Two policy experts on Medicaid--Kathryn Costanza from NCSL and Neda Jasemi from the National Association of Medicaid Directors—joined the podcast to talk about the significant changes in Medicaid that were included in the 2025 Budget Reconciliation Act.
SUMMARY
Medicaid is the joint state -federal program created in 1965 that provides free or low -cost health care to about 70 million Americans, including low-income elderly people and those living with disabilities. The changes in the 2025 legislation, also known as the One Big Beautiful Bill or H.R. 1, affect eligibility standards for the program and changes in the way states can finance their portion of Medicaid costs.
On this episode, we’re joined by two policy experts on Medicaid. Kathryn Costanza is a fellow at NCSL who closely follows Medicaid policy and Neda Jasemi is a senior policy analyst at the National Association of Medicaid Directors. They both sat down to talk about the significant changes in Medicaid that were included in the 2025 Budget Reconciliation Act.
Jasemi discussed the challenges state legislatures will face as they craft budgets for Medicaid in their states while facing significant uncertainty about both revenue and how many people will be signed up in their state. Costanza explained the ins and outs of provider taxes and how that will affect state revenue intended for Medicaid costs. She also talked about what we know about the new rules and how they will affect the number of people who will qualify for coverage.
Resources
ES (00:12):
Hello and welcome to “Our American States,” a podcast from the National Conference of State Legislatures. I'm your host, Ed Smith.
KC (00:21):
I will say that across states and across Medicaid policies, the biggest challenge facing state legislators is going to be uncertainty.
ES (00:31):
That was Kathryn Costanza, a fellow at NCSL who closely follows Medicaid policy and one of my guests on this podcast. She's joined by Neda Jasemi, a senior policy analyst at the National Association of Medicaid Directors. They both sat down to talk about the significant changes in Medicaid that were included in the 2025 Budget Reconciliation Act.
Medicaid is the joint state -federal program created in 1965 that provides free or low -cost health care to about 70 million Americans. The changes in the 2025 legislation, also known as the One Big Beautiful Bill or H.R. 1, affect eligibility standards for the program and changes in the way states can finance their portion of Medicaid costs.
Jasemi discussed the challenges state legislatures will face as they craft budgets for Medicaid in their states while facing significant uncertainty about both revenue and how many people will be signed up in their state. Costanza explained the ins and outs of provider taxes and how that will affect state revenue intended for Medicaid costs.
ES (01:40):
She also talked about what we know about the new rules and how they will affect the number of people who will qualify for coverage. Here's our discussion, starting with Neda Jasemi.
ES (01:53):
Neda, welcome back to the podcast.
NJ (01:57):
It's great to be back on.
ES (01:59):
So ,let's start with the big picture of what happened with Medicaid in 2025. It was the 60th anniversary of the program, but it was a big year of change in 2025 because Congress passed H.R. 1. Tell us more about what that legislation means for the Medicaid program.
NJ (02:18):
Indeed. Medicare and Medicaid were passed into law on July 30th, 1965. So we marked the 60th anniversary of these programs just a few months ago. Ever since we've seen the Medicaid program change and evolve and this year is no different. In July 2025, Congress passed the One Big Beautiful Bill Act through the budget reconciliation process. The statute covers a wide range of policies, but today we're really going to focus on the Medicaid changes. Those Medicaid changes in the One Big Beautiful Bill Act generally fall into three big domains. So ,we see a lot of changes in Medicaid eligibility policy, Medicaid financing, and then finally program integrity. But I will say when it comes to H.R. 1, that level of change is going to be really different for expansion versus nonexpansion state. Generally, some policies in the One Big Beautiful Bill Act, like pulling back some of the Biden era rules, will apply to all states, but most policies and some of the biggest like work and community engagement requirements or the provider tax phase down will impact the subset of Medicaid programs that expanded Medicaid coverage under the Affordable Care Act.
