Midterm Election Update: Medicaid Changes

Major federal changes to Medicaid eligibility and financing from the 2025 reconciliation law are coming, including new work requirements beginning by next year that will affect millions of Medicaid enrollees. At the time the law was enacted, the Congressional Budget Office (CBO) estimated the new law’s Medicaid changes would reduce federal spending on Medicaid by $911 billion between 2025 and 2034 and increase the number of people without health insurance by 7.5 million. With large shares of the public reporting some level of personal connection to Medicaid and a majority expressing a favorable view of the program, 4 in 10 voters say it is “extremely important” for candidates to discuss the future of Medicaid heading into the 2026 midterms.

Overview

The reconciliation law made major changes to Medicaid eligibility that will reduce the number of people covered. Starting January 1, 2027 or earlier, 44 states (including the District of Columbia) are required to implement new work requirements—the most substantial eligibility change in the law—for adults in the Affordable Care Act (ACA) expansion group or enrolled through certain Medicaid demonstration waivers. CBO estimated when the law was enacted that work requirements would result in over 5 million more uninsured by 2034. Data show that most of the people who will be subject to work requirements are already working or face barriers that could qualify them for an exemption, but many could lose coverage due to barriers in reporting or documenting their work or exemption status.

Other Medicaid eligibility changes in the law include restricting eligibility for certain lawfully present immigrants, requiring more frequent eligibility redeterminations for ACA expansion adults, and pausing provisions of two Biden-era eligibility and enrollment rules that sought to streamline complex administrative processes.

The law also created new restrictions on how states finance Medicaid, including on states’ abilities to generate revenue through Medicaid provider taxes and limits on state directed payments (SDPs) for hospital and other health care services. Prior to the 2025 reconciliation law, states were allowed to direct managed care plans (via state directed payments) to pay hospitals and other providers at commercial rates, but the new law lowers them in most states to Medicare payment rates.

Recognizing the risks of Medicaid changes for rural areas, policy makers added a $50 billion rural health transformation program to the reconciliation law. However, these funds are not expected to offset an estimated $137 billion in federal Medicaid spending reductions in rural areas.

Key Developments

The forthcoming Medicaid changes from the 2025 reconciliation law are expected to place new strain on state budgets while also increasing coverage loss and decreasing provider reimbursement rates. The law will limit states’ future use of Medicaid provider taxes and may reduce revenues from existing taxes on hospitals, managed care organizations, and other providers in nearly all states that have adopted the ACA Medicaid expansion. The current administration has also taken an array of actions to address fraud and abuse in Medicaid, deferring payments in Minnesota and California, increasing scrutiny of each state’s Medicaid Fraud Control Unit (MFCU), and requiring all states to develop a plan to revalidate providers, with a focus on increasing oversight of high-risk providers. While these initiatives may help to address fraud, some actions could also create financing uncertainty for states and administrative challenges for states and providers. They could also reduce provider participation among those not engaged in fraud, limiting access for enrollees.

The Centers for Medicare & Medicaid Services (CMS) has also issued proposed and final rules for implementing the budget reconciliation law’s Medicaid changes, some of which have created additional uncertainty and implementation challenges for states. For example, the rule implementing work requirements defined “medical frailty” more narrowly than states expected, requiring that any health condition impair an individual’s ability to meet the community engagement requirements, including work or volunteer activities. This restrictive approach to medical frailty creates operational challenges for states and may increase the administrative burden for enrollees and providers. Twenty-four states (including DC) filed a lawsuit challenging parts of the rule, including the medical frailty exemption.

Two proposed rules that affect Medicaid financing have also created new uncertainty and implementation challenges for states. A proposed rule to implement new limits on provider taxes would expand them to include health insurer taxes, among other changes. Similarly, the proposed rule to implement new limits on state directed payments (SDPs) included several unexpected provisions that, if finalized, would extend the law’s reach beyond the 41 states with current SDPs and increase the financial impact on the 37 states with SDPs for hospital services that could be reduced by the law.

Looking Ahead

As of September 2026, state fiscal conditions are tightening due to slowing revenue growth, growing spending pressures, and implementation of the reconciliation law. Absent additional revenues, these budgetary pressures may lead states to reduce Medicaid spending by lowering provider rates, restricting benefits, or limiting eligibility. Such changes could limit access for enrollees and have implications for providers. The midterm elections will determine the make-up of Congress as well as 36 state governorships, all of which will have important implications for Medicaid budgets and how certain changes are implemented.

The Public’s Views

Health care costs remain the public’s top economic worry and a top voting issue, as changes coming to Medicaid could increase the number of people without coverage and make it harder for them to afford health care. According to KFF polling from June 2026, 4 in 10 voters (38%) say it is “extremely important” for midterm candidates to discuss the future of Medicaid, ranking behind health care costs (51%). A January poll found the Democratic Party has a large advantage over the Republican Party in who voters trust to do a better job determining the future of Medicaid (43% vs. 25%), though a notable 24% trust neither party. More broadly, KFF polling has found that most adults (69%) have some level of connection to the Medicaid program and that a large majority (83%) view the program favorably.