Congressional budget plans could set the stage for hundreds of billions of dollars in federal cuts to Medicaid and the Children’s Health Insurance Program (CHIP), the joint state-federal programs that provide health insurance to nearly 1 in 4 people in the United States. If that were to occur, states and their residents would quickly feel the impact.

In the aggregate, states get more than $500 billion a year for Medicaid from the federal government, but they spend more of their own dollars on Medicaid than any other programmatic area except K-12 education. Potential cuts, such as a reduction in the share of Medicaid costs paid by the federal government, could upend state budgets and leave officials choosing between finding scarce state dollars to make up the difference or cutting services and coverage.

Even as they await congressional action, states such as Colorado, Connecticut, Idaho, Indiana, Maryland, New York, Ohio, Utah, and Virginia are already facing Medicaid budget challenges or considering their own cuts or service restrictions. As policymakers oversee and finance their individual Medicaid programs, they must navigate a landscape of fluctuating enrollment, changing demographics, and increasing health care costs. To understand the condition of state Medicaid budgets before any federal action, The Pew Charitable Trusts reviewed Medicaid data and spoke with state analysts who track spending on these programs.

The analysis shows that states’ challenges reflect a counterintuitive reality: Medicaid enrollment is declining nationally, yet many state governments face increasing expenditures. The cost growth is driven by enrollees using specific services more frequently as states are paying higher rates to doctors and hospitals for those services. These spending pressures, compounded by softening state revenues, complicate states’ efforts to maintain a program that provides health care for tens of millions of low-income individuals—Medicaid is the largest payor for births, long-term care, behavioral health services—while addressing other critical policy priorities.

The pandemic and record enrollment

Because Medicaid is a means-tested program, the rapid job and income losses experienced during the early phases of the COVID-19 pandemic increased the number of people eligible to enroll. Responding to the pandemic, Congress enacted the Families First Coronavirus Response Act in March 2020. That law required states to implement continuous Medicaid enrollment by keeping new and current enrollees on the program during the public health crisis.

In the years following, national Medicaid and CHIP enrollment grew by more than 30%, from 71.4 million people in February 2020 to a peak of 94.4 million people in April 2023. (See Figure 1.) Their enrollment numbers are often reported together because the two programs are closely interrelated. The federal COVID-19 public health emergency ended in early 2023. At that point, states began the complicated and often error-prone process of redetermining the eligibility of their unprecedented caseloads, a practice that was known as “unwinding.”

Since then, national Medicaid enrollment has decreased each month, according to KFF, a health policy research organization. Despite this decline, national enrollment was 79.9 million people as of September 2024 (the most recent month for which updated data was available as of mid-March), still 12% above pre-pandemic levels.

The national Medicaid enrollment trends hold in many states, but no two states’ experiences are the same. For example, North Carolina began its unwinding efforts in June 2023 and experienced modestly declining caseloads until policymakers expanded coverage that December. Despite the unwinding, North Carolina’s Medicaid expansion led to enrollment nearly 50% above pre-pandemic levels by September 2024.

Many of the states with the greatest enrollment compared with pre-pandemic rates are those that either expanded Medicaid coverage during the pandemic or updated enrollment and renewal practices, such as increased automation. Some states, such as New York and Florida, do not expect their Medicaid caseloads to ever return to pre-pandemic levels, according to state projections. Federal cuts could change the enrollment picture. Nine states have laws that automatically end Medicaid expansion under the Affordable Care Act if federal funding for that population is reduced.

Some states that are experiencing decreasing Medicaid caseloads still face higher-than-expected costs. For example, Maryland is confronting Medicaid funding shortfalls and cost increases despite their caseloads declining since fiscal year 2023. Similarly, Connecticut is experiencing a fiscal 2025 cost overrun largely driven by greater-than-anticipated enrollment—even though it is still declining—and changes in service utilization, the types and frequency of services used by Medicaid participants.

Aging populations drive increases in service utilization

Enrollment declined nationally during fiscal 2024, but total Medicaid spending grew 5.5%, according to KFF, illustrating that factors beyond enrollment contribute to Medicaid costs.