NJ (03:32):
So that awareness for folks to understand the different impacts in expansion versus non-expansion states is important. Currently, 41 states in the District of Columbia expanded Medicaid under the Affordable Care Act. The last thing I will highlight here is just the context that we're operating under. It has been a really intense few years in the Medicaid program from the public health emergency to unwinding. We talked about budget pressures last year and now implementing H.R. 1 or the One Big Beautiful Bill Act. So I think the biggest challenge with these intense few years is really just the layering effect of change. But across the country, Medicaid director's top priority is efficiently and effectively administering the program. And I'm always in awe at how much Medicaid directors and other state policymakers are able to be agile, flexible, reprioritize and manage and evolving policy and health landscape.
ES (04:35):
Now at a high level, what are the top issues that state legislators only to grapple with when it comes to Medicaid in 2026, looking at 2027 when a lot of these rules go into effect?
NJ (04:47):
Yeah. So as you mentioned, many Medicaid provisions in the One Big Beautiful Bill Act go into effect in 2027 and 2028. So state policymakers will need to advance key implementation steps in 2026, including allocating funding for implementation through the budget process and aligning state statute with these federal changes. So let's talk about the policies first. There are many eligibility policies in the One Big Beautiful Bill Act. The few I would highlight here are the new requirements for states to conduct eligibility redeterminations every six months rather than every 12 months for expansion population. There are changes in noncitizen Medicaid eligibility and, of course ,work and community engagement requirements, which I know we will talk about later. I'd also highlight the Medicaid financing changes. So that includes the provider tax policies impacting how a state may generate revenue for the Medicaid program. It includes state-directed payment policies impacting additional payments a state may make to key providers like hospitals or academic medical centers.
NJ (05:56):
And then there are some potentially significant changes to budget neutrality for 1115 waivers, which are sometimes referred to as innovation or state demonstration waivers. I won't dive too much into detail about the new program integrity policies, but one I would highlight is just like new requirements for states who participate in processes to ensure that individuals aren't enrolled into state Medicaid programs at the same time. So, from an implementation perspective, state legislators can expect two things. First, state legislators should expect that these changes will be part of the budget they approve for fiscal year 2027. So that means that many states fiscal year 2027 budgets will include administrative funding to implement many of these changes, including staffing and systems costs. They will incorporate enrollment forecasts that account for changes in Medicaid eligibility policy, and they will potentially include some of the restrictions on provider taxes, which is an important strategy that nearly every state uses to fund the Medicaid program.
NJ (07:06):
I'll say because many of these policies haven't been implemented in the Medicaid program yet, it's difficult for states to project how the policy changes may impact enrollment and budgets. Second, I'll flag that state legislators should also expect to amend state statutes to align with federal law. Medicaid agencies must identify where changes in state law are needed to align with new federal requirements. This work will be particularly challenging when states are waiting for clarity and guidance on interpretive questions from our federal partners. I think timing of your state legislative session is also going to be key. Many states meet annually or biannually for a short window. So some states may need special sessions to do this work.
ES (07:55):
Oh, that's an excellent point because of course people are going into session right now and certainly in the next several weeks, an awful lot of legislators will be in session. The deadline to implement these worker community engagement requirements, which we were talking about, they're coming up pretty quickly. And what does that mean in 2026? What do legislators have to do to get themselves aligned with that?
NJ (08:19):
Expansion states and even a couple nonexpansion states who have special waivers with the federal government are planning to implement work and community engagement requirements by Jan. 1, 2027. CMS, the federal agency with jurisdiction over Medicaid, has signaled that good faith extensions, which statutorily can go up to 2028, will be rare and only granted in exceptional circumstances. Across states, communication and outreach efforts about these requirements will likely launch over the next several months to meet that Jan. 1 deadline. And so legislators may receive questions from their constituents about these requirements. And because this is a pretty tight timeline, Medicaid agencies will be doing a lot of work on policy development, systems implementation and budgeting. So start with the policy first. The One Big Beautiful Bill Act creates the requirement for states to enact work and community engagement requirements, but we know that CMS will issue regulation and guidance that gives states a lot more direction around how to implement the requirements.
NJ (09:26):
So for example, the statute says that individuals can meet the work and community engagement requirement by volunteering for a certain number of hours a month, but it doesn't say what types of volunteering count towards that requirement or how individuals can document that they are volunteering. These are the types of questions that we'd expect CMS to provide direction on. For state legislatures, this means that it's going to be important to keep in close contact with your Medicaid agency around implementation, but it's also important to be aware that your Medicaid agency won't have all the policy answers yet. On the systems front, states will also need to make significant changes in their IT systems and/or adopt new IT solutions in a very rapid cycle to implement work and community engagement requirements. State legislators may play a role in facilitating data sharing and/or developing new flexibilities that would allow the state to more rapidly procure and execute new contracts.
