Federal Reforms to Medicaid Financing: What Counties Should Know

Medicaid is a joint federal, state and local program that provides health coverage to low-income individuals, including children, pregnant women, elderly adults and people with disabilities. The program accounts for over half of all federal funding to states and is the largest source of federal funding in state budgets.

Counties play a crucial role in delivering Medicaid services by partnering with federal and state governments to manage local health systems and ensure access to care for vulnerable populations. Any reductions in Medicaid funding directly affect counties' ability to provide public health services, respond to crises and promote economic stability.

On February 20, NACo, in partnership with a coalition of bipartisan membership organizations representing state legislators, state governments, county managers and cities sent a letter to House and Senate leadership expressing concern over proposed changes to Medicaid financing requirements, following recent reconciliation proposals that would enact significant reforms to Medicaid.  

This FAQ expands upon that letter, outlining the potential impacts of proposed Medicaid reforms to counties and offers steps county leaders can take to advocate for preserving Medicaid funding.

Counties are integral to Medicaid administration, funding and service delivery. In 24 states, counties contribute to the non-federal share of Medicaid costs, directly impacting local budgets. Counties also operate over 900 hospitals, 700 nursing homes and 750 behavioral health authorities, and over 1900 local health departments, providing essential healthcare services.

Medicaid covers 38 million children, funds 40 percent of all births and is the largest payer of long-term care and behavioral health services, all critical for county-operated hospitals, nursing homes and social services.

Potential reforms to Medicaid could lead to coverage losses, increased medical debt and higher uncompensated care costs for local providers, threatening access to affordable healthcare and placing a financial strain on county resources.

Recent proposals to reduce Medicaid spending focus on capping spending per beneficiary, eliminating or reducing the federal share of costs for certain beneficiaries and implementing work requirements for enrollees. The chart below explains each proposal and its impact on counties.

Per-Capita Caps

Reductions in the Federal Medical Assistance Percentage (FMAP)

Work reporting Requirements

Restricting state and local use of provider taxes to finance the non-federal share of Medicaid

Both the House and Senate have advanced budget resolutions that could lead to policy changes through the reconciliation process.

U.S. Senate

The Senate budget resolution would authorize roughly $340 billion in spending and be fully offset by corresponding spending cuts. The resolution instructs the Senate Finance Committee, which has jurisdiction over Medicaid, to reduce spending by $1 billion over 4 years. While specific cuts are uncertain, health-related reductions will likely target the Medicaid program. 

U.S. House of Representatives

The House budget resolution requires at least $1.5 trillion in mandatory spending cuts over the next decade, with the Energy and Commerce Committee tasked with reducing spending by $880 billion. These cuts will likely target Medicaid, including potential reductions to the Federal Medical Assistance Percentage (FMAP), per-capita caps and work requirements.

The House and Senate have both adopted a unified budget resolution—a critical step toward using the party-line reconciliation process to pass legislation. With this hurdle cleared, lawmakers will begin drafting the actual bill, aiming for completion by Memorial Day. The final budget includes substantial federal spending cuts, with Medicaid financing reforms likely to be a primary focus. However, the exact nature of these cuts won’t be known until the reconciliation bill is written.