December 2025: Medicaid Policy Tracker 

H.R. 1 (the "One Big Beautiful Bill" Act) delivered the largest Medicaid restructuring in decades. The government shutdown delayed implementation guidance, but the CMS moved fast once the lights came back on - releasing two major guidance documents within a week of the November 12 funding resolution. The Congressional Budget Office projected $225.7 billion in federal cuts over ten years. States are already cutting reimbursement rates, shelving planned rate increases, and dropping certain services entirely.

In this piece, we're tracking five developments that will shape provider operations heading into 2026: federal implementation timelines, state budget pressures, and coverage transitions already underway.

CMS Releases H.R. 1 Implementation Guidance: $225.7B in Federal Cuts

CMS released two major guidance documents in November clarifying how H.R. 1's Medicaid provisions will reshape provider operations. The November 14 guidance implements restrictions on healthcare-related provider taxes that states use to finance Medicaid programs, prohibiting new or increased taxes and closing financing mechanisms states have used to draw additional federal matching funds. A November 18 bulletin followed with a 40-page implementation roadmap covering work requirements, eligibility redeterminations, state-directed payments, and immigration-related provisions.

The Congressional Budget Office projects $225.7 billion in federal Medicaid cuts over 10 years and 1.2 million more uninsured by 2034. Work requirements alone will reduce federal spending by $326 billion over 10 years, affecting more than 20 million expansion adults.

Key implementation timelines: work requirements take effect January 1, 2027; 6-month eligibility redeterminations begin December 31, 2026; states with prohibited MCO taxes must comply by the end of state fiscal year 2026; other provider tax compliance extends to fiscal year 2028. At least 31 expansion states must restructure provider taxes, with California, New York, Illinois, Michigan, Massachusetts, Ohio, and West Virginia facing immediate impacts from prohibited uniformity waiver taxes.

The bulletin includes exemptions for individuals with substance use disorders or disabling mental disorders - operational guidance that requires practices to develop documentation workflows proving exempt status. States must begin immediate planning for major systems changes, with eligibility systems requiring significant updates to process 6-month redeterminations and work requirement verification. (Sources: CMS on provider taxes, CMS on H.R. 1 implementation )

KFF Survey: States Face Budget Shortfalls as Enrollment Flattens Post-Unwinding

KFF's 25th annual Medicaid Budget Survey found enrollment fell 7.6% in fiscal year 2025 due to pandemic unwinding but is expected to remain largely flat at 0.2% growth in FY 2026. Despite flat enrollment, total Medicaid spending grew 8.6% in 2025 and is projected to grow 7.9% in 2026, driven by provider rate increases, greater enrollee health needs, and rising medical costs. Two-thirds of states see at least a 50-50 chance of a Medicaid budget shortfall in FY 2026. 

The survey of 48 states provides the most comprehensive picture of Medicaid's financial trajectory, affecting 77.3 million Medicaid and CHIP enrollees nationally. The combination of flat enrollment but rising spending signals financial stress that will force difficult provider rate decisions.

 Practices should monitor their state budget cycles closely, as fiscal pressure often precedes rate reductions or program eliminations. (Sources: Healthcare Dive, KFF)

Colorado: Suspended Rate Increase Costs Providers $750 Million

Colorado suspended a planned 1.6% across-the-board Medicaid provider rate increase scheduled for October 2025, redirecting approximately $750 million to cover budget shortfalls created by federal policy changes. The suspended increase affects all Medicaid providers statewide, representing lost revenue that practices had factored into FY 2026 budgets. Family caregivers for adults with developmental disabilities face additional rate cuts of up to 10%, compounding financial pressure on an already strained home care workforce. The state projects federal funding reductions between $900 million and $2.5 billion annually by federal fiscal year 2032, signaling additional rate pressures ahead. 

Practices managing multi-year contracts or expansion plans now face the operational reality that planned rate improvements can disappear overnight when states confront federal funding constraints. (Sources: Colorado Sun)

Idaho: 4% Rate Cuts Extended, Mental Health Services End December 1

Idaho extended 4% across-the-board Medicaid provider rate cuts through fiscal year 2027, while the state's mental health contractor Magellan implemented additional service reductions ranging from 4% to 15% and eliminated critical services effective December 1, 2025. The rate cuts, originally implemented as temporary budget measures, became permanent as state legislators faced ongoing fiscal constraints. Magellan's changes go further, ending peer support specialist services and specialized mobile treatment teams - both evidence-based interventions for patients with serious mental illness. 

Providers face dual challenges: permanent rate reductions plus the loss of specific service revenue streams. Patients currently receiving peer support or mobile crisis services face immediate care transitions, with the December 1 deadline leaving minimal time to establish alternative arrangements. (Sources: Idaho Capital Sun)

Texas: 135,000 Dual-Eligible Members Transition to STAR+PLUS January 1

Texas's Dual Demonstration Pilot Program ends December 31, 2025, requiring approximately 135,000 members enrolled in Medicare-Medicaid Plans to transition to STAR+PLUS managed care organizations beginning January 1, 2026. 

The demonstration program, which integrated Medicare and Medicaid benefits through specialized plans, will revert to traditional dual-eligible coverage models. Members will receive new plan identification codes and need new prior authorizations for services that previously had unified approval processes. 

Providers face operational adjustments across multiple systems. Prior authorizations approved under MMP plans don't transfer to STAR+PLUS, requiring resubmission for ongoing treatments. Electronic visit verification requirements change, affecting home health agencies' documentation workflows. Revenue cycle teams will need to update eligibility systems to recognize new plan codes and prevent claim denials starting January 1. (Sources: Texas Health and Human Services)

Managing Medicaid Volatility

These five developments reflect the broader, ongoing changes to Medicaid that will create challenges for both practices and the patients they serve. Healthcare organizations can start preparing now:

Eligibility System Preparation: 6-month redeterminations and work requirement verification will require systems upgrades. Build capacity and make plans now before the December 2026 deadline hits

Documentation Workflows: Develop processes to identify and document patients qualifying for work requirement exemptions, particularly those with substance use disorders or disabling mental disorders

Coverage Transition Planning: Build systems to track insurance changes as MCOs exit markets, states restructure financing, and members navigate forced plan transitions

State Budget Monitoring: Track legislative sessions and rate decisions. Colorado's suspended increase and Idaho's extended cuts show how quickly planned revenue can disappear

Revenue Cycle Preparation: Update systems for new plan codes and prior authorization requirements as coverage shifts accelerate

Stay tuned. We'll continue tracking Medicaid policy and operational developments and sharing our findings with you.