NJ (10:31):
Finally, expect to see work in community engagement requirements in the FY 2027 budget request. This will likely include costs associated with implementing the requirements along with changes to ongoing benefit costs due to the changes in Medicaid enrollment. So on the administrative side, there will likely be increased systems and staffing expenses. On average, administrative budgets make up just about 4% of the total Medicaid budget, but IT system expenditures make a significant portion of that. So Medicaid agencies are thinking through new vendor oversight strategies, vetting new IT solutions and sharing pricing information across states to find cost savings. States may also need additional staff to implement these requirements. There will be new workflows, more frequent eligibility checks and audit risk. All this may require more staff to accomplish. And then in addition to the administrative budget, states need to forecast how enrollment changes may impact their budgeting ongoing.
NJ (11:38):
Because many states don't have historical experience with work and community engagement requirements, estimating impacts on enrollment and per capita costs can be really difficult. Generally, it is really, really difficult to forecast enrollment if you don't have historical data to rely on. And anytime there are major changes to the program or big changes in eligibility, that introduces uncertainty. So state legislators may work with their Medicaid team to explore policy levers. They could pull that reduce that fiscal risk.
ES (12:14):
Well, it sounds like both the known and the unknown factors here are pretty daunting, maybe more so than many listeners appreciated before you laid that all out. Medicaid budgets are, of course, a huge part of state budgets. What do legislators need to factor? And you've already mentioned some of these things as they consider Medicaid spending in the 2026 session.
NJ (12:36):
Regardless of the One Big Beautiful Bill Act, state Medicaid agencies have been facing increasing budget pressures these past few years. So, this includes budget pressures like the nationwide unwinding, prescription drug costs, behavioral health spending, rising health care costs, and long-term care like nursing facility care and home and community-based services. Now, related to the One Big Beautiful Bill Act, Medicaid agencies have been working to understand the fiscal impact that the statute may have on their programs. Fiscal impacts will vary by state. For example, how much a state relies on provider taxes to fund their Medicaid program would be an important factor that would help the Medicaid agency and the state legislature understand their state specific impact. And of course, states will need further guidance from CMS to be able to accurately project the impact of these policy changes. So ,for those who don't know, provider taxes are state-imposed taxes or fees on certain health care providers like hospitals, nursing facilities, or managed care organizations, where at least 85% of the tax burden falls on health care items or services.
NJ (13:55):
Provider taxes are a very important source of revenue for Medicaid programs all but one state uses them and on average 17% of the state share in the Medicaid program is sourced through provider taxes. Often you see states using provider taxes to fund higher reimbursement rates for certain providers, but we've also seen provider taxes fund certain benefits or even populations. For instance, many states use provider taxes to fund the state share for their Medicaid expansion program or to fund home and community-based services. Since the One Big Beautiful Bill Act limits the use of provider taxes, it will be important for state legislatures to understand the fiscal impacts and how that may translate into changes in reimbursement and benefits. I think at the end of the day though, fiscal environments are a lot tighter. Some of that might have to do with the federal policy changes, but some of that might also have to do with longer term Medicaid budget challenges states are facing.
NJ (14:59):
It's important to know that when states are facing tight budget environments, policymakers might have to make tough decisions about rates, benefits they can cover, or even populations eligible for the Medicaid program. It's important to work with your Medicaid agency to understand the budget environment, options to find savings within the program that align with your priorities and timeline to implement those options. Your Medicaid agency really does know the ins and outs of the program, and they could be a really great resource to identify options for cost savings and think about feasible timelines to implement those cost savings measures.
ES (15:37):
Well, thank you for breaking down the provider tax. I don't think I've ever actually successfully explained a provider tax to anyone outside of the sort of legislative or Medicaid world. So, I thought you did a nice job on that. They're pretty complicated. But one thing with provider taxes is I think states originally thought they wouldn't have to worry about that until 2028. And my understanding is maybe that's not the case. Can you talk about that a little?
