Medicaid news has looked a lot like Home Alone recently: As the “parents” in Washington squabbled for 43 days, the “kids” in the states were left to fend for themselves. For the states, and for providers who rely on clear regulations and funding streams, this shutdown did nothing but disrupt the services meant to bring stability to those who need them most.

As we approach a new year, we’re all looking for a quiet corner to catch a breath. We’re also looking for a steady baseline to guide our goals, plans, and forecasts. But we know that waiting for stability is not a plan, and we’re right here with you as you figure out what to do next.

Here’s the latest information to consider, and what it means for you as we head into 2026:

• How the ACA subsidies battle shifted to SNAP, and why it matters
• States give behavioral health & health-related social needs top billing
• Spending trends: See where states are putting their money
• On our radar: Youth and rural health investments
• Planning for success in 2026—despite the chaos

How the ACA Subsidies Battle Shifted to SNAP and Impacted Providers

SNAP became one of the biggest casualties of the shutdown, hitting many people already impacted by potential Medicaid cuts. How did the focus shift to SNAP? Well, during weeks of impasse over the enhanced ACA premium subsidies (Democrats wanted a straightforward extension that Republicans didn’t), we were left without a fiscal year 2026 budget.

For 43 days, we didn’t even have stopgap funding. When SNAP lost appropriations—along with WIC, Head Start, the FDA, and others, these programs couldn’t spend new dollars. People were left without access to resources that meet their most basic needs, and everyone was paying attention.

Why We Should All Care

It wouldn’t be far-fetched to argue that access to affordable health care should fall under the umbrella of our federal “social safety net” programming. The social safety net programs are broadly accepted as the government’s minimum responsibility, and they focus on access. What’s inarguable is that nutrition is included, and access to it is essential.

The Office of the Assistant Secretary for Planning and Evaluation’s website states that “people facing economic instability often need more than one program or service.” These are the statements that hit home for behavioral health providers. When your clients show up hungry, disoriented—or don’t show up at all—because they’re lacking the basics, their challenges deepen. A responsibility that began in Washington is suddenly at your doorstep. In fact, some providers were even asked to supplement their clients’ nutrition when the government would not!

Luckily, some states also came to the rescue to keep families from going hungry.

How States Stepped Up to Cover the SNAP Lapse

Pink = None      Gold = Increased funds

Turquoise = Increased foodbank funds      Orange = Direct financial aid

Source: Newsweek

States not only stepped up to feed those with benefit disruption during the shutdown; they’re continuing to prioritize SDOH and behavioral health in new and strategic ways.

Finally, States Give Top Billing to Behavioral Health & Health-Related Social Needs

In the face of federal funding uncertainty, states across the country are taking a more scrappy, local-first, DIY approach to SDOH and behavioral health. We’re excited to see that states planned investments and proposals aimed at delivering crucial infrastructure and supporting the continuum of care. In fact, we noticed that behavioral health was a prominent theme in many state Governors’ 2025 addresses.

Here’s what they’re talking about:

“Accessible Healthcare for All” (Josh Shapiro, PA)

In Pennsylvania, Governor Josh Shapiro has emphasized making healthcare accessible and affordable for all. His proposed 2026 budget includes big investments in behavioral and mental health care.

Specifically, Shapiro is shining a light on postpartum mental health in a state where approximately 1 in 5 moms experience challenges during pregnancy or up to one year postpartum. Investments include postpartum screening, provider education to identify maternal mental health challenges, expedited referrals following postpartum depression diagnoses, and the creation of resource hubs and local support networks.

The Governor has also proposed an allocation of $200m toward student mental health services that would cover school safety initiatives, hire more mental health counselors, and provide resources tailored to each school community’s needs.

“Year of the Kid” ( Tony Evers – WI)

In Wisconsin, Governor Tony Evers is also betting on youth mental health, declaring 2026 the “Year of the Kid,” and asking for $300m in his ambitious bill, Act 15. Getting everything he hoped for was another matter. So far, Evers has gotten about $30m “to continue providing comprehensive school-based mental health services statewide,” according to the Wisconsin Office of Children’s Mental Health newsletter.

