红领巾瓜报

On February 3, 2026, Congress finalized federal funding for fiscal year (FY) 2026, with the House passing the Consolidated Appropriations Act (CAA), 2026, with a vote of 217-214, following Senate approval last week. The president signed the CAA () shortly thereafter. The law provides full-year appropriations for the Departments of Health and Human Services (HHS), Housing and Urban Development, Labor, and several other departments. 

This year鈥檚 HHS funding bill is notable not only for what it includes, but also for what it omits. It restores or maintains funding for key public health and research agencies previously proposed for elimination in the president鈥檚 FY 2026 , extends several healthcare programs, and contains a significant package of pharmacy benefit manager (PBM) reforms. All of this activity comes as the Administration  new grant programs and policy efforts related to its signature priorities. 

In this article, we review the major funding and policies approved in the HHS spending bill. We also address key considerations for healthcare organizations as they anticipate downstream funding and policy developments and develop advocacy initiatives for federal FY 2027 bills. 

HHS Funding Levels and Direction 

The bill provides $116.8 billion for HHS, an increase of $210 million over FY 2025, and rejects large-scale structural reorganizations proposed in the president鈥檚 FY 2026 budget. This provision preserves funding for the Agency for Healthcare Research and Quality (AHRQ), Centers for Disease Control and Prevention (CDC), Health Resources & Services Administration (HRSA), and the Substance Abuse and Mental Health Services Administration (SAMHSA) 

Table 1. HHS Agency Funding Highlights, FY 2026 

Agency	FY 2026 Funding	(+/-) Compared with FY 2025
Administration for Strategic Preparedness and Response (ASPR)	$3.7 billion	+$58 million
CDC	$9.2 billion	level funding
Centers for Medicare & Medicaid Services (CMS), administrative expenses only	$3.7 billion	level funding
HRSA	$8.9 billion	+$415 million
National Institutes of Health (NIH)	$48.7 billion	+$929 million
SAMHSA	$7.4 billion	+$65 million

The bill also extends mandatory funding for community health centers, special diabetes programs, the National Health Service Corps, and Teaching Health Center Graduate Medical Education. 

PBM Reforms in the Package 

In one closely watched area of federal policymaking, the FY 2026 package includes a substantial set of PBM-related reforms that largely mirror the bipartisan package negotiated but not enacted in December 2024. These reforms have implications across Medicare Part D, commercial insurance, and employer-sponsored plans. 

The legislation contains the following PBM reforms: 

• Prohibits PBMs from deriving听remuneration听linked to drug prices for听Medicare-covered Part D drugs听
• Restricts spread pricing in Medicaid,听eliminating听a major driver of PBM revenue听
• Requires contractual transparency, mandating that PBMs clearly define pricing terms in agreements with Part D plan sponsors听
• Adds new PBM reporting obligations, including drug price reporting and rebate disclosures听
• Requires 100听percent听passthrough of rebates in ERISA-regulated plans for new, renewed, or extended contracts beginning听30 months听after enactment听
• Expands audit rights for plan sponsors听
• Codifies the 鈥渁ny willing pharmacy鈥� requirement for Medicare plan sponsors听

These provisions position 2026 as a consequential year for PBM regulation, increasing transparency, strengthening plan leverage, and heightening HHS oversight. 

Healthcare Extenders and Program Reauthorizations 

The bill includes a broad set of Medicaid, Medicare, and public health program extenders, affecting providers, patients, states, and managed care plans. 

Medicaid 

• Postpones reductions听in the听Disproportionate Share Hospital (DSH)听allotments听until FY 2028听
• Changes听the听DSH cap calculation听to听broaden which patient costs count toward Medicaid shortfall听
• Requires states to听develop and implement a process to听allow certain out-of-state pediatric providers to deliver services without听additional听screening for three years听
• Removes age limits on Medicaid鈥檚 Ticket to Work program, allowing adults older than age听65 to听participate听and requires state compliance by January 1, 2028听
• Establishes new maternity care reporting requirements听for rural hospitals, with dedicated federal funding听for hospitals听and states to听comply with听the reporting听

Medicare 

Congress extends several key programs and payment provisions, including: 