NJ (16:05):
It depends. While the draw down of provider taxes for expansion states go into effect in 2028, states may see the impact of the other two provider tax policies in the One Big Beautiful Bill Act as soon as this year. So first, the One Big Beautiful Bill Act changes the statistical test that CMS uses to approve certain provider taxes. This policy change impacts a small subset of states, most of which have a managed care tax in place or an MCO tax in place. According to preliminary guidance, that means that some states that are impacted by this policy change will need to transition their impacted taxes as early as the end of this calendar year. Second, and this impacts a larger swath of states, there is a moratorium on new or increased provider taxes that go into effect Oct. 1, 2026, and that's for all states. According to preliminary guidance from our federal partners, only taxes that were enacted and imposed by July 4th, 2025, will be able to persist after the October 2026 date.
NJ (17:19):
That means that if your state had just approved a provider tax or increased the provider tax in the summer and maybe did not have time to impose the tax and collect revenue on that tax before July 4th, it could be likely that the tax won't be able to persist after this October. So if your state falls into one of those two buckets, then you may see impacts around provider taxes that go into effect as early as this year.
ES (17:50):
Oh, thank you for that explanation because I think that probably a lot of listeners who are not on the health committee may not have understood the sort of three-part aspect of that. So, Neda, as we wrap up here, I wonder if there's one or two takeaways you want legislators to walk away with, even though this is not a topic that's going to be taken care of with one podcast. So what would your parting words be?
NJ (18:14):
We talked a lot about how the Medicaid provisions and the One Big Beautiful Bill Act may impact legislative session this year, but I think it's important to highlight all the other things going on in the Medicaid space. For example, there are opportunities with the CMS Innovation Center to participate in new payment models for prescription drugs. We know that the administration is really prioritizing program integrity, and that's not to mention that there are still state specific priorities. So, Medicaid pays for 4-in-10 births nationwide, is the largest payer for behavioral health and long-term care. And many states are focused on initiatives in that space. So don't forget that your Medicaid program is also working on these state specific priorities on maternal health, behavioral health, long-term care, and other public health priorities. When it comes to the One Big Beautiful Bill Act, it may be helpful to recognize the differential impact and timing of these policies.
NJ (19:13):
Nonexpansion states are not as impacted by the policy changes. We know that state legislatures need to balance their budgets and that in leaner times, we'll often have to look to Medicaid to find savings. It can be helpful to engage early and often with your Medicaid agency around budget. Acknowledge the immediate operational realities for Medicaid, such as the need for CMS clarity, challenges in budget development and IT systems issues. Given that the policies have pretty quick statutory deadlines, it will be important to work closely with your Medicaid agency to align state and federal law, develop the budget, and create flexibilities that allow your state to rapidly respond to the evolving federal landscape. Finally, partner with Medicaid and offering solutions and expertise. Legislators can play a crucial role in helping communicate some of these Medicaid policy changes to members, providers, and other stakeholders.
ES (20:13):
Well, Neda, thanks so much. I think we'll probably be talking again because this is going to be a very important topic I think for states to grapple with over the next few years, the change landscape we're looking at. Take care.
NJ (20:27):
Thank you. Bye.
ES (20:30):
I'll be right back after this short break with Kathryn Costanza from NCSL.
Speaker 4 (20:42):
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ES (21:39):
Kathryn, welcome to the podcast.
KC (21:42):
Hi, Ed. It's great to be back.
ES (21:45):
Well, thanks for taking the time to do this. I just talked with Neda Jasemi from the National Association of Medicaid Directors, and she sketched out some of the challenges that state legislatures face. As you talk to people around the country, whether it's legislators or staff or people working in the Medicaid space, what do you think the biggest challenge will be for legislators? Is it overseeing the implementation of eligibility requirements or the budget consequences or is it something else?
KC (22:14):
I mean, can I say both and all of the above?
ES (22:18):
Absolutely.
