More than a month has passed since the April 15 deadline for Congress to finalize its 2026 budget resolution, and there’s still no clarity. The proposed federal budget cuts to Medicaid, estimated at over $600 billion over 10 years, have cleared the House but remain under negotiation in the Senate. But the longer we go without a definitive plan, the more unstable things become for the programs and providers who depend on federal funding to serve their communities. 

The Congressional Budget Office estimates the House-passed Medicaid provisions would reduce Medicaid funding by roughly $625 billion over the next decade, resulting in an estimated 8.6 million people losing coverage by 2035. 

The uncertainty is creating real tension. States are locking in budgets, providers are making hiring decisions, and agencies are greenlighting programs they may not be able to sustain if funding is pulled back. We’re watching policy negotiations stretch out while the ground beneath providers continues to shift.  

This month, three key stories emerged: CMS is signaling a rollback of Medicaid waivers, crisis care continues to expand without stabilization infrastructure, and some state budgets—New York among them—are moving forward as if it’s business as usual. 

The Redefinition of Medicaid Eligibility May Already Be Underway 

CMS is expected to publish formal guidance this summer that could reverse several of the flexibilities granted under Section 1115 Medicaid waivers. While the language is still in draft form, the agency has raised concerns that certain state-funded programs, particularly those tied to housing, nutrition, transportation, and workforce, may fall outside of Medicaid’s statutory requirements.  

The phrase being used is “medical necessity,” and it’s being invoked as a filter for what qualifies for federal matching funds. 

This isn’t limited to Medicaid. In its proposed Medicare Inpatient Prospective Payment System (IPPS) rule for FY2026, CMS made a similar move, limiting hospital add-on payments to services that meet medical necessity criteria. 

This system-wide shift has raised red flags among legal and policy experts. In an earlier advisory, health law analysts noted that CMS also intends to withdraw federal match for Medicaid programs tied to workforce development, social needs, and infrastructure categories that have become essential to many states’ behavioral health and human services strategies. 

This subtle but notable change could spell trouble for programs operating under Designated State Health Programs (DSHPs) or Designated State Investment Programs (DSIPs)—two waiver types that allowed states like New York, New Jersey, and California to scale community-based behavioral health supports. These waivers have been used to fund peer services, housing-related care, reentry coordination, and other critical supports that, while not clinical, have proven central to care continuity. 

What CMS is proposing would narrow the definition of reimbursable care, and in doing so, could eliminate some of the most innovative and stabilizing services in the Medicaid landscape. The signal is clear: if it’s not medical, it may no longer be matchable. And for providers whose programs rely on state innovation waivers, that’s a warning worth taking seriously. 

At the same time, CMS continues to promote value-based care models through Medicare, most notably the Shared Savings Program, which outlines clear expectations for compliance, performance metrics, and financial accountability. Programs like Accountable Care Organizations (ACOs) have remained a centerpiece of CMS’s payment innovation strategy, prioritizing cost savings and clinical integration over community-based flexibility. 

The Crisis System Continues to Grow

There’s been measurable progress in the expansion of crisis infrastructure. 988 call centers are becoming more coordinated. Mobile crisis response teams are being embedded in more counties. But the system continues to strain under a missing link: stabilization care. 

Crisis stabilization units (CSUs) remain the least developed part of the national crisis system. While 988 call centers and mobile response teams are gaining traction, stabilization services lag with no consistent model, no clear funding strategy, and no scalable pathway forward. Without this core element, mobile response teams are left with nowhere to go, and individuals in crisis are once again routed to the emergency room, jail, or worse, discharged without a plan because there’s still no place for them to safely land in between. 

The effect on residential and supportive housing providers is significant. These organizations often become the default setting for individuals who might otherwise benefit from short-term stabilization. But without funding or structure to support that transition, providers are left to absorb the complexity without the resources. The result is more pressure on a system already at capacity. 

State Budgets are Moving Forward Despite Federal Budget Cuts 

New York State finalized its FY2026 budget in early May (2025). It includes long-overdue investments in mental health, developmental disability services, housing, and substance use treatment. It’s a budget many have called bold, and in many ways, it is. But what it doesn’t do is account for the possibility of federal budget cuts. 

New York receives more than $90 billion in federal funding annually, including a disproportionately high share of national Medicaid dollars. If the proposed cuts move forward, especially reductions to the federal medical assistance percentage (FMAP), the state could face a midyear shortfall of more than $2 billion. That’s not conjecture. That’s math. 

Other states are in a similar position. Budgets are being passed based on current match rates and existing waiver approvals. But none of those assumptions are guaranteed beyond September 30, when the current continuing resolution expires.  

If Congress fails to pass a new budget or enacts retroactive cuts, states will be left with two options: reopen their budgets or make cuts elsewhere to absorb the difference. Neither is simple. Both would create disruption. 

With the House budget bill now officially passed, the fight over Medicaid funding has moved to the Senate.

Providers Are Caught Between Momentum and Fragility 

Despite these challenges, not all news is negative. CCBHCs (Certified Community Behavioral Health Clinics) continue to demonstrate strong outcomes, and their bipartisan support is notable in a time of deep division. Despite the broader uncertainty around Medicaid funding, CMS has awarded CCBHC demonstration status to an additional 10 states, with more scheduled to join through July 2025. But that progress exists alongside a policy environment where everything else is in flux. 

Medicaid remains the largest source of funding for human services in the U.S., touching behavioral health, disability supports, home and community-based services, and housing-related care. When the foundation is uncertain, the entire system feels it. Providers are being asked to continue scaling services, meeting demand, and navigating complex transitions while the policy environment offers few assurances. 

That is not sustainable. And it’s why we’ll continue to watch not just the legislation, but the implementation.

There’s growing pressure from both sides of the aisle, with Senator Josh Hawley recently urging Congress to reject Medicaid cuts, writing, “Medicaid is not welfare. It’s healthcare for working people,  people who do their jobs, pay their taxes, and struggle to get by.” His remarks reflect growing pressure from both sides of the aisle to preserve access for low-income and working-class families 

What to Watch 

This summer will be critical. CMS is expected to release formal guidance around waiver definitions and federal match eligibility. Congressional negotiations on the FY2026 budget remain unresolved—and that’s where the next major developments will unfold. 

Congress still needs to finalize the FY2026 budget. Republican leadership in the Senate has set a target of passing a version of the House bill by the July 4th recess, but internal tensions make that timeline far from guaranteed. 

We won’t make predictions. But we can safely say what’s next: haggling over funding details and final numbers. We’ll keep you informed along the way.  

What You Can Do Now 

If you’re a human services provider (whether in behavioral or mental health, disability services, housing, or child welfare) this is the moment to prepare, not panic. 

Take stock of where your funding is tied to waivers, match rates, or COVID-era flexibilities. Talk with your state partners. Keep your outcome data organized. And keep a close eye on what’s coming out of CMS. 

???? You can also contact your elected officials. Find your representative here.

We’ll continue doing what we do: reading the fine print, asking the tough questions, and sharing what matters most to you. 

???? You can read past briefings and future updates at radicle-health.com/blog. 

We’ll be back soon with more updates.  

Intel By Juliette Palmer, Regulatory Intelligence Analyst