• Telehealth flexibilities through December 31, 2027听
• Incentive payments for participation in eligible alternative payment models through payment year 2028 (for performance year 2026) and applies an adjustment amount of 3.1 percent for 2028听
• Acute Hospital Care at Home waivers through 2030听
• Low-volume and Medicare-dependent hospital payment adjustments听
• The听1.0 work geographic practice cost index floor used in the calculation of payments under the Medicare physician fee schedule through December 31, 2026听
• Add-on payments for ambulance services听
• Continuation of Part D coverage for certain antivirals and modifications to hospice payment caps听

Behavioral Health Policy 

The appropriations bill听was听finalized听as the听administration听听new funding and policy initiatives听to听support behavioral health, crisis services, workforce expansion, and youth mental health鈥攅fforts mirrored in SAMHSA鈥檚 increased appropriations.听

SAMHSA鈥檚 $7.4 billion budget includes: 

• $1.6 billion听for State Opioid Response grants听
• $1.01 billion听for the Mental Health Block Grant听
• $535 million for the 988 Suicide and Crisis Lifeline听

Considerations for Stakeholders 

Federal funding and policy developments affect state budget dynamics as many states are now releasing 2026鈥�2027 budget proposals as well as the operational and growth plans of healthcare organizations and partners. 

A few key takeaways from the FY 2026 funding bill include: 

• Federal appropriations signal听congressional and听administration priorities and have听downstream听impact on upcoming rounds of grant cycles, including听SAMSHA and HRSA听awards.听
• The approved funding and certain policy extensions provide operational stability and reduce near-term fiscal pressure, such as the further delay of Medicaid DSH cuts. The extra time will allow healthcare entities to prepare for future reductions and plan for financial sustainability.听
• Agency and program funding emphasize oversight, program integrity, and听compliance. In addition,听fraud and program integrity听priorities are听woven into听certain听new听policies听and program听extensions,听including听PBM reforms, flexibility for pediatric care across state borders,听and rural maternity cost reporting requirements,听among others.听

Connect with Us 

If you would like deeper analysis or state and stakeholder-specific effects, 红领巾瓜报鈥檚 policy experts are available to assist. 

As of January 1, 2026, nine governors had released proposed budgets for state fiscal year (SFY) 2027. With the phase down of federal funding and substantial policy changes approved in the 2025 budget reconciliation act (P.L. 119-21, OBBBA), these proposals offer insights into how governors plan to manage mounting fiscal pressures, navigate new federal mandates, and position their programs for long-term sustainability. 

Today, 红领巾瓜报 Information Services (红领巾瓜报IS) published its first preliminary review of proposed SFY 2027 budget proposals. The initial installment includes budgets from Alaska, Colorado, Florida, Mississippi, New Mexico, South Dakota, Utah, Virginia, and Wyoming, with the latter two proposals covering the fiscal 2026鈥�28 biennium. 

红领巾瓜报IS will release periodic updates as additional governors publish their budget proposals鈥攖he same rolling approach we used in 2025 (here and here). Because 15 states enacted 2025鈥�27 biennial budgets last year, 红领巾瓜报IS also might review substantial mid-biennium health-related adjustments or supplemental funding. 

The remainder of this article provides a snapshot of several notable themes and emerging trends detailed in the full report. 

Implementation of New Federal Requirements 

State leaders are preparing budgets for SFY 2027 at a time of heightened fiscal stress and structural uncertainty. Entering 2026, governors are facing reductions in federal funding, particularly in Medicaid and Supplemental Nutrition Assistance Program (SNAP) funding. In addition, they are preparing for new federal requirements that will begin to take effect later this year, including narrower flexibilities for financing and Medicaid community engagement policies and more frequent eligibility redeterminations. 

Against this backdrop, governors are using FY 2027 budget proposals to comply with OBBBA鈥檚 mandates and to stabilize their safety net programs and realign state operations around stricter fiscal realities. 

Medicaid Work Requirements. Virginia鈥檚 proposed budget includes funding to implement federal Medicaid community engagement requirements, including a recommendation to add nine new authorized positions in SFY 2027 and 12 more in fiscal year 2028 to meet workload demands. In addition, South Dakota鈥檚 governor proposed amending the state鈥檚 2026 budget to secure funding to implement these requirements. 

