Comparing States’ Rural Health Fund Allotments to Medicaid Spending Cuts Can be Misleading

The 2025 reconciliation law made historic cuts to federal support for health care, including an estimated $911 billion in cuts to federal Medicaid spending, as well as additional reductions in the Affordable Care Act (ACA) marketplaces. As the proposed law moved through Congress, lawmakers expressed concern about the potential effects of those cuts on rural areas. KFF estimated that the reductions to Medicaid alone could be $137 billion over ten years in rural areas. To address those concerns, Congress added $50 billion in funding over a five-year period for a Rural Health Transformation Program (referred to here as the “rural health fund”) to the 2025 reconciliation law. At the aggregate level, $137 billion is far larger than $50 billion, but trying to combine the effects of the cuts and the rural health funding, especially for specific states in specific years, could be misleading.

The rural health fund provides states with $10 billion per year over a five-year period between fiscal years 2026 and 2030. In contrast, the cuts to Medicaid are implemented on a gradual basis, with most changes not taking effect until 2027, and the effects growing over time, including after the rural health fund is exhausted. There are numerous factors that affect how the rural health fund dollars are allocated across states and there are also numerous factors that affect how cuts to federal Medicaid spending will impact states and rural areas within states. The combination of those factors, with the differing timing of the rural health funds and Medicaid policy changes, make it misleading to compare the rural health fund allocations that have been announced for the first year with the estimated Medicaid cuts, by state.

Multiplying the first year’s rural health fund allocations by five for the purposes of comparing them to ten-year estimated Medicaid cuts could be misleading. It is unclear how much variation there will be in future allocations of the fund across states; however, some experts predict that future rural health fund allotments could be “vastly different” from first-year allotments. Further, if states do not spend their entire allotment by the end of the next fiscal year, the Centers for Medicare & Medicaid Services may redistribute allotted but unspent funds to other states.

Creating annualized state-specific estimates of expected cuts to federal Medicaid spending by state or in rural areas would also be highly uncertain. Although the Congressional Budget Office provides annual estimates of the estimated reduction in federal Medicaid spending, there would be significant uncertainty involved in trying to allocate those annual reductions across states or to urban versus rural areas. (Allocating ten-year reductions, as KFF has done, still involves a lot of uncertainty, but over a ten-year period, small annual errors in either direction may average out.) It is also difficult to create meaningful comparisons on an annual basis. For example, none of the most significant cuts to federal Medicaid take effect in 2026, which is the year of the first rural health fund allocation.

Dividing the ten-year estimated federal Medicaid cuts by ten also provides misleading information because many of the cuts will not be in effect in initial years, and the effects of the cuts will continue to grow in the years beyond the ten-year budget window. As a result, some states that receive relatively high initial rural health fund allocations and have somewhat lower estimated reductions in federal Medicaid spending could appear to receive more from the rural health fund than they will lose in Medicaid cuts. However, each year, the effects of the Medicaid cuts will continue to grow, whereas the rural health funding is only appropriated through 2030. Even within the ten-year budget window, there is clearly a large gap on an aggregate basis between the $50 billion in rural health funds and the historic cuts to federal Medicaid in rural areas, estimated at $137 billion.

Comparing states’ first-year rural health fund allocations to their estimated cuts in federal Medicaid spending does not tell the whole story. The comparison also fails to account for other cuts to federal health care and coverage losses due to the expiration of the ACA marketplaces’ enhanced premium tax credits, which tend to be larger in states that have smaller Medicaid cuts. It is highly unlikely that any state will receive more money from the rural health fund than it will lose from the historic cuts to federal funding for health care in the 2025 reconciliation law and from other federal policy changes. Also, since only 15% of rural health funds can be used for direct patient care, that funding cannot compensate for reduced Medicaid payments to rural health providers or increases in the number of uninsured people.