Every state has to change who qualifies for Medicaid under the 2025 federal budget reconciliation law, and 44 of them must add work requirements for some adults. That is the finding of a state-by-state KFF analysis, Which States Will Be Affected by Key Medicaid Provisions in the 2025 Reconciliation Law?, published Oct. 7, 2026, by Alice Burns, Jennifer Tolbert, Robin Rudowitz and Anthony Montano.

KFF says it can't put a current dollar figure on the law's total effect. Instead, it maps which eligibility and financing provisions reach each state. States that adopted the Affordable Care Act Medicaid expansion face the most restrictions.

Eligibility changes

  • Work requirements: 44 states. That is 41 expansion states plus 3 non-expansion states. They must make Medicaid for adults covered through the expansion, or under certain waivers, depend on meeting work requirements or qualifying for an exclusion.
  • Six-month renewals: 41 expansion states. Expansion adults move from yearly to twice-yearly eligibility checks. Other groups whose eligibility is based on income, including most children, pregnant people and parents outside the expansion, keep 12-month renewals.
  • Immigrant eligibility: all states. Since Oct. 1, 2026, states may cover only certain lawfully present immigrants, which ends eligibility for groups such as refugees and asylees without a green card. (We covered that change on Oct. 1.)
  • Retroactive coverage and cost sharing. Retroactive coverage for past medical bills drops to two months for traditional enrollees and one month for expansion enrollees. Expansion adults with income from 100% to 138% of the federal poverty level face new cost sharing.

Financing changes

Provider taxes. KFF says the law effectively bars every state from creating new provider taxes or raising the rates of existing ones. Expansion states face a further limit: the share of net patient revenue they may collect, now 6.0%, falls by half a percentage point a year starting Oct. 1, 2027, until it reaches 3.5%. That declining limit applies to all provider taxes except those on nursing facilities and intermediate care facilities. KFF counts at least 31 states with current taxes on hospitals, managed care organizations or ambulances above 3.5%, and notes that a proposed rule would extend the limits to health insurer taxes.

State directed payments. At least 41 states use state directed payments, which tell Medicaid managed care plans how to pay providers. KFF estimates federal spending on them at $93 billion a year, $78 billion of it for hospital services, and says about $60 billion of that hospital spending is above the new limits. Starting Jan. 1, 2028, hospital payment rates will fall in at least 37 states. Eight states account for more than half of the spending above the limits: California, Illinois, Kentucky, Texas, North Carolina, Louisiana, Arizona and Michigan. These are KFF's own estimates and differ from the Health Affairs study we covered in September.

Rural health fund. All 50 states are getting money from the law's $50 billion rural health transformation program, $10 billion a year for five years. First-year awards run from $147 million in New Jersey to $281 million in Texas, or from $66 per rural resident in Texas to $6,305 in Rhode Island. KFF says the fund will not offset the loss of federal Medicaid money.

KFF also points to the calendar. Thirty-six states elect governors in 2026, only 17 incumbents are on the ballot, and at least 19 states expect a change in leadership while these provisions are being put in place.

Why this matters for providers and DSPs

Home and community-based services for people with I/DD are optional Medicaid benefits paid from the same state budgets these provisions squeeze. KFF warns that the provider tax limits may force states to make more Medicaid cuts, and tighter budgets can turn into pressure on the rates provider agencies are paid and on waiver openings.

The work rules are aimed at expansion adults, not at people who qualify for Medicaid because of a disability. But people with disabilities can still be enrolled through the expansion, and CMS has told states how to screen for medical frailty before applying the rules. Agencies may also have DSPs and other staff who get their own coverage through the expansion. Knowing your state's start date for work rules and six-month renewals helps both groups keep coverage.

States that tax intermediate care facilities keep a little more room, because those taxes are outside the declining limit for expansion states. The general ban on new or higher provider taxes still applies to them.