THE VBP Blog
Medicaid Under Threat: The Administration’s Budget Cuts and Their Impact on Vulnerable Communities
Analyzing recent and proposed Medicaid funding reductions and their implications for consumers, state budgets, and health equity.
May 8, 2025 – Medicaid provides healthcare for low-income individuals, people with disabilities, and families across the country. But recent decisions by the Administration signal a clear shift away from expanding access and toward scaling back both funding and support. These changes not only threaten the stability of healthcare systems but also put people at risk of losing access to services that address more than just medical care.
In this blog, we look at how the Administration has begun rolling back funding mechanisms and critical guidance that allowed states to better meet the needs of consumers. From eliminating coverage of non-medical supports to signaling deep federal cuts in Medicaid overall, the message (as of May 5, 2025 when this blog was written) is clear: support is shrinking and it could have a devastating impact on the communities that rely on it most.
Rescission of Health-Related Social Needs (HRSN) Guidance
In March 2025, the Centers for Medicare & Medicaid Services (CMS) rescinded key guidance related to coverage for health-related social needs (HRSN) through Section 1115 waivers. HRSN includes things like housing instability, food insecurity, and transportation barriers. These supports, often categorized as non-clinical interventions, are increasingly recognized as essential for improving health outcomes and reducing long-term healthcare costs.
The reversal rescinds guidance originally issued under the Biden Administration in 2023, which gave states a pathway to use Medicaid funding to provide services like rent support, nutrition assistance, and home remediation for asthma triggers. The current Administration’s decision to eliminate this guidance removes federal backing for these programs and creates uncertainty for states that had begun building infrastructure around them.
Without clear support from CMS, states may be reluctant or financially unable to continue these programs on their own. The likely result is a reduction in non-medical supports that are proven to reduce hospitalizations and improve quality of life, particularly for individuals with chronic conditions and those in underserved communities. This shift represents a step backward in the move toward whole-person care and puts greater pressure on healthcare providers to manage the health impacts of poverty without the tools they need.
Termination of Funding for Non-Medical In-Home Services
In a continuation of its retreat from supporting whole-person care, not even a month later, the Administration also announced cuts to Medicaid coverage for several services covered by section 1115 demonstrations, including some non-medical in-home services.
In the CMS letter address to state Medicaid directors, it was stated that CMS “did not anticipate” approving any new federal funding for designated state health programs (DSHP) and designated state investment programs (DSIP).
One example of an expenditure that would not be approved under the new guidance is a $241 million program in New York that covered non-medical in-home services, including housekeeping. It’s important to note that while services like this may not be clinical in nature, they are vital for keeping individuals, particularly older adults and people with disabilities, safe and stable in their homes.
Not only do these types of services allow individuals to live at home and in the community, but they can also actually save money in the long run. These services have long played a role in preventing costly hospitalizations and premature nursing home admissions, which drive up costs. By helping individuals manage daily tasks and remain independent, non-medical in-home services reduce strain on the broader healthcare system, which is facing staff shortages across the board.
CMS’s decision to eliminate federal funding for these supports signals a shift in priorities, and the Administration isn’t stopping there.
Proposed $880 Billion Medicaid Funding Reduction
Beyond targeted service rollbacks, the Administration has proposed sweeping cuts to Medicaid—most notably, a $880 billion reduction in federal funding over the next ten years. This scale of disinvestment would seriously weaken the program’s ability to serve low-income individuals, families, and individuals with disabilities.
It is important to note that this shift would not happen in a vacuum. Historical evidence shows that when states are forced to absorb funding shortfalls, older adults and individuals with disabilities often experience the greatest harm. During prior federal Medicaid cuts, states reduced or eliminated home- and community-based services, personal care supports, and provider reimbursement rates, which many individuals rely on to live independently and avoid institutionalization.
And the repercussions would be massive. There are 21 million enrolled through disability and aging eligibility pathways. And while this group makes up only 25% of Medicaid enrollment, they account for at least two-thirds of overall spending. Faced with reductions to federal funding, states must either use more state dollars to pay for Medicaid or cut spending. Cuts of this magnitude would almost certainly force states to reduce or restrict these high-cost but essential services. Without federal support, states with limited budgets may cap enrollment, slash provider payments, or eliminate benefits altogether.
