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.

View the Letter  NACo Medicaid Reform One Pager

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.

On May 22, the U.S. House of Representatives passed the One Big Beautiful Bill Act of 2025 (OBBBA) (H.R. 1). This FY 2025 budget reconciliation bill includes major Medicaid reforms with significant implications for counties, which help finance and administer the program. 

While some Medicaid provisions of the OBBBA offer relief from administrative burdens and funding cuts for county health facilities—such as the delay in Medicaid Disproportionate Share Hospital (DSH) payment cuts until 2029 and the postponement of the federal nursing home staffing rule until 2035—others raise concerns given their potential for cost shifts and administrative burden.

The chart below explains each of these proposals and its impact on counties.

Cost Sharing for the Medicaid Expansion Population 

Work or Community Engagement Requirements 

Federal Funding Match Reductions for States Providing Services to Immigrant Populations 

New Eligibility and Verification Reporting Requirements 

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-passed bill includes substantial federal spending cuts, with Medicaid financing reforms a primary focus for these cuts. The Senate will now take up the legislation, with revisions expected. Because the bill is advancing through reconciliation, it must comply with the so-called Byrd Rule, which bars the inclusion of non-budgetary provisions. The Senate majority may introduce a substitute amendment to overhaul the House bill, while Senate Democrats are expected to challenge provisions they see as violating the Byrd Rule—including those that impact Medicaid. Speaker of the House Mike Johnson has expressed hope that the bill will reach President Trump’s desk by July 4; however, much depends on how the Senate proceeds over the next few weeks.