Eligibility and Redetermination. Several governors are proposing investments to support heightened eligibility checks across Medicaid, SNAP, and Temporary Assistance for Needy Families (TANF). For example, Colorado Gov. Jared Polis鈥檚 budget proposes $19.1 million to improve the state鈥檚 eligibility system for programs such as Medicaid, SNAP, and TANF. Utah鈥檚 proposed budget includes a recommended allocation of nearly $16.5 million to the Department of Workforce Services for 鈥淗.R. 1 Medicaid Eligibility Administration,鈥� and nearly $10 million for the 鈥淗.R. 1 SNAP Administrative Services.鈥� 

SNAP Changes. States are backfilling lost federal funding and investing in error reduction and system modernization. New Mexico Gov. Michelle Lujan Grisham鈥檚 proposed budget, for example, includes $37 million to replace the decrease in federal funding for SNAP administration ($4 million of which will support 150 new full-time positions), as well as $8.9 million for systems improvements to reduce payment errors in SNAP. South Dakota Gov. Larry Rhoden鈥檚 proposed budget includes $5.5 million to offset a reduction in SNAP federal funding. 

Strategic Cost Containment 

Considering OBBBA implementation and the effects that it will have on their budgets, our first review of governors鈥� budget proposals signals that states are taking an aggressive posture toward limiting expenditure growth in 2026 and 2027. Initial proposals include targeted reductions, tighter utilization management, and restrictions on benefits. 

Since the 2025 legislative session, Colorado has taken multiple steps to prepare for declining federal revenue. For example, Governor Polis鈥檚 proposed budget accounts for multiple actions approved through an amended executive order that would reduce spending to brace for OBBBA鈥檚 impacts. Examples include: 

• Reducing provider rates to 85 percent of the Medicare reimbursement rate听
• Establishing limits on Community First Choice services听
• Adjusting听the听home health nursing and therapy services payment听methodology听
• Introducing cost controls for Medicaid benefit categories that have shown disproportionate growth听
• Implementing听a听$3,000 annual cap on adult Medicaid dental benefits听and a听$750 annual cap on dental benefits for individuals in the Cover All Coloradans program听
• Changing听the听Cover All Coloradans behavioral health program from managed care to fee for service听
• Reviewing provider fees听in anticipation of听possible State听Directed Payment approval from the Centers for Medicare & Medicaid Services (CMS)听

Former Virginia Gov. Glenn Youngkin鈥檚 budget鈥攏ow inherited by Abilgail Spanberger following her inauguration January 17, 2026鈥攊ncludes multiple cost-containment proposals, such as: 

• Anticipated adjustments to capitation rates after a review of Medicaid managed care organizations听
• A $2,000 annual limit on adult dental services Medicaid coverage听
• Elimination of听both听automatic rate increases for psychiatric residential treatment facilities and qualifying听addiction听and recovery treatment services providers听and听automatic biennial inflation increases for听medical听assistance听providers听
• Restrictions on听emergency听maternity services to Medicaid听enrollees听who听are ineligible听for Medicaid听because听of their citizenship status听
• Standardized听hourly limits across home and community-based听services听waivers听
• Actions听related to听鈥渆nsuring appropriate utilization鈥� of services,听such as听applied听behavioral听analysis and crisis services听

States are expected to include additional cost-containment tools throughout 2026 and beyond as OBBBA鈥檚 fiscal effects become clearer over the coming months and years. 

What to Watch 

The budget proposals indicate the resources that executive agencies need and preview governors鈥� policy agendas for the year ahead. Stakeholders should track program reductions and rate changes, eligibility system investments, and shifts in care models. 

In addition, some of the announced budget proposals consider federal awards to states under the Rural Health Transformation Program (RHTP). For example, the Alaska Department of Health budget request addresses the state鈥檚 RHTP implementation plans, and Wyoming鈥檚 budget proposal outlines RHTP priorities. Many states are preparing RFP processes to operationalize their RHTP strategies and make progress on the goals of their initiatives. 

Connect with Us 

As federal funding uncertainties continue, states and other stakeholders will need to adapt their delivery systems, administrative structures, and financing models throughout OBBBA鈥檚 multiyear rollout. 红领巾瓜报 offers expertise, analytics, and strategic advisory services needed to navigate this evolving landscape. For details contact Andrea Maresca and Kathleen Nolan. 

The full state of the states and governor budget report is available to 红领巾瓜报IS subscribers. In addition, 红领巾瓜报IS maintains a  that incorporates details of each initiative and the first year award.