Despite the Affordable Care Act (ACA) requiring contraceptives to be covered without cost-sharing, many privately insured long-acting reversible contraceptives (LARC) users still face out-of-pocket expenses. In this analysis, published in the journal Contraception, KFF’s Linda Li, Brittni Frederiksen, and Alina Salganicoff look at intrauterine device (IUD) and contraceptive implant insertion-related costs among privately insured individuals to better understand why patients are experiencing unexpected expenses for what should be fully covered contraceptive services under the ACA.

Using the 2023 Merative MarketScan Commercial Claims and Encounter Database, a national sample of healthcare claims for people enrolled in employer sponsored insurance plans, the researchers estimated out-of-pocket costs for 98,916 IUD and 30,259 implant insertion encounters among females ages 15-49.

Authored by KFF’s Alina Salganicoff, Ivette Gomez, and Usha Ranji, this article for The Milbank Quarterly examines how state policies create varying levels of access to reproductive healthcare services (including contraceptive care, abortion, and maternity care), affecting coverage, availability, and costs.

During the 2025 and 2026 legislative sessions, states enacted or proposed a range of legislation that will impact immigrants’ access to state-funded health coverage and other services as well as actions related to how states may enhance or limit federal enforcement activities. Several states have rolled back or plan to scale back state-funded health coverage programs for immigrants to reduce budget deficits amid economic uncertainties. Some states have also enacted laws to support the Trump administration’s increased interior immigration enforcement activities, including sharing data from Medicaid or other state agencies with federal enforcement officials. In contrast, some states are expanding access to health coverage or other benefits for immigrants, including lawfully present immigrants losing eligibility for federally funded health coverage under the 2025 reconciliation law, and/or enhancing protections for immigrants. While some states are seeking to enhance protections for immigrants, the Trump administration signed an executive order directing federal agencies to suspend federal grants and contracts with states or local jurisdictions identified as obstructing enforcement of federal immigration laws, or “sanctuary jurisdictions.” So far federal challenges to state and local sanctuary jurisdictions have largely failed. However, the federal stance may limit state or local actions.

This brief summarizes recent and proposed actions by states related to access to state-funded health coverage and other services for immigrants and immigration enforcement activity during the 2025 and 2026 legislative sessions. It reflects activity as of June 2026 based on KFF analysis of publicly available materials and the National Conference of State Legislatures’ Immigration Legislation Database. Several state legislatures were still in session as of June 2026, so additional actions may be taken during the 2026 session that are not reflected here. Additionally, states may have implemented similar policies prior to their 2025 legislative session that are not included.

Access to State-Funded Health Coverage and Other Services

As of June 2026, six states, including DC, have recently eliminated, reduced, or plan to scale back state-funded health coverage for immigrants due to budget pressures. Economic uncertainties and federal funding reductions that may reduce state revenues and the rising costs of health care and social services have driven states across the country to consider measures to reduce spending. Some states have eliminated or plan to eliminate coverage for some adults in their state funded coverage programs for immigrants, including Illinois, Minnesota, and DC. Several states have closed enrollment or reduced enrollment caps or income eligibility limits for some adults in their state-funded programs for immigrants, including California, Colorado, DC, and Washington. In California, some adults remaining in the program will face cuts to dental benefits and new premiums, and the governor has proposed implementing work requirements and more frequent six-month renewals, which would align with new Medicaid requirements under the 2025 reconciliation law, as well as further increasing premiums for some adults. A few states are reducing coverage for immigrant children and pregnant people. Colorado plans to cap enrollment and limit benefits for state-funded coverage for immigrant children and pregnant people beginning in January 2027. Additionally, North Carolina enacted a Medicaid funding bill in April 2026 that limited immigrant eligibility to coverage that the state is federally required to provide starting October 1, 2026. This would eliminate the state’s optional Medicaid coverage for lawfully residing children and pregnant women without a five-year wait. However, the governor has called for the state legislature to reinstate this coverage and some state legislators have indicated that the coverage cut was unintentional. These program reductions will likely have negative impacts on health care access and outcomes as research suggests that coverage expansions for immigrants are associated with lower uninsured rates and improved access to care.

In contrast, three states have plans to expand state-funded coverage to fill gaps in benefits that will be created by the 2025 reconciliation law eligibility restrictions for lawfully present immigrants. New Mexico plans to use state funds to cover Deferred Action for Childhood Arrivals (DACA) recipients who have already been ineligible for federally funded health coverage and lawfully present immigrants who will lose Medicaid, subsidized Affordable Care Act (ACA), and Supplemental Nutrition Assistance Program (SNAP) benefits under the 2025 reconciliation law. New York plans to use state funds to cover lawfully present immigrants losing Medicaid coverage and federally-subsidized health coverage through its Essential Plan. Under a longstanding court ruling, New York is required to provide state-funded coverage to lawfully present immigrants who would be eligible for Medicaid except for their immigration status. Additionally, Washington increased funding for the state-funded Food Assistance Program, which provides the same benefits as SNAP, in order to provide assistance to lawfully present immigrants who were eligible for SNAP benefits prior to the 2025 reconciliation law changes. California governor’s 2026-27 budget proposes using state funds to continue providing nutrition assistance to immigrants who were eligible for state-funded assistance prior to the 2025 reconciliation law and to offer assistance to income-eligible individuals age 55 and older regardless of immigration status starting October 1, 2027.