Here are the four strategies Evers outlined for his “Get Kids Ahead” Initiative:

1. Prevention: These are some of the basics we mentioned above, including access to healthy meals, safety, and family supports.
2. School Mental Health: Enhancing treatment in schools, hiring mental health professionals, implementing student-led suicide prevention programs, and establishing school safety offices.
3. Treatment: Ensuring qualified professionals are available in psychiatric residential treatment programs and children’s behavioral health programs.
4. Fairness: Allowing school districts to retain 100% of federal Medicaid school-based funding and requiring health plans to cover services from qualified trainees already included under other providers.

“Housing is Healthcare” (Josh Green, HI & Mike DeWine, OH)

$21,000 per year, per person. That’s how much we save when we give stable housing and supports to homeless people with chronic mental illness. Why? Because it prevents their cycles of ER visits, police encounters, and incarceration.

In Hawaii, Governor Josh Green declared that “housing is healthcare,” as he launched the state’s “kauhale” initiative (small‑home villages / supportive housing + wraparound care for unhoused individuals). He also proposed additional funding for psychiatric beds at Hawaii State Hospital, aiming to provide inpatient mental health services while addressing chronic homelessness.

And in Ohio, Governor Mike DeWine recently announced the opening of the state’s first new behavioral health hospital in nearly a decade, along with the construction and expansion of 11 pediatric behavioral health facilities—collectively serving more than 100,000 people since last year.

“Support for Hundreds of Thousands of Children and Their Families” in MA

In Massachusetts, Governor Maura Heeley announced the addition of 31 Behavioral Health Centers across the state, which have provided crisis care to more than 30,000 young people.

“Meeting the behavioral health needs of our young people and supporting their families is foundational to our commitment to a healthy society and is crucial to our work.”

— Kiame Mahaniah, Massachusetts Health and Human Services Secretary

“Plans and Action” for SUD in Kentucky

In Kentucky, where 32 counties reported higher overdose rates than the national average in 2024, Governor Andy Beshear is championing the Recovery Ready Communities initiative, helping local communities offer comprehensive addiction recovery support.

Dr. Sydney Whitaker, substance use treatment coordinator for Mountain Comprehensive Health Corporation, had this to say about the program: “To be a community that not only believes in hope for a better future, but also a community that brings that hope to life through plans and action. We are grateful to the commonwealth for recognizing our efforts, and we are honored to be named a Recovery Ready Community.”

These are just the highlights. Many more states are empowering their communities to take action through real dollars and concrete plans.

What State and Local Action Means for Your Organization

When funding flows from state and local sources, it can mean more stability and predictability for your programs.

It can also be the key to quicker reimbursement and expansion. One of the biggest benefits is that it can be easier to draw a direct line between funding and your community’s needs.

But when the Fed fails, programs that rely on state and local funding sources can introduce strain when funds are diverted from other critical services—like education, emergency and social services.

Eyes on a Multi-State School Mental Health Funding Battle

While we’ve seen many big wins across the states recently, we’re also eyeing an ongoing battle to revive lost federal funds. In response to a series of tragic school shootings, the U.S. Department of Education launched two grant programs in 2018 and 2020 to expand access to mental health services in high-need, low-income, and rural schools. These multiyear initiatives aimed to address the widespread shortage of school-based mental health providers, bringing 14,000 new professionals into schools that need them most.

Within the first year, the programs’ successes were as clear as day. They:

• Reached nearly 775,000 elementary and secondary students with mental and behavioral health services
• Resulted in a 50% drop in suicide risk at high-need schools
• Reduced absenteeism and behavioral issues
• Strengthened student-staff relationships

But the Department of Education canceled the grants, and more than a dozen states have joined the legal battle to revive funding.

“Here we have kids with established medical needs — it’s a question of who’s going to pay.”

