In January, we started tracking Medicaid budget proposals. Every month since, we’ve watched the numbers sharpen. And now, we’re staring down the bill itself.

The House passed its budget (what we’ve been calling the One Big Beautiful Bill Act (OBBBA)) by a single vote. The Senate Finance Committee’s mid-June proposal signals that work requirements are here to stay in the final bill, though the details remain to be seen.

And while that might sound like politics as usual, the longer this debate drags on, the better. Because delay means more time for feedback, more pressure from constituents, and maybe, just maybe, fewer catastrophic cuts to Medicaid.

Still, we’re not out of the woods. The funding picture is shifting, and we’re starting to see what these changes could look like at the state level.

This briefing covers three developments with major implications for behavioral health and human services providers:

• The status of the federal budget
• The state-level fallout already beginning
• And the two provisions drawing the most scrutiny: Medicaid work requirements and enforcement around “waste, fraud, and abuse”

Where We Are in the Budget Process

The federal fiscal year begins in October. While Congress typically finalizes the budget closer to September, the current administration has set an aggressive timeline, seeking approval before July 4. As of now, the Senate is reviewing the House’s version of the OBBBA and could send it back for renegotiation.

From a policy perspective, a longer debate may be beneficial. Deliberation allows more time for stakeholders, including state Medicaid agencies and service providers, to understand and respond to the implications of the bill.

Here’s what matters: some form of this bill is likely to pass, and we can expect funding reductions. We don’t yet know how deep they’ll go or exactly where they’ll land, but the tone has changed. There’s now a general resignation that cuts are coming, and we’re seeing state budget offices start to model the potential fallout.

See this NADO summary for a breakdown of provisions that could affect Medicaid programs across states.

What States Are Seeing So Far

States have begun releasing analyses of how the current budget proposal would impact their Medicaid programs. Right now, reports predict that California could lose $80.7 billion in Medicaid funds over a decade, and New York could see $63.2 billion in losses. These are early figures, but they paint a clear picture: we’re heading into a period of significant financial contraction.

In California, the Department of Health has named several high-risk programs, including:

• Rural hospitals
• Community health centers
• BH-CONNECT
• The Behavioral Health Services Act (BHSA)
• The Behavioral Health Continuum Infrastructure Program (BHCIP)

These programs serve hard-to-reach populations and rely heavily on Medicaid funding. If that sounds like your agency, these projections hit close to home.

CalMatters recently detailed how these Medicaid work requirements could complicate access to care in the state. More on that below.

In New York, the Governor’s office has released a detailed summary of programs that could potentially be affected, including:

• Assertive Community Treatment (ACT) teams
• Outreach for individuals experiencing homelessness
• Expansion of the 988 crisis line
• Transitional housing initiatives
• Treatment services for outpatient substance use

Across the country, state budget offices are running scenarios. Providers should do the same. Start asking the tough questions: Where are your dollars tied to Medicaid match rates? What programs are dependent on federal flexibility or waiver approvals? What happens if those assumptions change?

For a state-by-state look at potential impacts, check out the Penn Wharton Budget Model, which is tracking Medicaid losses as the federal budget process unfolds.

Signs of Hope: New Funding in California and New York

Amid budget concerns, there are some positive developments. Both California and New York have secured new sources of funding to strengthen behavioral health infrastructure.

In California, Proposition 1 funding has begun to roll out. This includes:

• $3.3 billion in Round 1 awards
• 5,000 residential treatment beds
• Over 21,800 outpatient treatment slots
• Site-based investments that bolster behavioral health treatment, housing, and co-located care

These are major capacity-building investments in community-based behavioral health and housing. They represent a major step toward rebuilding infrastructure that’s been under strain for years. More details on Bond BHCIP Round 1: Launch Ready can be found here.

This rollout is part of California’s broader effort to merge behavioral health with housing services, an integrated model that’s monitored closely at the national level. But it’s worth remembering that even with new funding, these systems still rely heavily on Medicaid for long-term sustainability. If federal support weakens, states could be forced to scale back even the most promising innovations.