The impact would fall hardest on communities already experiencing health disparities, particularly rural areas, states with large aging populations, and those with higher rates of disability. For beneficiaries, this could mean losing access to life-sustaining care or the ability to live independently at home. For providers, it could mean scaling back operations, closing doors, or laying off staff. And for the broader healthcare system, it would deepen inequities and increase avoidable hospitalizations and long-term institutional care. We’re not just talking about dollars here, the lives of people and their ability to live at home with dignity are at stake.
In the CMS letter address to state Medicaid directors, it was stated that CMS “did not anticipate” approving any new federal funding for designated state health programs (DSHP) and designated state investment programs (DSIP).
One example of an expenditure that would not be approved under the new guidance is a $241 million program in New York that covered non-medical in-home services, including housekeeping. It’s important to note that while services like this may not be clinical in nature, they are vital for keeping individuals, particularly older adults and people with disabilities, safe and stable in their homes.
Not only do these types of services allow individuals to live at home and in the community, but they can also actually save money in the long run. These services have long played a role in preventing costly hospitalizations and premature nursing home admissions, which drive up costs. By helping individuals manage daily tasks and remain independent, non-medical in-home services reduce strain on the broader healthcare system, which is facing staff shortages across the board.
CMS’s decision to eliminate federal funding for these supports signals a shift in priorities, and the Administration isn’t stopping there.
Economic and Public Health Ramifications
The consequences of Medicaid funding cuts are not limited to individual beneficiaries, but they ripple across entire communities and state economies. A recent Commonwealth Fund study shows that deep reductions to Medicaid and related programs like SNAP could result in the loss of over 1 million jobs nationally, as well as a $113 billion drop in state economic output. These cuts threaten employment not only in healthcare but across a range of industries that depend on a healthy, economically secure population.
From a public health perspective, scaling back Medicaid support weakens the infrastructure needed to respond to both chronic and emerging health needs. Reduced funding jeopardizes care coordination and preventative services, which are all critical to managing long-term costs and health outcomes. And studies have shown that home and community based services (HCBS), which allow individuals to live independently at home and in their communities, are often the first to be cut. Over half of state funding on optional Medicaid services goes to HCBS, and when states faced a reduction in federal funding in between 2010 and 2012, every state cut funds for at least one HCBS program.
For individuals with disabilities, seniors, and low-income families, the erosion of Medicaid means less access to care and more barriers to maintaining independence and stability. Cutting Medicaid also risks reversing years of progress in closing health equity gaps. These policies are not simply budgetary choices, they are decisions with real-life implications that can deepen existing disparities and strain already vulnerable systems.
Advocate’s Perspective
As of May 5, 2025 when this blog was written, the decisions being made by the Administration represent more than a shift in healthcare funding. They reflect a shift in priorities where cost containment is placed above access to care, health equity, and prevention. As advocates, we cannot ignore the significant impact of these changes. The rollback of support for home- and community-based services, the dismantling of social supports, and the looming threat of deep federal funding cuts all point toward a healthcare system that may become harder to access and less responsive to the needs of real people. We will continue to monitor these rapidly evolving developments and provide clear analysis because it is essential to protect Medicaid as a critical safety net and continue fighting for a system that values health as a human right, not a line item.
Onward!
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About the Author
Fady Sahhar brings over 30 years of senior management experience working with major multinational companies including Sara Lee, Mobil Oil, Tenneco Packaging, Pactiv, Progressive Insurance, Transitions Optical, PPG Industries and Essilor (France).
His corporate responsibilities included new product development, strategic planning, marketing management, and global sales. He has developed a number of global communications networks, launched products in over 45 countries, and managed a number of branded patented products.
About the Co-Author
Mandy Sahhar provides experience in digital marketing, event management, and business development. Her background has allowed her to get in on the ground floor of marketing efforts including website design, content marketing, and trade show planning. Through her modern approach, she focuses on bringing businesses into the new digital age of marketing through unique approaches and focused content creation. With a passion for communications, she can bring a fresh perspective to an ever-changing industry. Mandy has an MBA with a marketing concentration from Canisius College.