As states completed the “unwinding” of pandemic-era continuous coverage, Medicaid enrollment fell 7.6% in FY 2025 and is expected to be largely flat in FY 2026, according to KFF’s 25th annual Medicaid Budget Survey.At the same time, total Medicaid spending grew by 8.6% in FY 2025 and is expected to grow by 7.9% in FY 2026. States report that provider rate increases, greater enrollee health care needs, and increasing costs for long-term care, pharmacy benefits, and behavioral health services are the most significant drivers of increased costs.
In addition to increasing spending demands, slower revenue growth and heightened fiscal uncertainty have created a more tenuous fiscal climate for states in FY 2026. States are also preparing for $911 billion in federal Medicaid spending cuts enacted in the budget reconciliation law earlier this year, including new financing restrictions and work requirements, which will exacerbate existing budget challenges. The challenging fiscal climate and the magnitude of federal Medicaid cuts will make it difficult for states to absorb or offset the reductions.