红领巾瓜报

This week, our鈥�In Focus鈥痵ection听highlights听findings from听a听红领巾瓜报 Information Services (红领巾瓜报IS)听analysis of the听Centers for Medicare & Medicaid Services (CMS)听preliminary听CMS-64听Medicaid听expenditure听report for federal fiscal year (FFY)听2025.听The听data听show total medical services expenditures reached听$971.4 billion听across all states and territories, up 6.9听percent听from FFY 2024.听

This CMS-64 spending detail provides important context as states prepare for their upcoming legislative sessions and begin implementing changes required under the 2025 budget reconciliation act (P.L. 119-21, OBBBA). Early fiscal and operational pressures will stem from changes to the Supplemental Nutrition Assistance Program (SNAP) and preparations for community engagement requirements for Affordable Care Act (ACA) Medicaid expansion enrollees. In subsequent years, pressures will intensify because of major changes to provider tax financing and new federal limits on state directed payments in 2027 and early 2028.听

In this article, we听provide a deeper review of听Medicaid spending, including听the听federal-state听financing split.听As Medicaid agencies prepare for upcoming spring sessions and听anticipate听potential program changes under OBBBA,听it is notable that听听report听an at least听fifty听percent likelihood听of听a Medicaid budget shortfall听in听FFY 2026.听

Growth and Drivers in听Medicaid Managed Care Spending听

The听红领巾瓜报IS听analysis听looks听at听CMS-64听preliminary estimates of Medicaid spending by state for听FFY听2025.听CMS听听state expenditures through the automated Medicaid Budget and Expenditure System/State Children’s Health Insurance Budget and Expenditure System (MBES/CBES).听

While enrollment decreased for most states following the COVID-19 public health emergency unwinding, states saw an uptick in expenditures due to increased state directed payments, greater utilization and sicker populations, higher drug costs, increased provider rates, and greater use of long-term services and supports and behavioral health.听

Key findings听from 红领巾瓜报IS鈥� analysis听(see听Table 1), include:听

• Total Medicaid managed care spending (federal and state share听combined)听reached听$550.5听billion听in听FFY 2025,听up from听$517.5听billion听in听FFY 2024.听
• This听amount听represents听a听6.4听percent听year-over-year increase from听FFY 2024听to听FFY 2025.听
• Managed听care听accounted for 56.7听percent听of total Medicaid spending in听FFY 2025, down听0.3听percentage points听from the previous听year.听
• The听$33 billion听increase from FFY 2024 to FFY 2025 exceeds the听$9.4 billion听increase seen the year prior, reflecting renewed growth following the unwinding transition period.听

These figures听include spending on comprehensive risk-based managed care听organizations (MCOs),听prepaid inpatient health plans (PIHPs),听and prepaid ambulatory health plans (PAHPs). PIHPs and PAHPs refer to prepaid health plans that provide听a subset听of听services, such as dental or behavioral health care.听This total is exclusive of fee-based programs such as primary care case management models.听

Table 1. Medicaid MCO Expenditures as a Percentage of Total Medicaid Expenditures,听FFY 2020鈥�2025听(in millions)听

Annual听Medicaid听managed听care expenditures have grown consistently听with total Medicaid听expenditures.听After slower growth in FFY听2024鈥�which aligned with听the post-COVID-19 policy unwinding period听when听many states completed听eligibility听redeterminations鈥擣FY听2025 again听experienced听an uptick in managed care growth听(see Figure 1).听

Figure听1. Total and MCO Medicaid Expenditures, FFY 2020鈥�2025听($M)

Federal听versus State听Share听Spending听

The preliminary FFY 2025 expenditure data provides a baseline before OBBBA鈥檚 changes are scheduled for implementation and as states continue to face Medicaid funding challenges. In FFY 2025, federal funding accounted for 64.2 percent of FFY 2025 spending, and non-federal matching funds accounted for 35.8 percent (see Table 2). Particularly later in 2027, 2028, and subsequent years, Medicaid expansion states stand to see disproportionally larger increases in their share of spending.听

Table 2.听Federal versus State Share of Medicaid Expenditures, FFY 2020鈥�2025听(in millions)

T-MSIS Data Adds Detail to CMS-64 MCO Spending听

To听complement CMS-64 macro-spending trends, 红领巾瓜报听developed听a methodology听allowing us to听use听Transformed Medicaid Statistical Information System (T-MSIS)听data to approximate managed care spending by service category. Although T-MSIS enables more granular views (e.g., professional services, inpatient/outpatient hospital services, skilled nursing facilities (SNFs), HCBS, clinics, pharmaceuticals), the most recent dataset typically lags one to two years behind CMS-64 totals.听

红领巾瓜报鈥檚 analysis of the T-MSIS data shows that while managed care remains the dominant delivery system model for Medicaid, spending by provider types helps contextualize the CMS-64 report. Notably, the CMS-64 reports FFY25 data and our report below on T-MSIS disaggregation uses 2023 data. Although the T-MSIS and CMS-64 data are for different years, it still highlights the main components of the largest spending component of the CMS-64 with more recent data.听