— Ellen Range, WA assistant attorney general

As of December, 2025, the lawsuit is active and ongoing. Should it fail, coalition states stand to lose not just millions but will be forced to eliminate jobs and fellowships created with the funds.

Trends to Watch: Where Are States Planning to Spend Their Money?

While each state’s budget priorities reflect its unique population, we saw several trends in behavioral healthcare emerge this year:

Trend 1: Integrated physical and behavioral healthcare. We’re seeing year over year investments in CCBHCs and similar clinics that also provide crisis services, filling gaps in outpatient accessibility and the availability of crisis services in more communities.

Trend 2: Rural health care. All 50 states submitted applications for the $50 billion Rural Health Transformation Program. While rural healthcare has been a rising priority for the last several years, the recent Rural Transformation Fund is the first coordinated opportunity we’ve had to see what states have in mind for their rural healthcare systems.

Trend 3: Healthcare workforce shortages. This issue has ravaged the industry for more than five years. Without staff coverage to deliver services, organizations have had to make tough choices: shuttering vital programs and returning funds they couldn’t spend. This year, 44 states budgeted in health workforce initiatives to fully staff their systems. Learn more about the workforce shortage here.

Coast to Coast Youth Mental Health Investments: CYBHI & NYS

On the West Coast, California’s first-in-the-nation effort to expand school-based behavioral health services is already showing promising results. In just over a year since the Children and Youth Behavioral Health Initiative launched, participating schools and their partners have secured more than $1.8 million in new funding for services delivered to over 5,000 students.

As of October 15, 2025, 55 Local Educational Agencies (LEAs) and Institutions of Higher Education (IHEs) have submitted more than 26,000 claims through the program, covering services across 32 Medi-Cal managed care plans and commercial insurers. These early outcomes reflect strong momentum and rapid progress toward sustainable, school-based mental health support.

Programs like CYBHI aim to increase access to behavioral health services in local communities, in this case by bringing mental health services right into schools where they can be most accessible to kids who need them.

On the East Coast, New York’s FY 2025 budget makes room for significant youth behavioral health investments: $20 million for school-based mental health clinics, $19 million for youth mental health initiatives, and $196 million for inpatient expansion—the state’s largest in decades.

It’s clear through its investments that New York is committed to a robust care continuum, meeting kids where they are and providing support as they age and transition through various systems of care.

Learn more here: New York’s 2025–2029 Child and Family Services Plan

Still On Our Radar: Rural Health Transformation

Rural America is increasingly at the center of national health policy. While some see this shift as a response to long-standing funding imbalances that favored urban, often blue regions, others recognize it as a long-overdue acknowledgment of a real and urgent crisis. Rural communities are older, more isolated, and often underserved.

If you work in behavioral health in a rural area, the Rural Health Transformation Program (RHTP) may shape how care gets funded and delivered over the next few years.

Created under the 2025 Budget Reconciliation Act, the RHTP is a $50 billion federal initiative aimed at stabilizing and modernizing rural healthcare systems, including behavioral health. All 50 states just submitted their rural health transformation plans in November, with funding decisions expected as soon as the end of the year.

The RHTP is a five-year cooperative agreement, which means participating states have to show real, ongoing progress instead of one-time plans.

The program invests in care models that reflect federal priorities like:

• Value-based payment
• Technology adoption

That means states (and the providers they work with) are expected to modernize systems, coordinate tightly across sectors, and measure results to establish sustainable, system-wide change in rural areas.

The Funding Structure

Funding is split evenly between baseline and workload funding.

Baseline funding is given to every state with an approved plan.

Workload funding is awarded annually based on metrics like rural population size, facility data, hospital financial health, and provider engagement.

If your state is approved, there could be new money on the table to support:

• Expanding or integrating care teams
• Implementing new EHRs or data tools
• Reaching harder-to-serve populations
• Building capacity for outcomes tracking and value-based contracting

The Timeline

Upcoming Dates

• By December 31, 2025 – CMS will announce approved states.
• Beginning FY 2026 – Funding begins, with $10B available annually through 2030.
• Spending Window – States will have two years to use each year’s funding from the time it is awarded.