KC ( (22:20):
Yeah. Obviously, some of this will be state specific based on the state's expansion status, how heavily they rely on provider taxes and the state's other coverage and health priorities. But I will say that across states and across Medicaid policies, the biggest challenge facing state legislators is going to be uncertainty. You mentioned that Medicaid for the foreseeable future is going to be a continuing priority, and I think that's the case. I think we've all heard the phrase unprecedented times, probably more often than we'd all like in the last several years. But when it comes to the Medicaid program, it's important to keep in mind that a lot of our predictions about Medicaid budgets, enrollment and policy planning comes from data from precedented times. So, in the face of a historic events like COVID-19 or new significant pieces of legislation, which included the Affordable Care Act and now can include the One Big Beautiful Bill Act, our historical data and expectations about the Medicaid program and how it operates are going to fall away until we get a new normal.
KC ( (23:33):
And it doesn't seem like there's going to be a new normal in Medicaid for a while. So state legislators need to be prepared for more uncertainty in the program and to understand the policy tools that they have available to navigate that uncertainty, which I think we'll talk about in a little bit. To briefly kind of get to your question though about whether budgets or eligibility will be more important, I think if we think about the role of the legislature and the proverbial power of the purse, I do suspect that Medicaid budgets and costs are going to be front and center for state legislatures this year. As Neda mentioned, some of this may be the result of Medicaid financing changes in the One Big Beautiful Bill Act, or a result of longer-term Medicaid spending trends, lower state revenue growth, state economic conditions, or other factors.
KC ( (24:23):
When it comes to eligibility, state Medicaid agencies are really where the rubber meets the road for implementing new work requirements and other eligibility changes in H.R. 1, but state legislatures will also be invested in this process from a coverage perspective, a program integrity perspective, and in addition to the administrative costs perspective that Neda already mentioned.
ES (24:49):
Provider taxes are a big deal in Medicaid, something that maybe a lot of people who aren't working in this area are not that familiar with. Neda talked about these a little bit, but I'd also like to get your perspective, Kathryn. Walk us through the changes in the One Big Beautiful Bill when it comes to provider taxes and how that's going to affect states.
KC ( (25:11):
Provider taxes are like the most important niche wonky topic. Happy to have the opportunity to chat about it a little more. Also just flagging that NCSL just hosted a webinar on this provider tax issue. So if you want to learn more, you can check out the link in the show notes. So now let's dig into provider taxes. There are three different provider tax provisions in H.R. 1 and they each have a different effect on a different subset of states. First, there is a reduction in existing provider taxes. Second, there's a moratorium on new or increased taxes. And third, there are changes to a very niche policy called provider tax waivers. So let's take each of these in turn and walk through the effect they'll have on states. So starting with the reduction in existing provider taxes. So, this policy, Neda already chatted about it, but it will only affect certain Medicaid expansion states that have one or more provider taxes above certain thresholds of taxation, so above 3.5% of net patient revenue.
KC ( (26:25):
So according to KFF, 31 expansion states have a tax that could be reduced, while 10 expansion states will not be affected because they do not have a provider tax that is above that new upper tax threshold of 3.5%. So these reductions will start in January 2028 and grow in magnitude over time until states get to that new upper tax threshold. States with taxes that are near to the current threshold of 6% will be affected sooner, while states with taxes near the new upper threshold won't be affected until later, closer to 2032. And one final note here, that reduction will not apply to provider taxes on certain facilities, specifically nursing facilities and certain facilities that care for individuals with intellectual and developmental disabilities. The second policy is the moratorium on new or increased taxes, and this policy affects all states. The only state that doesn't have a provider tax Alaska cannot decide to create a new provider tax, and any states that have existing taxes can't change them.
KC ( (27:28):
They can't add new ones or increase them. Now, where this gets tricky is determining whether or not a state has a "existing provider tax." Until recently, states thought that if they enacted a new provider tax through legislation before July 4th, when the One Big Beautiful Bill Act went into effect, then the tax was enacted and they could realize the revenue from that tax. But recent CMS guidance calls that assumption into question and clarified that states must have both enacted the tax and imposed it before July 4th, 2025, to realize that revenue. So from NCSL database tracking, we know that at least nine states either enacted or increased existing provider taxes through legislation in the 2025 legislative session. And then the third policy, the final one is those really niche provider tax waivers. Now, these are different than the types of waivers that people are used to hearing about in Medicaid.