As of June 2026, some states have enacted legislation that would limit immigrant access to certain other benefits. In 2025, Idaho enacted legislation that decreases the maximum income refugees can earn to remain eligible for the Refugee Medical Assistance program from 150% to 133% of the federal poverty level. Idaho also enacted legislation preventing undocumented immigrants from accessing certain public benefits that were previously exempt from immigration status verification, including publicly funded vaccinations, communicable disease testing, prenatal and postnatal care, crisis counseling, and food assistance for children. Florida enacted legislation that made undocumented immigrants ineligible for in-state tuition rates at the state’s public universities as of July 2025. Tennessee enacted legislation that will hold churches and charitable organizations liable for providing housing aid to immigrants without legal status who commit crimes.

In contrast, several states have enacted legislation to coordinate or increase access to benefits and services for certain immigrants, including refugees, military members, youth, and aging immigrants. In 2025, Massachusetts enacted legislation requiring resettlement agencies to coordinate the provision of services to immigrant and refugee families and pregnant women. New York enacted legislation to direct its Military Immigrant Family Legacy Program to connect noncitizen military members and their families to immigration legal assistance. Utah created a new Refugee Services Office to coordinate services and benefits available to refugees. California will fund legal counsel for certain noncitizen immigrant youth and direct the state’s Department of Aging to identify recommendations to support older and aging immigrants.

Some states have taken action to protect or facilitate immigrants’ access to educational opportunities. In 2025, Oregon enacted legislation exempting asylum seekers enrolled in the state’s public universities from paying non-resident tuition and fees, and Colorado passed legislation that removed a requirement for immigrants to attest that they have applied or will apply for lawful presence when applying for in-state tuition at the state’s public universities. Oregon also enacted legislation in 2026 that would prevent school boards from declining to admit immigrant children due to their immigration status and adds immigration status as a protected class under anti-discrimination law. New York and Virginia enacted legislation protecting the right to education regardless of immigration status, with Virginia also prohibiting discrimination against students based on immigration status.

Several states have also passed legislation to enhance immigrants’ access to the workforce, including the health care workforce. Washington and Oklahoma enacted legislation in 2025 that would allow international medical graduates to practice in health care facilities in certain situations. An executive order by Washington’s governor also established a state Office of Equity to support coordination between state agencies responsible for implementing services for immigrants, including education, entrepreneurship, licensing, and workforce training. Hawaii and Rhode Island created a pathway for certain foreign medical school graduates to receive medical licensure, and Maine enacted legislation to direct the state to identify alternative pathways for foreign dentists to receive licensure. Wisconsin repealed restrictions on DACA recipients from working in jobs that require professional licensure, such as nursing. New Mexico established a New Americans division in the state Workforce Solutions Department to assist with expanding educational, workforce training and other initiatives for immigrants and to study their economic impact on the state.

Immigration Enforcement and Data Sharing

Several states have enacted legislation or executive orders to enhance immigration enforcement activities, building on state actions taken in prior years and multiple Trump administration executive orders directing federal agencies to take punitive actions against states and cities that limit cooperation with federal immigration enforcement. For example, Florida and Indiana passed legislation in 2025 that enhances criminal penalties for undocumented immigrants who are convicted of certain crimes. In 2026, Idaho passed legislation that would make it a state crime for noncitizens to enter or remain in the state after violating federal immigration laws, and Tennessee added a criminal penalty for someone who remains in the state after receiving a federal deportation order. Some states have prohibited localities and state entities from implementing policies that would limit cooperation with federal immigration enforcement authorities for civil immigration law violations, often referred to as sanctuary policies, including North Dakota, New Hampshire, Indiana, and Mississippi. Additionally, some states passed legislation to promote cooperation with federal immigration enforcement. New legislation in Kansas allows local law enforcement to enter into agreements with federal immigration enforcement authorities without local approval. Legislation in Mississippi directs the state’s Department of Public Safety to identify the number of undocumented immigrants residing in the state and requires all local detention facilities to enter into agreements with federal immigration enforcement. Governor executive orders in Texas and Nebraska also direct law enforcement and state agencies to cooperate with federal immigration enforcement.

Some states have implemented increased immigration verification requirements for driver’s licenses and voting, continuing earlier trends of driver’s licensure laws impacting immigrants. For example, Wyoming enacted legislation in 2025 invalidating driver’s licenses held by undocumented immigrants that were issued out-of-state, and Tennessee enacted legislation to publish lists of out-of-state driver’s licenses issued to undocumented immigrants that would be invalid in Tennessee. States have also enacted legislation related to voting. Legislation in Kansas creates a database of noncitizens holding driver’s licenses that would be cross-referenced with voter registration rolls to identify ineligible voters, and Alabama prohibits foreign driver’s licenses from being used as voter identification. Several states, including Mississippi, South Dakota, and Wyoming, enacted legislation since 2025 that would allow the state to verify immigration status during voter registration either by using the Department of Homeland Security’s (DHS) Systematic Alien Verification for Entitlements (SAVE) system or by requiring applicants to provide documentation of citizenship. 