This is a moment to get proactive. Providers who are ready to align with their state’s Rural Transformation Plan could secure sustainable resources and stretch in new ways.

Provider Planning for 2026: Navigating a Post-OBBBA Landscape

Providers are entering 2026 in a uniquely volatile environment. Congress has yet to finalize FY2026 federal spending, and the resulting funding lapse is already creating disruptions. At the same time, OBBBA has introduced sweeping federal changes that reshape Medicaid policy and state obligations. These changes are landing just as most states begin operating under budgets drafted before OBBBA existed—creating strain, uncertainty, and the need for rapid adjustment.

One of the biggest open questions heading into 2026 is how states will define and implement Medicaid community engagement or work requirements. We expect to see new rules around who these requirements apply to, what documentation will be needed, and how providers will need to support clients in maintaining continuous eligibility.

Here’s a look at what is changing.

Key OBBBA-Related Shifts Affecting Your Work

Medicaid Community Engagement and Work Requirements

States must implement these requirements for certain Medicaid members by December 31, 2026. This will require fast, large-scale system upgrades, new engagement workflows, and monitoring requirements that will influence coverage continuity and caseload stability.

Eligibility and Redetermination

Under new age and eligibility restrictions, and with new verification timelines, states must now redetermine eligibility every six months for expansion populations. These changes increase the administrative burden for recipients, and the risk of coverage loss due to churn. To keep people connected to care, states will need more capacity to manage the workload, and providers may need to step up their support to help clients navigate and retain their benefits.

Cost Sharing

By 2028, states must implement cost sharing for Medicaid expansion adults earning above 100% of the federal poverty level. Planning for this shift begins now. Even small copays can create real barriers, especially for individuals managing behavioral health conditions, reducing access to care.

Provider Taxes and Payments

Freezes on provider tax programs, reductions in allowable tax rates, and caps on state-directed payments will reduce flexibility in Medicaid financing. Some states have already rolled back or reduced planned rate increases to help mitigate these costs.

Additional Federal Changes

Programs like the Rural Health Transformation Program and new federal drug pricing initiatives create both opportunities—such as new funding streams—and risks, including administrative complexity and additional regulatory requirements.

Keys to Success in a Post-OBBBA World

Stay flexible and collaborative.

States are making rapid decisions. Organizations that stay responsive, communicative, and ready to adapt will find more stable footing.

Map future needs to policies that are already in motion.

Track upcoming deadlines and statutory requirements now—especially those tied to Medicaid eligibility systems, work requirements, and cost-sharing infrastructure.

Prepare for funding uncertainty and diversify where you can.

Expect variability in grant structures, shifts from line-item funds to block grants, and program re-sizing. Consider braided funding approaches and ensure strong grant readiness.

Learn more about funding opportunities and grant proposal readiness that increase the likelihood you’ll receiving funding.

Acknowledge that delivering high-quality care is getting harder.

This matters for internal morale and for external advocacy. Your teams are operating in a system under strain.

Demonstrate transparent outcomes and audit-readiness.

Programs that can show measurable results with high-quality documentation are more likely to secure and retain funding. Solid data practices build credibility with state partners who are navigating their own pressures.

Conclusion

Uncertainty dominated the airwaves in 2025. But out of the noise, some exciting progress emerged: states doubling down on youth and population-specific investments, behavioral and mental health finally getting the sustained attention they deserve, and rural health transformation gaining traction. We’re not out of the woods yet—but your work, and ours, keeps moving forward.

Again, waiting for stability is not a plan. Instead, stick with us. We’ll keep you informed and equipped for whatever comes next.

Happy New Year & thank you for continuing to change lives on the frontlines.

Intel by Juliette Palmer, Regulatory Intelligence Analyst