In New York, a different kind of innovation is taking shape. The state received federal approval for a 1332 waiver to supplement the 1115 waiver approved earlier this year. Key components include:

• Expanded eligibility for ACA
• Grants for food insecurity programs
• Access to crisis service for Medicaid expansion enrollees

These waivers show what’s possible when states bring forward clear plans and measurable goals, and are determined to continue providing a robust safety net even when they can’t count on federal partnerships.

That said, these wins do not insulate states from federal cuts. If we lose Medicaid match on critical services, or if waiver categories are narrowed, these programs will be harder to sustain. For now, they offer a signal that some programs are still moving forward, and that’s something we’ll continue to track closely.

Medicaid Work Requirements: What’s Proposed and What We’ve Learned

One of the most consequential, and controversial, provisions in the OBBBA is the proposed implementation of Medicaid work requirements for all enrollees.

Under the proposal, adults ages 19 to 64 would need to work, attend school, volunteer, or participate in job training for at least 80 hours per month to maintain their coverage. Certain groups would be exempt, including older adults, caregivers, individuals with substance use disorders, and those classified as medically frail, but the criteria and verification processes would be determined by each state. And that’s where the policy becomes operationally complex.

The Congressional Budget Office estimates that, if implemented, these work requirements could:

• Reduce federal Medicaid spending by $793 billion over 10 years
• Result in 10.3 million fewer people enrolled in Medicaid
• Leave approximately 7.8 million people uninsured

This is not the first time Medicaid work requirements have been attempted. Arkansas implemented a similar program in 2018, resulting in the removal of 18,000 individuals from Medicaid in just nine months. Most were not removed because they were ineligible, but because they could not navigate the documentation requirements. The administrative burden, not a lack of work, was the barrier.

In Georgia, a more recent pilot required individuals to demonstrate work to access Medicaid under expansion. While it was approved with significant flexibility, more than 90% of total spending has gone toward administration costs, not care. As of mid-2025, enrollment remains below 7,500 people, far below projections, in a state with more than 1.5 million uninsured adults.

These examples reinforce a critical point: coverage loss under work requirements often isn’t about eligibility, it’s about logistics. The systems aren’t built to support the people they’re meant to serve. Even beneficiaries who are working, or those who are exempt but still need to prove it, may struggle to navigate complex reporting tools or access broadband for verification. Some may experience homelessness. Others might not even know they’re subject to new requirements until it’s too late.

From a policy lens, it’s clear this proposal is about more than cost savings; it’s a test of ideology. But from a provider’s perspective, the risk is practical: delayed payments, disrupted care, increases in uncompensated care, and patients falling off the rolls due to administrative red tape.

What It Means for Providers

If Medicaid work requirements move forward, the ripple effects won’t just hit enrollees, they’ll hit providers. And for behavioral health organizations already stretched thin, this may be one of the most destabilizing policy changes we’ve seen in a decade.

Let’s be clear: providers will be expected to do more than deliver care. They’ll become navigators, troubleshooters, and sometimes lifelines for clients trying to stay enrolled.

In practical terms, this means:

• Clients show up for appointments only to learn they’ve lost coverage.
• Staff scramble to help them re-enroll, often without clear guidance.
• Chasing down missing paperwork that stands between a person and their medication.
• Billing gets delayed or denied, even when services were medically necessary and appropriately documented.
• Providers may see a higher proportion of unreimbursed care, while navigating shrinking margins and growing demand.

For organizations serving people with serious mental illness, substance use disorders, or housing instability, the administrative burden will be steep. These populations already face major barriers to accessing care. Expecting them to submit verification forms monthly, or to navigate online portals without stable internet or a fixed address, ignores the realities of their lives.

And this is the part that lands hardest: it’s the people with the greatest needs who are most likely to lose coverage. Not because they don’t qualify, but because the system makes it nearly impossible to prove that they do.

Even a short lapse in coverage can lead to cascading consequences—missed medication, a lost bed, an ER visit that could have been avoided. For providers, that means constantly working around the system’s blind spots:

• Planning for coverage lapses, even when someone is still technically eligible
• Absorbing the cost of care that won’t be reimbursed
• Rebuilding trust with clients who feel like the system gave up on them

Behavioral health teams have always gone beyond their job descriptions to keep people connected. But these proposed Medicaid work requirements raise the stakes. Because eligibility is one thing. Access is another.

