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State fiscal year (SFY) 2027 budgets provide insights into how states are responding to the Medicaid and Supplemental Nutrition Assistance Program (SNAP) funding and operational changes included in the 2025 budget reconciliation legislation, P.L. 119-21, the Working Families Tax Cut Act (WFTCA). Many of the law鈥檚 most significant changes will phase in, with full implementation set for 2029. Nonetheless, states are already adjusting their budgets, operational infrastructures, eligibility requirements, and financial strategies to address WFTCA鈥檚 new administrative requirements, reductions in federal Medicaid funding, and increased SNAP cost sharing responsibilities, among other reforms. 听

In its newly updated report, (subscriber access required), 红领巾瓜报 Information Services (红领巾瓜报IS), examined state Medicaid agency funding and budget provisions that signal how states are preparing for WFTCA implementation. As of July 31, 2026, all states except South Carolina had enacted their SFY 2027 budgets, and many states that enacted two-year spending plans in 2025 have now approved supplemental budgets. Some states are investing in staffing, eligibility systems, compliance activities, and other infrastructure to maintain coverage and services wherever possible, while others are identifying reductions or alternative funding strategies as they look ahead to more limited federal funding and future budget tradeoffs.听

Following鈥痠s a snapshot of the key trends鈥痑nd state responses to WFTCA policies, which the full report covers in more detail.听

Medicaid and SNAP Policy Changes Shaping State FY 2027 Budgets听

Major WFTCA provisions affecting state budgets include work/community engagement requirements and more frequent eligibility checks for expansion beneficiaries, an increased state share of SNAP administrative costs, and restrictions on provider taxes and state directed payments.听

Medicaid Community Engagement Requirements Drive New State Investments. States that expanded Medicaid eligibility through the Affordable Care Act (ACA) must implement an 80-hour per month community engagement/work requirement for expansion populations by January 1, 2027. These enrollees will also be subject to six-month eligibility reviews.听

In anticipation of significant administrative demands, states allocated funding for more staff, IT enhancements, provider and community education, as well as public education to assist individuals subject to the new requirements. States already had been working to meet this requirement before the Centers for Medicare & Medicaid Services (CMS) released the on June 1, 2026. They may need to adjust their funding requests and implementation strategies to align with the new federal mandates. Examples of state responses include:听

• Illinois allocated $55 million to the Department of Human Services to hire 450 additional staff and update eligibility determination systems to implement new eligibility and work requirements for Medicaid and SNAP.听
• 碍别苍迟耻肠办测鈥檚 biennial budget includes $35 million in SFY 2027 and $11 million in SFY 2028 to implement Medicaid work and community engagement requirements and other related needs.听
• 惭补颈苍别鈥檚 supplemental SFY 2025鈥�27 budget includes funding to establish 35 eligibility specialist positions as well as other workers to implement work requirements.听

States Budget for Higher SNAP Administrative Costs and Error Rate Penalties. States are now responsible for 75% of SNAP administrative costs, up from 50% previously. Beginning in federal fiscal year 2028, the WFTCA imposes a cost sharing requirement on states that have a SNAP payment error rate of more than 6%. In response, many states included funding or budget language to address these new fiscal and administrative responsibilities. Examples include:听

• Arizona is allocating $31.8 million for the Department of Economic Security to cover the larger state share of administrative costs, as well as $10.8 million and 88 full-time equivalent (FTE) positions to reduce the SNAP error rate.听
• 颁补濒颈蹿辞谤苍颈补鈥檚 Department of Social Services is set to receive a $30.6 million general fund increase to account for the increase state share of administrative expenses, a nearly $8 million total increase for CalFresh staffing for WFTCA and federal changes and a $4.8 million total increase for enhanced monitoring of CalFresh to meet new error rate requirements.听
• Florida is setting aside $4 million for the Department of Children and Families to procure a vendor to help reduce the SNAP error rate.听
• Iowa included an increase of $8.7 million for the increased state share of SNAP administrative costs.听
• Applying a slightly different approach to the error rate, 础濒补产补尘补鈥檚 budget requires the Department of Human Resources to develop a plan that will modify SNAP benefits or eligibility as necessary to cover any penalty imposed on the state in SFY 2028.听

