those of the Biden administration; however, it is unclear how the Trump administration will treat certain waivers promoted and approved by the Biden administration, such as those focused on addressing health-related social needs, multi-year continuous eligibility primarily for children, and leveraging Medicaid to help individuals leaving incarceration transition to the community. The Trump administration could choose not to approve waivers that remain pending, rescind existing waiver guidance, and withdraw approved waivers, although some of these waivers, particularly those that are using Medicaid to assist with reentry from incarceration, have been pursued by both Republican and Democratic governors.

Trump administration could delay implementation of new regulations or issue new rules or guidance related to access, managed care, and enrollment processes. The Biden administration finalized a number of major Medicaid regulations designed to promote quality of care and advance access to care for Medicaid enrollees as well as to streamline eligibility and enrollment processes in Medicaid and the Children’s Health Insurance Program (CHIP). These rules are complex and are set to be implemented over several years. Congress may consider legislation to overturn these rules, without legislation, the Trump administration could delay implementation of certain provisions or could issue new regulations that would undo these final rules. (Rules related to long-term care are discussed below). Finally, the Trump administration could issue guidance and implement policy to make it more difficult for people to obtain and maintain coverage, which would reduce enrollment and spending. Previously, the Trump administration sought to reduce Medicaid enrollment by encouraging states to conduct eligibility verification processes in between annual renewal periods.

State Budget Constraints and Priorities

State fiscal conditions remained stable at the beginning of state FY 2025, but the longer term fiscal outlook is less certain. Heading into FY 2025, revenue collections had begun to stabilize and states were returning to more “normal” state budget environments, following multiple years of high revenue and spending growth as well as pandemic-related volatility and unpredictability. States appeared to be in a stable fiscal position, though there is variation across states. According to FY 2025 enacted budgets, most states anticipated revenue growth would continue to flatten and state general fund spending growth would slow. While states have made a number of Medicaid investments in recent years, including to expand access to behavioral health services, improve Medicaid reimbursement rates (particularly for long-term care), and to use Medicaid to help address social determinants of health, and reduce health disparities, expectations of reduced revenue collections beyond 2025 may dampen enthusiasm for further investments in Medicaid and could even prompt spending reductions. Reduced state revenues may be tied to implementation of state tax cuts, the expiration of pandemic-era federal funding, and other macroeconomic uncertainties Any reductions in federal Medicaid spending would put further pressure on state budgets and lead to program cuts.

The Long-Term Care Workforce

It is unknown whether new administrative actions will undermine efforts to bolster the long-term care workforce. There are also longstanding challenges finding enough workers to provide long-term care for people who need such services, and the COVID-19 pandemic exacerbated those issues considerably. As of February 2024, employment levels in most long-term care settings remained below pre-pandemic levels. The Biden Administration finalized two rules intended to address those challenges and increase access to services. The Administration finalized a rule that would create new staffing requirements in nursing facilities, require state Medicaid agencies to report on the percent of Medicaid payments for institutional long-term care that are spent on compensation for direct care workers and support staff, and provide funding for individuals to enter careers in nursing facilities. The rule will increase the number of staff in many nursing facilities, but also increase Medicaid spending. The Administration also finalized a rule aimed at ensuring access to Medicaid services, which included several provisions aimed specifically at home care, which is long-term care provided in home and community environments. The “access” rule requires states to spend least 80% of total payments for certain home care services on compensation for direct care workers. It’s unknown whether the Trump Administration will implement those rules or revise them, and it is possible Congress will overturn them.

Cuts to Medicaid and changes in immigration policy may exacerbate workforce challenges, reduce payment rates for long-term care workers, and erode supports to family caregivers. In response to workforce challenges, many states have adopted payment rate increases for nursing facilities and home care providers with the goal of boosting staffing levels. All states have also created supports for family caregivers, recognizing that caregiving can be very demanding, particularly when there are shortages of paid caregivers. Those initiatives may be impossible to sustain if federal support for Medicaid is reduced by one third. Beyond reducing Medicaid resources, President Trump’s planned crackdown on immigration may further strain the long-term care workforce, which relies heavily on foreign-born workers.

What to Watch

The issues identified in this policy watch could have major implications for Medicaid coverage, financing, and access to care. As these issues play out, the following key questions will be at the forefront:

• Federal funding cuts and financing reforms: Will Congress enact major cuts to federal Medicaid funding and changes to how the Medicaid program is financed? What will federal cuts in Medicaid mean for people enrolled in the program, states, and providers? How will the impact of any federal policy and funding changes vary across states?
• Work requirements: Will Congress pass legislation to allow or require work and reporting requirements in Medicaid? If Congress does not include work requirements in legislation, which states will pursue work and reporting requirement waivers under a second Trump administration? How will such policies affect coverage?
• Other waivers and administrative changes: Beyond work requirements, what waivers will be encouraged and approved under the second Trump administration? Will the administration withdraw any approved waivers or rescind Biden administration waiver guidance? What will happen with major access and eligibility / enrollment regulations finalized under the Biden administration? How will other administrative guidance affect coverage?
• State budget constraints and priorities: What are current projections for state revenue growth? How will changes in state fiscal conditions affect states’ ability to continue to pursue and maintain recent investments in Medicaid for behavioral health, long-term care, reimbursement rates, social determinants of health, and efforts to reduce disparities? How will federal Medicaid policy changes affect state budgets?
• The long-term care workforce: Will Congress or the new Trump administration overturn final rules that would bolster nursing facility staffing, wages for long-term care workers, and payment transparency? How will broader changes in Medicaid affect states’ ability to retain higher payment rates for long-term care workers and supports for family caregivers? How will changes in immigration policies affect the direct care workforce?