States have struggled to anticipate these higher expenditures because of difficulties estimating the cost of services per enrollee post-pandemic. Older adults tend to use costly, long-term services more frequently than younger age groups—in 2020, for example, adults over 65 made up only 10% of Medicaid enrollment but accounted for more than 20% of expenditures. During the unwinding, the people who lost coverage tended to be younger than those who remained on the program, raising the average age of those who remained. Going forward, the U.S. population and Medicaid rolls will continue to age. Growing Medicaid service utilization will drive up states’ cost per enrollee as pandemic-era federal support used, in part, to support home and community-based long-term care options largely expires this spring.

Colorado, for example, faced a $150 million Medicaid overrun in fiscal 2024. Eric Kurtz, chief legislative budget and policy analyst for the Colorado General Assembly’s Joint Budget Committee, told Pew that the state anticipated that enrollees remaining after the unwinding would have higher utilization than those enrolled during the pandemic—but they underestimated by how much. Virginia, New York, and Washington are experiencing similar spending pressures. And in California, a recent Legislative Analyst’s Office report highlighted the state’s surge in older enrollment and explained that increased service utilization, in addition to provider rate increases, is driving the growing Medicaid budget.

Increasing provider rates

Provider rates are the amounts that insurers reimburse doctors, hospitals, and other health care providers per specific service or enrollee. In recent long-term budget assessments, states frequently highlight provider rate increases as an important driver of Medicaid expenditure growth. Although these increases can strain already tight state budgets, the rates that states pay for Medicaid services are, on average, only 72% of the rates the federal government pays for Medicare services. Moreover, Medicare provider rates are already below rates paid by commercial insurers. This lower compensation limits the pool of providers willing to accept Medicaid patients.

Provider rate increases are common, with 47 states and Washington, D.C., implementing at least one provider rate increase in fiscal 2023, the most recent year for which data is available. The decision to raise provider rates is dependent on available state resources. For example, the Colorado Medicaid Provider Rate Review Advisory Committee recommended provider rate increases for several services, but Governor Jared Polis’ (D) original budget request for fiscal 2025-26 included funding for only a small increase in home and community-based services. The National Association of Medicaid Directors (NAMD) says that provider rate increases help to ensure timely health care access by providing funds that help to hire and retain necessary health care workers. NAMD also highlights high-priced pharmaceutical drugs for specific diseases, such as obesity and sickle cell, as another growing Medicaid budget pressure.

Final thoughts

Medicaid spending has been one of the largest portions of state budgets for decades, but enrollment fluctuations, aging populations, provider rate increases, and concerns about future federal contributions have sharpened state policymakers’ focus on Medicaid funding. Many of the factors that drive state Medicaid costs are largely out of states’ control, but decision-makers do have options to better prepare for the uncertainties ahead.

For one, states can update their Medicaid forecasts more frequently to help ensure that sufficient funding is available. Oregon, for example, produces a formal Medicaid enrollment forecast every six months. Matt Stayner, the Medicaid analyst for Oregon’s Legislative Fiscal Office, told Pew that these updates allow the state to right-size allocated Medicaid funding multiple times throughout Oregon’s two-year budget cycle.

States are also setting aside funds. California and Indiana, for example, have created Medicaid or health care-specific reserve funds that they can tap in the event of cost overruns. More states are thinking along these lines—Idaho established a Medicaid Budget Stabilization Fund during its 2024 legislative session, and New Mexico’s Legislature passed a bill to create and seed a Medicaid Trust Fund during the 2025 session.

Given growing Medicaid costs and uncertainty about federal support, state conversations about hard choices and trade-offs will likely be ongoing. As leaders consider the future of a program that provides health care to their most vulnerable residents, they can ensure that they are prepared for a range of scenarios and that their decisions are informed by the best possible data about future costs.

Carolyn Ellison and Josh Goodman work on The Pew Charitable Trusts’ state fiscal health project.