Waste, Fraud, and Abuse: The Policy Push and the Practical Risk

One of the quieter but more consequential shifts in the budget proposal is a major expansion of Medicaid oversight, specifically, efforts to identify and reduce improper spending.

Federal and state agencies are preparing to scale up audits, increase enforcement, and expand the scope of Medicaid Integrity Programs and Fraud Control Units. On paper, the goal is clear: catch overpayments, prevent upcoding, and flag duplicate claims.

But in practice, the definitions are starting to shift.

We’re already seeing legally permitted practices, like provider tax mechanisms used by states to maximize federal match, lumped into new definitions of “abuse.” This signals a broader crackdown that could affect providers who are following the rules but operating under state-led funding structures.

And that opens the door to serious consequences.

For providers, this will likely mean:

• More frequent audits, including retroactive payment takebacks
• Tighter documentation standards
• Greater scrutiny of claims, even when services were necessary and properly delivered
• A rise in repayment demands and delayed reimbursements

Even providers who weren’t directly implicated are now seeing increased denials, slower payment cycles, and heightened fear around documentation errors.

Let’s be clear: accountability is important. But when enforcement is this aggressive, and definitions this broad, even providers acting in good faith can get caught in the crosshairs.

State Match Reviews Are Triggering New Audits for Providers

What’s changing isn’t just how states administer Medicaid financing, it’s that foundational elements of their federal match strategies are now under review. And the downstream effects are landing squarely on providers.

Improper payments have always been a focus for federal and state oversight. But the scope of what’s now being classified as “improper” is expanding. It no longer just refers to clear-cut errors like duplicate claims or inaccurate billing. Increasingly, states are being scrutinized for financing strategies that were once not only allowed, but encouraged—strategies like provider tax mechanisms, intergovernmental transfers (IGTs), and certified public expenditures (CPEs).

In many cases, CMS issued formal guidance approving these tools as ways for states to draw down federal match. Now, some of those same mechanisms are being reevaluated and reclassified. Payments that were structured in accordance with past guidance are being labeled unallowable. That leaves states on uncertain footing, and providers absorbing the consequences.

Essentially, we’re seeing states go back to review foundational elements of their match strategies. What’s considered an ‘abuse’ now includes things that states were explicitly told were okay to do.

That means providers are being asked to justify funding that was approved years ago, based on rules that have since shifted. And there’s little clarity on where the new lines are being drawn.

At the same time, Medicaid audit scope is expanding:

• It’s no longer just: Did you bill for a service accurately?
• It’s also: Was this payment structure ever legitimate in the first place?

That reframing leaves providers exposed. Even if their own documentation is airtight, they may be subject to retroactive recoupments, state clawbacks, or revenue gaps if upstream funding is challenged.

What Now, What Next

The path forward is complicated. Medicaid work requirements, shifting eligibility standards, broader definitions of improper payments, and expanding audit scope aren’t speculative concerns. They’re real, they’re active, and they’re already affecting providers on the ground.

What’s happening is not just a funding shift, but a structural one. The rules around what Medicaid will pay for are changing. And with that comes a wave of new administrative responsibilities, compliance risks, and operational unknowns.

But this is not the time to panic. This is the time to prepare.

Radicle’s Role: Practical Tools, Steady Partnership

At Radicle Health, we’ve been tracking these developments since November, translating them in real time and working alongside providers to understand what they mean and what comes next. What we’re seeing now is the start of a larger realignment: one that demands clarity, adaptability, and above all, partnership.

Providers need to know where they’re vulnerable. Which services rely on flexibilities that may no longer apply? Which populations are at risk of losing coverage? Where are the gaps in documentation, reporting, or infrastructure that need to be closed before audits begin?

This moment calls for action. Not out of fear, but out of recognition that the system is shifting and those closest to it need to be ready.

Our EHRs are designed for this purpose. From documentation workflows to compliance reporting and audit response, Radicle gives providers what they need to navigate uncertainty with confidence. But we also understand that technology alone isn’t enough. Providers need partners who understand the policy landscape and who will stand beside them through these changes.

We will continue to monitor developments closely and provide timely analysis, updates, and resources. And we’ll keep doing what we’ve always done: helping providers stay compliant, stay prepared, and stay focused on the people they serve.

???? 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