In addition to enhanced enforcement and verification measures, several states have also implemented new requirements for state agencies to share data on immigrants with federal immigration enforcement officials or statewide databases. Missouri enacted legislation in 2025 that requires law enforcement to include the citizenship or immigration status of anyone arrested in reports submitted to the statewide crime reporting system, building on the Missouri governor’s executive order earlier in the year to expand analysis of crimes committed by undocumented immigrants. In 2026, Indiana, Louisiana, North Carolina, Tennessee, and Wyoming enacted legislation and Oklahoma’s governor issued an executive order requiring state agencies to report applicants or recipients of Medicaid and/or other public benefits whose immigration status could not be verified and/or who were verified to not have lawful presence to DHS or other federal authorities, or in the case of Tennessee, to a central state immigration enforcement agency. In Indiana and Wyoming, reporting may also include applicants’ household members determined to not be lawfully present. Tennessee also makes it a crime for government employees to not report undocumented immigrants to the central state immigration enforcement authority, and local governments could lose state funding if the state determines that they are not complying with state law.

In contrast, some states have enacted legislation and executive orders to limit federal immigration enforcement and/or collection or sharing of data for immigration enforcement purposes in certain settings, such as health care facilities and schools. California, Colorado, Maryland, New Jersey, New York, and Oregon have enacted legislation limiting civil immigration enforcement activity in “sensitive locations,” such as schools, health care facilities, libraries, courthouses, and places of worship. These state actions respond to a prior federal policy limiting federal immigration enforcement in sensitive areas that was eliminated by the Trump administration. New York’s legislation also prohibits local jails from detaining individuals on civil immigration charges. Illinois enacted legislation that bans civil immigration enforcement inside and near public areas such as state courthouses, hospitals, and colleges. California, Illinois, New Jersey, and Oregon enacted legislation requiring health care facilities to treat immigration status as protected health information, which would limit sharing personal data for immigration enforcement purposes, and to set protocols for when immigration enforcement officers appear on hospital grounds. Oregon also prohibits hospitals from retaliating against employees who share information about immigration legal services with patients. Rhode Island enacted legislation prohibiting health care facilities from asking patients about their immigration status or for proof of lawful presence in the U.S. Illinois and Oregon enacted legislation requiring school districts and colleges to develop an alert system to notify students and parents if federal agents appear on school property, and Connecticut and Delaware enacted legislation requiring every school to have a designated administrator and plan for interacting with federal immigration authorities and prohibiting public schools from sharing student information without a warrant. Pending court cases have challenged state policies asserting that they conflict with federal law, but recent federal actions against these states and local jurisdictions have not survived legal challenges.

Some states have also taken action to limit state agencies or localities from entering into enforcement agreements and/or data sharing for federal immigration enforcement purposes. Colorado, Illinois, New Jersey, and Oregon enacted legislation that prohibit state agencies from collecting immigration status information unless required by law, and from disclosing personally identifying information for federal immigration enforcement purposes. Oregon also enacted legislation barring landlords from collecting immigration status information from rental applicants or tenants and from disclosing confidential information with very limited exceptions. Vermont enacted legislation that would prohibit state agencies from entering into agreements with federal immigration enforcement without the governor’s approval. Maryland, New Mexico, and New York enacted legislation that prohibit local entities from creating agreements with federal immigration enforcement. Maryland also enacted legislation prohibiting local correctional facilities from notifying federal immigration enforcement about certain immigrants in their custody and legislation prohibiting state and local agencies from sharing certain personal information with individuals or agencies involved in civil immigration enforcement. Governor executive orders in Massachusetts and New Jersey would also limit state engagement with federal immigration enforcement. An executive order by Washington’s governor directed state agencies to ensure compliance with previously enacted state law, which limits state agencies from collecting immigration status data and from disclosing non-public personal information for federal immigration enforcement purposes, and created a new cross-agency office to coordinate the state’s response to matters such as immigrant data privacy.

The 2025 reconciliation law reduced federal Medicaid spending by an estimated $911 billion from 2025 through 2034, some of which stems from new restrictions on Medicaid state directed payments (SDPs) for hospital and other health care services. While states are generally prohibited from directing how managed care organizations (MCOs) pay for care, states can implement SDPs that require MCOs to increase rates or set minimum rates for specified Medicaid services. In authorizing SDPs, the Centers for Medicare and Medicaid Services (CMS) aimed to help states improve access to care and provider participation. Many states that contract with MCOs use SDPs to make uniform rate increases that function like supplemental payments in fee-for-service (FFS) Medicaid.

