Medicaid in 2026: $911 Billion in Cuts Are Just Starting to Phase In

A counterintuitive trend: enrollment down, spending up

Medicaid enrollment declined by 7.6% in fiscal year 2025, largely because states finished "unwinding" the pandemic-era continuous enrollment policy that had kept people automatically covered without renewal checks. Despite fewer people enrolled, total Medicaid spending still grew 8.6% in 2025 and is projected to grow another 7.9% in 2026, according to KFF's annual survey of state Medicaid directors.

States pointed to several drivers: higher provider payment rates for managed care plans (cited by more than half of states), rising long-term care enrollment as state populations age, and increasing pharmacy costs. Nearly two-thirds of state Medicaid directors said a budget shortfall in fiscal year 2026 was at least a "50-50" chance.

The bigger story: $911 billion in federal cuts are just beginning to phase in

The 2025 budget reconciliation law (H.R. 1, the One Big Beautiful Bill Act) cut federal Medicaid spending by an estimated $911 billion over ten years, described by healthcare industry coverage as the largest reduction to the program in its history. Some provisions took effect immediately, including new restrictions blocking Biden-era rules designed to simplify enrollment. Others phase in over the coming years: the enhanced federal match rate for states that expanded Medicaid under the ACA (which had covered 90% of expansion costs) sunsets January 1, 2026, and states are now permanently barred from creating new provider taxes or increasing existing ones, eliminating a major state financing tool right as budget pressure increases.

The single largest component is new work requirements, taking effect January 2027, that will require most Medicaid recipients to document 80 hours per month of employment, training, or volunteer activity to keep coverage. This provision alone accounts for an estimated $325.8 billion of the total ten-year federal reduction.

What research says will actually happen when work requirements take effect

Independent modeling from the Urban Institute, published via the Robert Wood Johnson Foundation, projects that between 4.9 and 10.1 million people could lose Medicaid coverage in 2028 as a direct result of new work requirements and more frequent (twice-yearly) eligibility checks, with the exact number depending heavily on how aggressively individual states work to help enrollees comply with the new documentation requirements.

A specific, striking finding from that research: between 19% and 37% of people who are already working while enrolled are still projected to lose coverage, primarily due to the practical difficulty of documenting work hours correctly and consistently, not because they fail to meet the underlying requirement. This mirrors a prior real-world case: when Arkansas implemented state-level Medicaid work requirements, 18,000 people lost coverage before a federal court halted the policy.

Where the debate actually splits

• Supporters of the changes generally argue Medicaid spending growth is fiscally unsustainable and that work requirements encourage self-sufficiency among able-bodied adults, with broad exemptions built in for people under 19, over 64, tribal members, parents of young children, and those considered medically frail
• Critics generally point to the Arkansas precedent and the Urban Institute modeling as evidence that work requirements primarily cause eligible, often already-working people to lose coverage due to paperwork and verification failures, not genuine non-compliance
• Both sides broadly acknowledge that state-level implementation choices will meaningfully affect the real-world outcome, meaning the actual impact will likely vary significantly by state rather than playing out uniformly nationwide
• A less-discussed area of bipartisan concern: rural hospitals and providers serving high shares of Medicaid patients face acute financial strain from the funding cuts, a temporary Rural Health Transformation Program was created to help offset this but is not expected to cover the full scale of the reductions