States Assess the Impact of Federal Restrictions on Medicaid Financing Tools. The WFTCA freezes current provider tax programs, bars new ones, and requires Medicaid expansion states to phase down the minimum allowable tax rate from 6% to 3.5% by 2032. It also caps state directed payments at 100% of Medicare rates for expansion states and 110% for non-expansion states. Grandfathered payment arrangements will be phased down by 10% annually beginning in 2028.听

While this provision will not fully impact states until the next fiscal year, some states are already alerting policymakers and Medicaid organizations that the change will significantly affect their approach to financing the state share of Medicaid costs. States signaling the challenges ahead include:听

• New York reported that its assessment tax on managed care organizations (MCOs) is noncompliant with WFTCA.听
• 颁补濒颈蹿辞谤苍颈补鈥檚 MCO tax is also noncompliant and will expire December 31, 2026. The state鈥檚 budget does include an WFTCA-compliant tax that will generate $575 million in SFY 2027, $2.3 billion in SFYs 2028 and 2029, and $1.7 billion in SFY 2030.听
• Although West Virginia鈥檚 final budget includes $877 million from Health Care Provider Tax collections to cover medical services and associated administrative costs, this amount is $46.1 million more than was included in Gov. Patrick Morrisey鈥檚 proposed budget. The governor鈥檚 proposed budget highlighted how the state will be able to rely less on funds accrued from this tax because of the WFTCA鈥檚 limits on provider taxes.听

States Increase Investments in Program Integrity and Fraud Prevention听

Multiple state budgets also account for the federal government鈥檚 crackdown on fraud, waste, and abuse (FWA) in Medicaid and other public benefit programs. Missouri鈥檚 Department of Social Services budget includes $17.9 million for the Missouri Medicaid Audit and Compliance Unit to design, implement, maintain, and operate a Medicaid provider enrollment system; $7 million for a case management, provider enrollment, and fraud detection system; and $6.7 million to expand efforts to eliminate fraud through proactive measures using data analytics.听

Florida allocated $10.8 million total to combat public assistance fraud, including $2 million in nonrecurring state funds for the Department of Financial Services to competitively procure and implement a public assistance fraud software solution to prevent, detect, and investigate SNAP fraud.听

In addition, Rhode Island鈥檚 budget establishes an Office of the Inspector General to combat FWA of public funds; Arizona is increasing staff for its Medicaid Fraud Control Unit by four FTE positions; and Colorado included funds to improve the state鈥檚 provider directory and conduct a pediatric behavioral therapy audit.听

WFTCA Could Reshape Medicaid Financing, Enrollment, and Market Strategy听听

The WFTCA will reshape Medicaid financing, eligibility, enrollment, and program operations over the next several years, requiring states, health plans, providers, and other stakeholders to adapt to an evolving policy and market landscape. Although many provisions phase in through 2029, SFY 2027 budgets demonstrate that implementation is already underway. New York, for example, projects annual federal funding for Medicaid and the Essential Plan will decline from $77.5 billion in SFY 2027 to $68.5 billion in SFY 2030鈥攁 nearly $10 billion annual reduction. California estimates federal community engagement requirements could reduce program costs by $357.6 million in SFY 2027 and approximately $9.6 billion through SFY 2029鈥�30.听

红领巾瓜报 Helps Organizations Navigate Medicaid Transformation and WFTCA Implementation听

States and other stakeholders will need to continue to adapt as the full effects of WFTCA and other federal priorities take hold. 红领巾瓜报 (红领巾瓜报) brings the expertise, tools, and insights needed for stakeholders to stay on top of the rapidly changing environment. Contact 红领巾瓜报鈥檚鈥�Medicaid experts鈥�to discuss how state budget and policy decisions鈥痑ffect your organization鈥檚 strategy, operations, and long-term positioning in鈥痶his evolving鈥痟ealthcare landscape.听

The full report is available to 红领巾瓜报IS subscribers through our Medicaid competitive intelligence, strategy, and transformation tool.听