The听2023听T-MSIS听analysis shows听the following:听

• Professional fees are the lead spending category, with听nearly听30听percent听of spending directed听toward听payments to physicians and other practitioners (e.g., physician assistants, nurse practitioners). Given that T-MSIS data are built around billing codes, services that traditionally may be considered part of a bundled rate (i.e.,听a large portion听of physician services delivered in hospitals and clinics) are听essentially unbundled听and considered professional fees.听
• Hospital spending听(inpatient plus outpatient), SNF听costs, and professional fees听together听account for close to 75听percent of spending in听CY 2023.听

Figure听2. T-MSIS Medicaid Spending by Service Category听2023听(MCO听disaggregated plus FFS)

What to Watch听

Because Medicaid is such a big part of state government spending, outlays for Medicaid will always be a focus and challenge for states. Upcoming state legislative sessions and OBBBA driven changes will begin in 2026 with SNAP pressures and major operational preparations for community engagement requirements for expansion states. Preparations for new limits on provider taxes and state directed payments will likely begin immediately, but the true impacts will occur in 2027 and early 2028. States will need to tailor their programs under funding constraints.听

Connect with听Us听

红领巾瓜报IS, a subscription-based tool that 红领巾瓜报 offers, provides state-by-state analysis of the CMS-64 data, Medicaid managed care enrollment trends, and state budget reporting. For more information about an 红领巾瓜报IS subscription, contact Andrea Maresca听and听Alona Nenko.听For听details听on T-MSIS data, contact听Matt Powers听and听Shreyas Ramani.听

As we kick off the new year,听红领巾瓜报听(红领巾瓜报)听is launching a new series of brief,听insightful听interviews听with our policy experts听on issues听that will define听2026鈥攚hat鈥檚 changing, why it matters, and how federal, state, and industry decisions will shape what happens next.听Building on听our earlier analysis of听the Rural Health Transformation Program听((RHTP),听here听and听here), this week, we听start听with a听pointed听look at听the Centers for Medicare & Medicaid听Services鈥檚听(CMS)听first year of RHTP awards.听

An听interview听with听Kathleen Nolan, Senior Advisor,听红领巾瓜报,听and听,听Principal, Leavitt Partners, an 红领巾瓜报 Company.听

Q: What do the new Rural Health Transformation Program awards tell us about听US听Department听of Health and听Human Services (HHS)听and CMS priorities heading into 2026?听

Kathleen Nolan:听One of the clearest signals is that CMS expects visible progress in 2026. This听is not a program that gives states months of planning听runway.听The application听made听it clear that CMS听wants听states to start听doing听the activities they proposed听right听away鈥攏ot听just planning听or propping up existing systems.听CMS wants to see meaningful movement on implementation in 2026, especially in the areas of workforce, infrastructure, technology modernization, and care delivery redesign.听

Sara Singleton:听Exactly,听and CMS is using this investment to reinforce some of the听administration鈥檚 broader policy goals. Many state proposals leaned heavily into chronic disease prevention, chronic care management, and expanding supports that promote healthier lifestyles. That alignment听isn鈥檛听accidental. The Administration is looking for real traction on these priorities, and RHTP gives states both the resources and the accountability framework to make progress.听So,听the message from CMS is clear:听Move quickly, implement strategically, and show early gains in the areas that matter for long-term population health.听

Q: Was anything in the听awards themselves听surprising?听

Singleton:听There was a lot of speculation about how听wide the spread听in听funding听levels might be, particularly听for听states鈥櫶齞iscretionary initiatives.听But the distribution was听relatively tight;听32听states听fell in the 鈥渁verage鈥� range of $190鈥�$230 million, with only four states above $230 million and 13 below $190 million. That suggests CMS听isn鈥檛听signaling听dramatic differences in expected performance or ambition.听

Nolan:听It reinforces that CMS is looking for consistent, measurable progress from听every state.听States that struggle to implement their plans could see less funding in听about years.听

Q: What should听states听keep top of mind heading into year one?听

Nolan:听Accountability. CMS has made it clear they will adjust budgets in later years if states听don鈥檛听meet expectations on reporting and evaluation.听That also means states need to know where the dollars are going and what they are getting for the investment.听Year one performance really matters.听

Singleton:听And听it鈥檚听not just听CMS.听Congress and the Office of Inspector General听for听HHS听will also be watching how states use these funds.听

Q: What rural health policy developments are you watching in early 2026?听

Nolan:听Decisions听about听the leadership听for听these initiatives and state legislatures. Federal investment can only go so far.听States will need strong听leaders听and supportive policies to听accelerate and sustain听RHTP听efforts in year one.听What legislatures choose to prioritize will shape the impact of RHTP far beyond year听one.听