KC ( (28:35):
These are very narrow and they're very specific to how states structure their provider taxes.
ES (28:42):
There was a lot of debate about how the changes in H.R. 1 would affect eligibility, specifically the new work requirements and their effect on who will be eligible for coverage. Can you tell us more about what we know and maybe what we don't know at this point about the effects of those changes and how legislatures might respond?
KC ( (29:05):
There's a lot to dig into here, so thank you for the question. So here's what we know and what we don't know about work requirements and other eligibility changes. So at a high level, more frequent eligibility determinations and work requirements are likely to lead to declines in enrollment and coverage losses, but there's some nuance here. So let's break it down and start with what we know and don't know about specifically the more frequent eligibility determinations. So more frequent eligibility determinations can impact eligibility and decrease enrollment because people with low incomes that are in the expansion population are more likely to have fluctuations in income that can result from small changes in hours or wages that can make them ineligible. So for example, let's say Someone picks up more shifts at a retail establishment over the holiday season and sees a couple of larger paychecks for a month or two.
KC ( (30:08):
When there are more frequent eligibility determinations, that temporary change in income can get picked up during the eligibility redetermination process. However, this effect will vary by state. States already had the option to do periodic data checks to confirm eligibility. So states that had already been conducting those periodic data checks for income for the expansion population may not see as many net new effects by implementing this increased frequency of determinations, either in the administrative cost side or in the coverage impacts. So that's the more frequent redeterminations. Let's pivot to what we know and don't know about work requirements, and this gets a little bit more complicated. So until now, only two states have implemented work requirements. Arkansas, in the first Trump administration and Georgia over the last several years. And the research that's been done and the policy analysis of those state's experiences indicates that work requirements lead to higher per person administrative costs.
KC ( (31:20):
They decrease enrollment and they can impact coverage even for the people who meet the new requirements or exemptions. So these are individuals who have met the qualifying work activities or they're exempt from the work requirements altogether. And the reason for that is because they're unable to meet the paperwork requirements that are needed to demonstrate that they comply. There's some complications around that. So that's what we know so far. Here's what we don't know. State policy choices are going to matter in how these play out. So even though we have these two state experiences to draw from, Arkansas and Georgia's experiences are still vastly different because they implemented work requirements differently. And so, while H.R. 1 establishes the federal requirements for implementation, there are state flexibilities in the implementation timeline, the lookback period that states can use to determine how many months of qualifying activities are needed, and then in optional hardship exemptions and exemptions that states can leverage.
KC ( (32:28):
So second, state experiences with unwinding may change how states implement work requirements now compared to how Arkansas and Georgia implemented work requirements then. So in 2023 and 2024, states had to redetermine eligibility for everyone enrolled in Medicaid during the pandemic. And as part of that process, states gained experience with using state and federal data to automatically determine eligibility without an individual's involvement or completion of paperwork. And as you can recall, in Arkansas and Georgia, some people lost coverage because they struggled to get the paperwork right. So these types of backend checks can help avoid some of these issues. And we've seen state legislation on this topic. So for example, Indiana enacted legislation in 2025 that directed the agency to verify information across multiple state data sources, including lottery winnings, correction data, and state employment and wage data. So third, what else don't we know about work requirements?
KC ( (33:32):
It's not clear how per enrollee costs are going to evolve over time. So the implementation is going to require a lot of upfront, but also ongoing investments in systems and staffing. Arkansas and Georgia have only had experiences with work requirements for a short period of time, which may have front loaded those administrative costs per enrollee. So while we can anticipate the short term per enrollee costs, we don't know how that's going to change over time as states gain more experience with the costs of work requirements. And finally, one last thing on what we know and don't know. So for both frequent eligibility determinations and work requirements, the concept of churn is going to come up. So what is churn? Well, churn happens when people are disenrolled from Medicaid, but re-enroll in the program within a year. And it's associated with higher administrative costs per person and worse health outcomes as people tend to lose coverage during that intervening period.