This issue brief describes SDPs and forthcoming policy changes stemming from the 2025 reconciliation law and the proposed regulation to implement those requirements and make other changes. A companion issue brief describes states’ current spending on SDPs before those policy changes take effect.  Key takeaways include:

• In 2016, CMS established SDPs and their use has grown since, contributing to higher federal Medicaid spending.
• A 2024 rule on Medicaid managed care spurred additional spending on SDPs but also established new restrictions on how states could pay MCOs to implement them.
• The 2025 reconciliation law established new limits on SDPs, capping them at or near Medicare rates.
• CMS released a proposed rule in May 2026 to implement the SDP provisions in the law and included several provisions that would expand the scope of new limits on SDPs, estimating that implementing the changes would reduce federal spending by $510 billion between 2026 and 2034.
• CMS’ estimated reductions in federal spending exceed those of the Congressional Budget Office (CBO) that accompanied the 2025 reconciliation law, but differences reflect variation in data and timing in addition to provisions that would expand the scope of SDP limits.

It is unknown how states and providers will respond to the new limits on SDPs and FFS Medicaid in the reconciliation law and accompanying rule. States may try to offset reductions in SDPs with increases in base payment rates, but offsetting reductions may be challenging due to other Medicaid financing changes (like limits on provider taxes) and more tenuous fiscal conditions. Some financially vulnerable providers could be forced to close or curtail services with less revenue from Medicaid, particularly if there are revenue losses from increases in the number of people without health insurance coming from Medicaid work requirements and reductions to Affordable Care Act premium subsidies. Other providers may be able to absorb reduced payments without changes to quality or access because research—including by KFF—suggests that average commercial rates are much higher than Medicare, reflecting consolidation in provider markets and constrained Medicare rates. However, providers that serve primarily Medicaid enrollees often have lower operating margins and may be more financially vulnerable than other providers, suggesting that safety net providers may be especially affected by the reduced revenues.

What are state directed payments (SDPs)?

The Centers for Medicare and Medicaid Services (CMS) established SDPs in 2016, allowing states to put in place requirements governing MCO payments to providers. States may use SDPs to require MCOs to adopt minimum or maximum payment rates for providers, provide uniform dollar or percentage increases to providers that supplement base payment rates, or implement value-based payment arrangements. The most common type of SDPs requires uniform rate increases that function similarly to supplemental payments in FFS Medicaid. Uniform rate increases instruct MCOs to make payments on top of their regular payment rates. They, along with SDPs that establish minimum or maximum fee schedules, require the state to specify a “benchmark.” Benchmarks are standardized rates to measure MCO rates relative to other payment rates such as Medicaid FFS, Medicare FFS, or average commercial rates. Since they were introduced in 2016, SDPs have become a core component of provider reimbursement in Medicaid (see Appendix for a timeline of SDP history).

A 2024 rule on Medicaid managed care spurred changes in SDP policy and higher federal spending on SDPs. Before 2024, there was no official cap on the total payment rate that accounted for base rates and SDPs, but CMS noted in the May 2026 proposed rule that it determined to use average commercial rates as the unofficial payment limit starting in 2018. The 2024 rule on Medicaid managed care codified the average commercial rate limit for hospital services, nursing facility services, and professional services at academic medical centers. CMS also indicated that it would continue applying the average commercial rate limit to other providers. Formalizing the payment limit for SDPs at average commercial rates likely increased states’ awareness of the limit and their confidence that SDPs at that level would be permitted to continue moving forward. As a result, the number of SDPs pegged to average commercial rates, and spending on those SDPs, increased after CMS released the final rule.

The 2024 rule also required states to incorporate all SDPs into their capitation rates (e.g., premium payments to MCOs) instead of using separate payment terms, which provide additional payments outside of the capitation rates. The change moves these payments from predictable, separate payments to more complex, risk-based arrangements, which may reduce states’ ability to target reimbursement for specific provider types. CMS eliminated separate payment terms due to concerns that the separate payments undermine the risk-based nature of managed care and are frequently driven by the financing of the non-federal share. MACPAC analysis found that over half of SDP arrangements approved between February 2023 and August 2024 were incorporated through separate payment terms.

Use of SDPs that paid providers with average commercial rates had been growing prior to the 2024 final rule and continued after CMS’ informal practice was codified. Tying payments to average commercial rates—which are substantially higher than the Medicare payment ceiling used for other Medicaid FFS supplemental payments—aimed to help Medicaid attract a broader network of providers and to ensure robust access to care for Medicaid enrollees. However, the new payments to health care providers resulted in higher Medicaid spending. In June 2024, the Congressional Budget Office (CBO) updated its Medicaid spending projections for 2025-2034 to reflect a 4% (or $267 billion) increase, with half of the increase attributed to expected growth in SDPs (driven in part by CMS’ projections in the final rule).

What changes to SDPs were included in the 2025 reconciliation law and CMS’ proposed regulations?

