States Grapple with Rising Medicaid Costs Amidst Flat Enrollment
Washington, D.C., Thursday, 13 November 2025.
As states face stagnant Medicaid enrollment for FY 2026, spending pressures mount due to increased healthcare needs, provider rates, and federal budget cuts, risking fiscal shortfalls.
Medicaid Spending Trends and Challenges
In fiscal year 2025, Medicaid enrollment saw a decline of 7.6%, attributed primarily to the unwinding of the continuous enrollment provision that had been in place during the COVID-19 pandemic. Despite this decrease in enrollment, total Medicaid spending grew by 8.6% and is projected to increase by an additional 7.9% in FY 2026. This rise in spending is driven by several factors, including increases in provider rates, greater healthcare needs among enrollees, and rising costs associated with long-term care, pharmacy, and behavioral health services [1][2].
State Budget Pressures and Fiscal Outlook
The fiscal outlook for states is increasingly strained as they prepare for FY 2026. State Medicaid spending growth was notably high at 12.2% in FY 2025, and it is projected to slow slightly to 8.5% in FY 2026. The cessation of enhanced federal funding that was available during the pandemic has added pressure on state budgets. Nearly two-thirds of states surveyed expressed concerns about potential Medicaid budget shortfalls in FY 2026, describing the probability as ‘50-50,’ ‘likely,’ or ‘almost certain’ [1][3].
Impact of Federal Policy Changes
Federal policy changes are set to further impact state Medicaid programs. The budget reconciliation law enacted earlier in 2025 includes $911 billion in federal Medicaid spending cuts over the next decade. These cuts, along with prohibitions on new provider taxes or increases in existing taxes, are expected to exacerbate state budget pressures. Additionally, states are preparing for the implementation of Medicaid work requirements and other policy shifts under the One Big Beautiful Bill Act, which will start affecting budgets in FY 2027 but are already influencing planning and strategy [1][4].
Strategies for Managing Medicaid Costs
To manage the rising costs, states are exploring various strategies, such as controlling prescription drug prices and adjusting reimbursement rates. However, the number of states increasing reimbursement rates is declining, with many opting to implement rate restrictions instead. The interest in expanding Medicaid coverage for obesity treatments, such as GLP-1 drugs, is waning, with some states considering further restrictions on such coverage. These measures highlight the ongoing challenges states face in balancing Medicaid cost containment with the need to meet the healthcare needs of their populations [1][5].