State Medicaid Budgets to Decline by Hundreds of Billions over the Next Decade; Impacts Vary Widely Across States
For Release
Thursday
February 26, 2026
State Medicaid budgets are projected to experience reductions of $664 billion between 2025 and 2034 due to provisions in the One Big Beautiful Bill Act (OBBBA), according to a new study by nonprofit, non-partisan RAND.
The analysis, which provides state-specific estimates of budget impact and enrollment changes associated with key Medicaid provisions, also finds that state general funds will decline by $87 billion, while federal savings will total $714 billion over the same time. These findings are broadly consistent with Congressional Budget Office estimates of the federal budgetary impacts of these provisions.
“The effects of the law on Medicaid budgets and enrollment are substantial, but will vary widely across states, and in some cases may be at least partially offset by savings to the state general fund,” said Preethi Rao, a senior economist at RAND and lead author of the study. “Some states will see significant reductions in Medicaid funding and enrollment, while others may experience relatively limited changes depending on how their programs are structured and financed.”
While many states are projected to experience substantial reductions in Medicaid budgets—20 are expected to see reductions of 5% or more—the report finds that Medicaid expansion states with extensive use of state-directed payments (SDPs) and provider taxes will face the largest budget impacts. For example, Arizona, Iowa and Nevada could see declines of more than 15%, while California and New York are projected to experience the greatest reductions in dollar terms, about $112 billion and $63 billion, respectively.
By contrast, non-expansion states or those that do not rely heavily on SDPs or provider taxes, such as Florida, North Dakota and Nebraska, are expected to see minimal budgetary impacts. A few less populous states, including Wyoming and South Dakota, may even see modest increases in Medicaid budgets due to the bill's Rural Health Transformation Program.
Many of the provisions that will reduce Medicaid spending are also expected to generate savings for state general funds by lowering enrollment or utilization, though the effects will vary substantially by state. States such as Tennessee, Mississippi, Oklahoma and Kentucky are projected to see general fund savings of more than 2% relative to their Medicaid budgets.
By contrast, other provisions—such as changes to provider taxes and funding for emergency Medicaid for certain immigrants—primarily reduce federal funding to states without directly reducing program size. As a result, states like California could face general fund reductions of more than 6% as federal funding declines without offsetting savings, potentially requiring them to draw more heavily on general funds or modify program parameters to maintain coverage levels, according to the report.
The provisions related to work requirements and provider taxes are poised to have the greatest impact on total state budgets (sum of Medicaid and general fund effects). Work requirements are projected to reduce state budgets by nearly $350 billion nationwide through 2034, while provider taxes could lead to reductions of close to $280 billion over the same period. Work requirements also drive the largest share of the reductions in enrollment, according to the report.
The researchers note that the overall impact of the OBBBA on Medicaid will depend on how states respond to these fiscal changes. Some may choose to preserve coverage levels, while others may reduce enrollment or benefits to align with lower federal contributions.
“As states plan for the upcoming changes in funding and eligibility, understanding these state-specific differences will be important,” Rao said. “The variation we found suggests that policymakers may need tailored approaches to manage fiscal pressures and consider changes in insurance coverage and access to care.”
Support for the project was provided by Arnold Ventures.
Other authors of the study, State-Level Impacts of Key Medicaid Provisions in the One Big Beautiful Bill Act, are Lawrence Baker, Federico Girosi, Elaine Li, Rose Kerber and Christine Eibner.
RAND Health promotes healthier societies by improving health care systems in the United States and other countries.