The 2025 reconciliation law created new payment limits for SDPs for four services, capping them at or near Medicare rates instead of average commercial rates. The law specified that the new limits would apply to inpatient and outpatient hospital services, nursing facility services, and professional services at academic medical centers. Under the limits, the total payment amount under the SDP may not exceed 100% of the Medicare payment rate in states that have adopted the Affordable Care Act (ACA) Medicaid expansion (“expansion states”) and 110% of the Medicare payment rate for non-expansion states. Payment rates for services without an applicable Medicare payment rate are limited to Medicaid fee-for-service rates. Certain SDPs are initially grandfathered (e.g., allowed to continue) but the total spending amount will be reduced by 10 percentage points each year (starting January 1, 2028) until they reach the allowable Medicare-related payment limit. At the time the bill was passed, the CBO estimated that revising the payment limit for SDPs would reduce federal Medicaid spending by $149 billion between 2025 and 2034.

CMS released a proposed rule in May 2026 to implement the SDP provisions in the law and included several provisions that would expand the scope of new limits on SDPs. The list below highlights some of the key provisions governing SDPs included in the proposed rule:

• Expanded scope of services. The 2025 reconciliation law specified that new limits applied to hospital services, professional services at academic medical centers, and nursing facility services. The proposed rule would apply the new payment limits to all services.
• Applicable in territories. The 2025 reconciliation law only applied to the 50 states and D.C., but the proposed rule would also apply to the territories. In FY 2025, Puerto Rico had four SDPs approved, which were projected to account for $131 million in federal Medicaid spending.
• Eliminates uniform rate increases. The 2025 reconciliation law established new ceilings on SDP payment limits but did not prohibit certain types of SDPs from being used. The proposed rule would eliminate uniform rate increases in future years, the most common type of SDP. It is unclear whether it will be possible for states to transition uniform rate increases to other types of SDPs, such as minimum or maximum fee schedules. When combined with the elimination of separate payment terms from the 2024 rule, this change effectively precludes states from using SDPs to provide supplemental payments in managed care that parallel arrangements in FFS.
• Phase-down of grandfathered SDPs. Starting with the first rating period after January 1, 2028, the proposed rule would reduce the total approved payment amount in grandfathered SDPs by 10% each year until they comply with the new limits in the 2025 reconciliation law. For example, if an SDP was approved at $1 billion, the first year’s decrease would be at least $100 million (unless the Medicare limit is reached in year 1 with a decrease of less than $100 million). This will cause some SDPs (particularly benchmarked to higher payment rates) to come into compliance somewhat earlier than if the SDP payment rate had been reduced by 10 percentage points (relative to Medicare rates) each year.

Beyond expanding the scope of new limits on SDPs, CMS’ proposed rule makes parallel changes for FFS payments that target specific providers. The proposed rule aims to align payment requirements across delivery systems by applying the Medicare-based payment limits for SDPs to some FFS payments (which govern all provider payments, not only supplemental payments). The new limits would apply to payments that target specific providers such as physicians, dentists, emergency and non-emergency medical transportation providers, and other licensed professionals. The new limits would not apply to payments that are already governed by other limits (e.g., upper payment limit rules). Those requirements would take effect for the first state fiscal year beginning on or after January 1, 2029.

The proposed rule also specifies the basis for new payment limits in SDPs and in FFS Medicaid payments that target specific providers.  Both types of payment limits would apply on a per-service (or per-discharge) basis, rather than being calculated in aggregate using an upper payment limit-like approach. Where possible, states would be required to use the published Medicare payment rates, drawing from the Medicare physician fee schedule, the hospital inpatient and outpatient prospective payment systems, and the skilled nursing facility prospective payment system. For providers who are paid based on their costs, such as critical access hospitals, cancer hospitals, and freestanding hospitals; states are instructed to use the Medicare cost reports as Medicare does.

Although most of the limits would be calculated similarly in SDPs and in targeted FFS Medicaid payments, there are some small differences. The most notable difference occurs when there are no Medicare payment rates available, as occurs for services that Medicaid covers but Medicare does not. In such instances, SDP payments would be limited to Medicaid FFS rates, which include rates established by 1115 waivers but exclude any supplemental payments. For FFS payments targeting specific providers, states would be required to develop methods for identifying reasonably comparable Medicare rates, which would then be the basis for the payment limit.

How might forthcoming changes affect federal spending on SDPs in the future?

In its May 2026 proposed rule, CMS estimates that SDP changes would reduce federal Medicaid spending by $510 billion between 2026 and 2035. Several factors contribute to the differences between CMS estimates and CBO’s estimate of limiting SDPs in the 2025 reconciliation law (which was $149 billion through 2034).

• The CMS estimates account for SDPs in preprints available through December 31, 2025. During the 2025 calendar year, many states submitted new SDP proposals (some of which were submitted during deliberations on the reconciliation bill in anticipation of future restrictions). CMS posted many newly approved SDPs after the reconciliation law was enacted, some of which were posted 6 to 12 months after their start date. As a result, there are more SDPs in place than was known during deliberations over the 2025 reconciliation law.
• The CMS estimates are through 2035. Most of the estimated reductions in federal spending on SDPs do not start until FY 2028. As a result, the period between 2026 and 2035 will have an additional year of substantive changes in SDP spending relative to earlier estimates.  In CMS’ year-by-year analysis, the estimated cuts to federal Medicaid spending from limiting SDPs are $81 billion in the year 2035, which would not have been included in the CBO analysis.