KC ( (34:34):
It's really unclear how these effects are going to play out over the long run, but it does contribute to that uncertainty that states are going to face in trying to plan for the program long term. Okay. So that was a whole lot on what we know and what we don't know. Let me pivot to the second part of your question about how are state legislatures going to respond. Well, state legislatures will have an investment in the cost coverage and program integrity associated with these eligibility changes. Neda mentioned systems and staffing costs, but states will get a little bit of help on this front. So CMS has been directed to award $200 million in grants to all 50 states in 2026. Now, 200 million isn't going to offset these costs, but it is going to help. And states also get enhanced federal match up to 90% for eligibility systems upgrades like this.
KC ( (35:28):
States may also be considering, and state legislatures may be interested in leveraging advanced technologies to help address some of the implementation here and may consider in those systems investments, one-time systems investments. States will also be interested in ensuring that people who are eligible because they meet qualifying work activities or exempt remain covered to avoid some of those downstream effects of churn and to address coverage. So states have several policies to consider here, both addressing those cross-state data connections, as well as leveraging beneficiary outreach and involving beneficiaries in the process. States can get a lot of valuable information about how work requirement implementation is rolling out from the people who are affected by the program. States can also focus on economic mobility and connecting people to other sources of coverage and improving their economic outcomes over time. Montana saw some success with its HelpLink program, and the New Hampshire Works Program also addresses economic and employment supports for individuals in the Medicaid expansion program.
KC ( (36:43):
And finally, there's one program integrity component to all these eligibility changes that will be important to state legislatures. Inaccurate eligibility determinations contribute to the state's improper payment rate, and one of the provisions in H.R. 1 increases the scope of what's included in the state's improper payment rate, specifically with respect to eligibility. The federal government can recoup costs of improper payments from states. So, this provision doesn't go into effect until 2029, but what it means is that the accuracy with which states implement work requirements and noncitizen eligibility and more frequent redeterminations in this year is going to affect the state's improper payment rate later and the likelihood of whether or not the federal government is going to recoup funds in the future. So states are going to want to do this right the first time around.
ES (37:36):
Kathryn, let me ask you this as we close up here. Do you think that states are going to be making a bunch of changes in terms of what benefits they offer through Medicaid programs? There's ,of course ,a certain number of benefits that are federally required, but many states have additional benefits on top of that. Do you expect big change there?
KC (37:57):
So, as with all things in state policy, it's still going to depend on the state. I anticipate that some states are going to need to navigate more urgent and pressing budget shortfalls this year and may have to consider some challenging policy options upfront, while other states may have a longer runway to plan for and anticipate tighter budget conditions in future years. NCSL actually just published a report on this and you can check it out in the show notes for more information, but states have a variety of policy options to consider when they're looking at balancing their Medicaid budget. States that are navigating immediate budget shortfalls may consider options to shrink the footprint of the Medicaid budget by cutting or freezing provider payment rates, imposing benefit limits, lowering eligibility thresholds or cutting those optional benefits or eligibility pathways that you mentioned. But there are other state policy options on the table.
KC (38:55):
States can also look at the revenue side of the equation and try to maximize revenue for Medicaid outside of provider taxes. So states can leverage enhanced federal matching rates for some services, use other Medicaid financing mechanisms, and even consider raising general fund revenue, although we know they can be politically challenging. States can also look to identify cost drivers in the program to gain insight into excess spending trends and better target their reductions if they need to make them. So as for other big changes in Medicaid, necessity is the mother invention, as the saying goes. And we could see states innovating through use of advanced technologies like AI. They could modernize procurement and eligibility systems or consider other creative solutions as they work to implement new policy changes and respond to dynamic issues on tight timelines this year. Legislatures always play an important role in obtaining feedback from their constituents too, and they are kind of uniquely responsive in this democratic system that we all live in.
KC (39:57):
So legislatures will be very key in implementing Medicaid policy changes in 2026 and in the years to come.
ES (40:05):
Well, Kathryn, thanks so much for walking us through this. As many podcasts as I have done on Medicaid, I always learn a lot when I do these because it's an enormously complicated topic. So thank you for your very clear explanations and take care.
KC (40:21):
Thank you, Ed. Have a good one.
ES (40:28):
I've been talking with Neda Jasemi from the National Association of Medicaid Directors and Kathryn Costanza from NCSL about how states are preparing for changes in Medicaid. Thanks for listening.
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