Recent federal legislation made changes to Medicaid, which has led to concerns about the impacts to insured populations and the state budget.

Medicaid is an optional program that is funded by the state and the federal government. Some populations and benefits are mandatory, and states may add other populations and benefits with federal approval. For example, hospital services are mandatory and dental services are optional. Low-income families, children, and disabled people are examples of mandatory eligibility groups. In Washington, the cost of Medicaid services is generally funded half by the state and half by the federal government.

As part of the Affordable Care Act, the federal government allowed states to expand Medicaid to cover individuals with no children and income up to 138% of the federal poverty level. To encourage more states to expand the program, the federal government funds 90% of the Medicaid costs of this population.

As enacted, H.R. 1 (the “One Big Beautiful Bill Act”) makes several changes to Medicaid. The eligibility changes in the federal bill are focused on the expansion population, which did not traditionally qualify for Medicaid and is mainly funded by federal revenues. The Medicaid-related provisions in the bill include:

• Members of the expansion population must be enrolled in an educational program or spend at least 80 hours a month working, performing community service, or participating in a work program to continue to qualify for Medicaid. People with serious medical conditions and dependent children are exempt from the requirement. (The requirement begins in CY 2027, but states may ask for exemption until CY 2029. During a July 22 meeting of the Senate Health & Long-Term Care Committee, the Health Care Authority said that it will apply for such an exemption.)
• States must implement cost sharing for the expansion population if a member’s family income exceeds the federal poverty line beginning in federal fiscal year 2029. The maximum charge is $35 per service, and the total cost share may not exceed 5% of family income. This does not apply to emergency services, primary care, mental health, or substance use disorder services.
• States must redetermine Medicaid eligibility for the expansion population every six months beginning in CY 2027 (instead of annually).
• Home equity limits for Medicaid long-term care services are capped at $1 million beginning in 2028. (Currently, the limit in Washington is $1.097 million.)
• Medicaid provider taxes are limited beginning in FY 2027. Currently capped at 6% of net patient service revenues, the cap will decrease to 3.5% by FY2032. Additionally, states may not impose new provider taxes.
• State-directed payments for hospitals and certain other services under Medicaid managed care contracts are limited to the Medicare payment rate instead of the average commercial rate.

It is important to understand that H.R. 1 does not directly affect Medicaid coverage for children, disabled people, or any others that have traditionally been eligible for Medicaid. The bill could reduce enrollment of the expansion population if individuals can’t meet the cost sharing or work requirements.

However, the limits to provider taxes and state-directed payments for hospitals could negatively affect the financial stability of providers. To the extent that hospitals close or reduce services in response, that could affect the care that even traditionally eligible Medicaid clients receive.

With provider taxes, states impose a tax on hospitals and nursing facilities. The revenues are then used to increase Medicaid spending (including enhancing Medicaid rates via state-directed payments), which generates federal Medicaid matching funds.

Since 2010, Washington has had a provider tax called the hospital safety net assessment. The program was changed and made permanent in 2023, as part of HB 1850. Additionally, in 2025, the Legislature enacted SHB 1392, which imposes a new covered lives assessment on health carriers. The revenues are to be used to increase Medicaid professional services rates. (The bill was effective May 19, 2025. It is not clear if the federal government has approved the waivers required to implement the bill.) According to KFF, Washington’s provider taxes would not be affected by H.R. 1. However, according to the Health Care Authority (HCA), state-directed payments to hospitals in Washington could be reduced by $1.5 billion a year.

The impacts of H.R. 1 on Medicaid enrollment and state budgets are not yet known. The HCA says that 200,000–320,000 people could lose coverage in Washington. (The assumptions underlying this enrollment estimate are not clear.)

On July 23, KFF released an analysis of the cost estimate for the bill from the Congressional Budget Office (CBO). KFF’s analysis allocates CBO’s estimated federal spending reduction across states. KFF estimates that over 10 years, the Medicaid changes could reduce federal funds for Washington by $28 billion to $46 billion.

If that is correct, Washington would lose roughly $6 billion a biennium. (For 2025–27, the state expects to spend $31.6 billion on Medicaid from federal funds.) Note, though, that the changes will mostly not take effect until after 2025–27. Also, to the extent that reductions in federal spending reflect lower enrollment, there will be reductions in state spending as well.

The ultimate impact to the state budget will depend on policy choices made by the Legislature. For example:

• The Legislature could choose to increase state funding for the HCA to address the increased administrative burden, both for the agency and for individuals who are on Medicaid.
• The Legislature could choose to create a new program funded only by the state to provide Medicaid-like coverage for people who are currently in the expansion population but who do not meet the work requirement. The state would pay 100% of the cost, compared to just 10% of the cost of members of this group who comply with the work requirement. (The state is already doing this for people who would qualify for Medicaid but for their immigration status.)
• The Legislature could choose to create a new program to subsidize the cost shares for the expansion population (assuming there’s no federal rule against that). (The state is already subsidizing premiums on Cascade Care health care plans.)
• The Legislature could choose to use state funds to subsidize providers.

The Legislature could also choose to do none of these things. When more is known about the impacts of the federal changes, legislators will have to consider the options and weigh them against the state’s other priorities.