Beyond using different data and covering a different period, CMS provides estimates for some but not all specific provisions and policy decisions included in the rule. It is unknown how much the new provisions contribute to the cost difference because CMS did not itemize the effects of all decisions in the proposed rule. For example, one of the most significant decisions was to eliminate the option for states to use uniform rate increases in SDPs after the new limits are fully implemented. When combined with other policies (including the 2024 prohibition on separate payment terms), this change effectively eliminates the option for states to use SDPs to make supplemental payments in Medicaid managed care. The effects of this change interact with other policy changes (including changes to provider taxes) so it’s difficult to quantify how much this affected CMS’ estimates.

In some cases, the proposed rule describes how much certain decisions affected estimated spending reductions:

• The biggest single change in dollar terms is the acceleration of grandfathering requirements which will bring SDPs into compliance with the new Medicare-related limits more quickly (estimated to increase the spending reduction by $17 billion over 10 years).
• CMS estimated that extending the new limits on SDPs to services other than the four enumerated in the law would increase spending reductions by $3.5 billion over 10 years.

New limits on FFS payment rates could reduce federal spending by $1.5 billion over 10 years. CMS estimates that 25 states would have to amend state plans to come into compliance, and that the change would reduce federal Medicaid spending by $1.5 billion over 10 years. Although $1.5 billion seems small compared to the total reduction in federal Medicaid spending, the affected providers account for much smaller shares of overall Medicaid spending. As a result, there could be major implications for affected services in affected states.

Appendix Figure: Timeline of SDP Policy Changes

The 2025 reconciliation law reduced federal Medicaid spending by an estimated $911 billion from 2025 through 2034, some of which stems from new restrictions on Medicaid state directed payments (SDPs) for hospital and other health care services. While states are generally prohibited from directing how managed care organizations (MCOs) pay for care, states can implement SDPs that require MCOs to increase rates or set minimum rates for specified Medicaid services. In authorizing SDPs, the Centers for Medicare and Medicaid Services (CMS) aimed to help states improve access to care and provider participation. Many states that contract with MCOs use SDPs to make uniform rate increases that function like supplemental payments in fee-for-service (FFS) Medicaid. This issue brief analyzes Medicaid spending by state on SDPs that require prior CMS approval to better understand the use of SDPs before new limits in the reconciliation law take effect. A companion issue brief provides more details about the forthcoming changes.

Using a sample of SDPs estimated to currently be in effect, the analysis includes 305 preprints from 41 states, from SDPs that were publicly available and approved from January 1, 2024 through May 12, 2026. Preprints are application forms which document how states direct Medicaid managed care plans to pay providers using SDPs. Preprints are the only national source of data on SDPs but are limited because there are gaps in data provided by the preprints (see Box 1 and Methods for more details).

KFF’s estimates of spending on SDPs are consistent with CMS’ estimates in the May 2026 proposed rule on SDPs. However, KFF estimates provide state-level data and other information not included in the proposed rule, use the most recently approved preprint for each SDP (instead of providing year-by-year estimates and projections), and include SDPs that were approved between January and May 2026 (which are not included in CMS’ analysis). This analysis finds that:

• KFF estimates that annual spending on SDPs is $137 billion in total spending and $93 billion in federal spending.
• There are 41 states with SDPs in place (including the District of Columbia, which is hereafter referred to as a state), but the number, structure, and financial impact vary.
• Most (84%) of estimated SDP spending is for hospital services.
• Most (84%) of estimated SDP spending is from SDPs that use commercial (private) payment rates as a basis for MCO payments, but data on specific payment levels are often not publicly available.

Much remains unknown about how forthcoming policy changes for SDPs will affect states, providers, and Medicaid enrollees, but data about existing SDPs highlights states and services for which changes could be most substantial.

How much spending currently flows through SDPs?

Using a sample of preprints estimated to be currently in effect, KFF estimates that Medicaid is spending about $137 billion per year through SDPs. Based on states’ projected spending in the preprints, the federal government pays an estimated 68% ($93 billion) of the total, and the remainder is paid through the state share of SDP financing. The federal and state shares of financing are determined using the standard formulas for Medicaid financing and reflect the state’s federal matching assistance percentage, along with adjustments for some services and eligibility groups for which the federal government pays a higher rate. The state share of financing may come from a variety of sources including state general fund revenues, provider taxes, and intergovernmental transfers.

Financing for SDPs is often complex, and providers may pay for part of the state share of spending through provider taxes and intergovernmental transfers. States may finance the state share of Medicaid spending through provider taxes and intergovernmental transfers (such as transfers from public hospitals), which means those payments are not new revenues for the providers receiving them. In the proposed rule on SDPs, CMS reports that among current SDPs with payment rates above Medicare rates:

• 40% are financed wholly or in part by intergovernmental transfers,
• 27% are financed wholly or in part by provider taxes, and
• 14% are financed wholly or in part by both intergovernmental transfers and provider taxes.

Combined, 81% of those SDPs are financed wholly or in part by intergovernmental transfers and provider taxes. In such cases, it is difficult to determine the amount of new revenues for health care providers. For that reason, KFF’s analysis focuses on changes in federal spending rather than changes in total spending.

How many states have publicly available SDPs?

Nearly all states with comprehensive managed care in Medicaid are estimated to use state directed payments, but the number, structure, and financial impact of these payments vary. Of the 42 states that contract with MCOs, all but two states (Arkansas and North Dakota) have approved SDPs that are estimated to still be in effect. (Arkansas has two approved SDPs for the 2022 rating period, but none have been approved since.)

Vermont does not contract with comprehensive, risk-based MCOs but does have an SDP to implement an accountable care organization program that is transitioning providers to value-based payments through Medicaid. Under the accountable care model, provider groups contract with state Medicaid agencies to assume accountability for the costs and quality of care. The Accountable Care Organization distributes payments to contracted providers in the way comprehensive MCOs pay contracted providers. In essence, the SDP functions similarly but is directing payments through an accountable care organization instead of through an MCO.

The number of SDPs and dollars spent through SDPs varies by state:

• New Jersey and Ohio have the largest number of SDPs (28 and 20 respectively), while two states (Minnesota and West Virginia) and DC have one SDP each (data not shown).
• California has the highest projected federal SDP spending ($10.6 billion), followed by Texas ($6.3 billion), North Carolina ($5.2 billion), and Illinois ($5.1 billion).

Vermont has the lowest projected federal SDP spending ($12.4 million), followed by Maryland ($52.6 million), Missouri ($145 million), and Minnesota ($161 million). Although this analysis focuses on trends in federal spending, patterns are similar when looking at total spending (Appendix Table 1). All 10 states with the highest federal spending also are in the top 10 states for total spending. Many—but not all—of these SDPs could be affected by the new requirements for SDPs in the 2025 reconciliation law.  

How are SDPs used across provider types?

An estimated 84% of federal dollars spent through SDPs that require CMS approval pay for hospital services (Figure 3). Of $93 billion in annual projected federal SDP spending, an estimated $78.0 billion (84%) is directed to hospital services. (The share of total spending that pays for hospital services is the same as the share of federal spending.) Professional services at academic medical centers ($3.2 billion) and nursing facility services ($2.1 billion) comprise the next largest shares of federal SDP spending. Although most spending is from SDPs exclusively targeting hospital services, many SDPs include spending for multiple service types and do not specify how much of the total spending is for each service, which creates uncertainty in the estimates (see Methods).

The largest number of SDPs also pay for hospital services, although 64 SDPs are directed to multiple service types, including hospitals. Specifically, of the 305 preprints included in this analysis, 107 were exclusively for hospital services. The next most frequent services were behavioral health services (20 SDPs), professional services at academic medical centers (18), and nursing facility services (17) (data not shown). The remaining preprints were directed exclusively to other services, or to combinations of services.

What types of payment rates do existing SDPs require of MCOs?

Most spending (84%) comes from SDPs that use average commercial rates as a benchmark, which likely reflects the federal requirements that determine which SDPs require a preprint. The share of spending for SDPs that use average commercial rates is high relative to the share of preprints that use average commercial rates: Nearly two-thirds (65%) of preprints are benchmarked to average commercial rates. The dominance of average commercial rates in the publicly available preprint data likely reflects the fact that when benchmarks equal FFS Medicare or Medicaid rates, no preprint is required. Only a small share of spending is from SDPs that do not require a benchmark.

Roughly a quarter of SDP spending ($23 billion) is paid at or above 90% of average commercial rates, while over one third ($38 billion) is benchmarked to ACR rates that are not publicly available. An additional $10 billion is paid at 70%–90% of average commercial rates. Among the SDPs that do not use ACR as a benchmark, missing payment rates are somewhat less common. Among SDPs that use Medicare rates as a benchmark, just over half result in total payment rates greater than what Medicare pays. (Other SDPs that use Medicare rates as a benchmark may pay at or below Medicare.)

Methods

Data source: This analysis uses data available from the list of approved state directed payment preprints published by the Centers for Medicare and Medicaid Services (CMS) as of May 12, 2026. The approved state directed payment (SDP) preprints are PDF versions of forms that are completed by states and approved by CMS. States are required to seek approval using such a preprint for any SDP that requires managed care organizations (MCOs) to pay for services at any rate other than fee-for-service (FFS) Medicare or Medicaid rates. The approved preprints are often posted online 6–12 months after their start date, although some approved preprints are posted online much later.

KFF developed a Python script to download the available PDFs, extract relevant data from them, and standardize certain fields. Each preprint was turned into one row in a spreadsheet. Data from tables within the preprint were extracted and converted into separate tables in KFF’s data file with each row in the preprint table converted into a row in the spreadsheet table.

SDP preprint inclusion criteria: KFF included all SDPs in the analysis with a rating period start date of January 1, 2024 onwards for the 50 states and Washington DC (hereafter referred to as a state). Puerto Rico was the only territory that had published SDPs, which were excluded. In each case, KFF only kept the most recent preprint for any given SDP. For example, if an SDP had an initial approval in 2024 and then renewals in 2025 and 2026, KFF would only include the 2026 renewal in the final dataset. Out of the 305 preprints included in this analysis, 24 (totaling $8.8 billion in federal spending) ended in calendar year 2024.

A small number of SDP preprints were excluded due to file formatting or data validity issues. Specifically:

• Data from five preprints excluded from this sample were encoded differently, so the data could not programmatically be extracted into the dataset, and were therefore excluded from the analysis (two from New Hampshire, one from Ohio, and two from Florida, totaling $89 million in federal spending for one year).
• Data from preprints that had obvious data quality issues were excluded from this sample.  For instance, two were from Illinois (which projected total annual spending of more than $100 billion) while one from Minnesota did not report spending data in the preprint.

KFF also reviewed all preprints with end dates prior to July 1, 2025, and excluded preprints for the following reasons.

• The preprint was likely funded from COVID-19 relief dollars (including the increased federal funding for home care from the American Rescue Plan Act) and so unlikely to still be in place.
• The preprint was likely combined into a different preprint when renewed or was otherwise renamed when renewed.
• The preprint ended in 2024, and online research suggests that the payment was discontinued.

See Methods Table 1 for a list of the inclusion criteria, the counts of preprints after each criterion was applied, and the federal spending for preprints that were retained at each stage.

Calculating total spending on SDPs: This analysis used the states’ projected total, federal, and state spending from the preprint. Most preprints are for a one-year period but some are for longer or shorter periods. In such cases, KFF adjusted the data to be a one-year equivalent. When preprints were for periods shorter than 12 months, dollars were scaled up (e.g., if the preprint was for 6 months, the spending was multiplied by two) and for preprints that were for periods longer than 12 months, spending was scaled down (e.g., retaining two-thirds of spending if the preprint extended for 18 months).

KFF also manually reviewed the federal spending numbers because some states reported them as percentages and others reported them as dollar amounts. Manual review ensured the Python script had adequately handled the different reporting structures.

In most cases, the state and federal shares equaled the total share, but in 8 states, this was not always the case (see Appendix Table 1).

Calculating SDP spending by service type: For preprints that made payments for multiple service types (which accounted for $32.6 billion in federal spending), spending was apportioned across service types.

• For SDPs directed to hospital and non-hospital services, 90% of spending was allocated to hospital services. Remaining dollars were apportioned equally among any other service types.
• For SDPs directed to both inpatient and outpatient hospital services, 68% of hospital spending was allocated to inpatient services and 32% was allocated to outpatient services. This assumption does not affect the estimates of spending by service type but is relevant for calculating the amount of spending by benchmark rate.
• For SDPs that did not direct any spending to hospital services, spending was allocated equally among named services.

Apportioning spending across service types is difficult and KFF used a variety of sources to approach developing the most realistic assumptions feasible. KFF analyzed data on Medicaid spending including CMS-64 spending by service type, data on Medicaid spending by service type from the National Health Expenditures, the Congressional Budget Office Medicaid baseline, and existing studies on hospital payment policies such as those from the Medicaid and CHIP Payment and Access Commission (MACPAC). All of those data points suggest that the vast majority of SDP spending pays for hospital services, and $53.1 out of the $60.5 billion in federal spending from preprints directed to a single provider type went to hospital services. KFF also strove to use an assumption that resulted in estimates of hospital SDP spending that are similar to what could be expected on the basis of other data and research as described above.

When identifying the service types in the preprints, the Python script attempted to align service types between preprint Table 2 (which specifies payment rates for sets of providers) and preprint question 20 (a checklist of services included in the SDP). In many cases, this alignment involved some uncertainty, requiring manual review and classification of service types.

Identifying benchmarks for MCO payments: The most common type of SDPs requires MCOs to make payments that are on top of the regular base payment rate (as opposed to limiting or replacing the negotiated rate). In such cases, payments are measured using a “benchmark” or standardized rate to compare the MCO rates to other payment rates such as those of Medicaid FFS, Medicare FFS, or the average among commercial payers (“average commercial rates”). Among the 305 preprints in this sample (accounting for $93.1 billion in federal spending), 264 preprints are required to report a benchmark (accounting for $87.9 billion in federal spending). KFF used the Python script to identify the applicable benchmark type from the preprint, but also manually reviewed the data since states sometimes used inconsistent terminology to report the same benchmarks.

Identifying payment levels: To identify how current payment rates align with the new limits on SDPs in the reconciliation law, KFF first needed to identify payment levels in the preprints. The level is specified as a percentage of the benchmark (e.g., 90% of average commercial rates or 140% of Medicare rates). Both types of payments were pulled from Table 2 when available.  Payment rates for inpatient and outpatient hospital services were tracked separately with each row in Table 2 when applicable.

Methods Table 1

Appendix Table: States’ Number of and Spending on SDPs