The estimated $990 billion reduction in Medicaid spending under the 2025 budget reconciliation act (PL 119-21) has raised significant questions about states’ ability to maintain services for people with disabilities, including home- and community-based services (HCBS). Despite federal assurances that people with disabilities receiving Medicaid will receive no loss or change in coverage as a result of the act, recent state-level proposals and emerging reports suggest that the effects could vary widely across the country. Some states expect little to no changes in coverage, while the Idaho Governor’s FY26 budget proposal recommends eliminating Medicaid coverage for HCBS, and early reports suggest that people with disabilities may be adversely affected by Medicaid funding cuts.

To better understand the range of potential service disruptions for the nation’s roughly 15 million Medicaid beneficiaries with disabilities — and to identify opportunities to support state Medicaid agencies and key stakeholders in addressing potential funding cuts for this population — the Center for Health Care Strategies (CHCS) surveyed Medicaid leaders across Western U.S. states. Fielded in fall 2025, the survey provides insights into how states are preparing for potential funding reductions to disability services and where they anticipate the greatest challenges.

Survey Findings: What We Heard from Medicaid Leaders

CHCS received survey responses from nine of the 14 Western state Medicaid agencies and identified several themes related to financing, service risk, and anticipated challenges. While each state’s circumstances vary, the survey findings highlight commonalities and shared needs that may inform other state planning efforts to support people with disabilities in general, and during most states’ spring budgeting processes in particular.

1. Financing of Medicaid Disability Services Through Provider Taxes

Of the states that completed the survey, 67 percent (n=6) noted that the state finances one or more Medicaid disability services with health care provider taxes, which are subject to new limitations under PL 119-21. These include provider taxes on hospitals, managed care organizations (MCOs), ambulances, nursing facilities, and intermediate care facilities for developmentally disabled (ICF/DD).

Understanding the extent to which states rely on provider taxes to fund disability services is important. Because PL 119-21 and its implementing regulations could reduce state revenue as early as the end of an applicable state’s fiscal year in calendar year 2026, this may lead to service cuts depending on the type of provider tax a state uses. Notably, nursing facility and ICF/DD provider taxes are exempt from the new limits and phase-down requirements in PL 119-21, but 17 provider classes are not exempt and include hospital, MCO, and ambulance provider taxes.

Among survey respondents, five states reported using nursing facility provider taxes to finance disability services, and one reported using ICF/DD provider taxes. Three states use hospital provider taxes, one uses MCO provider taxes, and one uses ambulance provider taxes to finance disability services — all of which are likely to see reductions as the new limits in PL 119-21 apply to these specific provider taxes in expansion states.

2. Types of Medicaid Disability Services Viewed Most at Risk

When asked which Medicaid-funded disability programs and services are most at risk of being impacted by potential reductions at the state level, 77 percent (n=7) of respondents indicated potential reductions in one or more key services. The services most at risk across respondents include case management; equipment, technology, and home or vehicle modifications; and supported employment (see details below).

SOURCE: CHCS Western state survey on the impact of Medicaid funding cuts, fielded fall 2025.

3. Anticipated Types of Medicaid Disability Service Reductions

When asked which type of reductions were most likely — including reductions in services for current enrollees, provider rate cuts, and/or limits on access for new beneficiaries with disabilities — states reported a range of expectations. Forty-four percent (n=4) of states indicated that reductions in service levels for current disabled beneficiaries were the most likely impact. Two states anticipated reductions in provider rates, and two others noted the potential for limits on access for new beneficiaries. One state responded that none of the reductions were likely to occur, while three states selected “all of the above,” indicating that reductions across multiple areas were likely. In addition, one state noted that “changes in eligibility making access to LTSS harder” are likely to occur.

4. Outlook for State-Based Replacement Funding for Medicaid Disability Services

To assess states’ readiness for disability service reductions and any alternative funding strategies under consideration, survey respondents were asked whether replacement funding using state-only dollars was likely, unlikely, or unsure. Five states selected “unsure,” three states selected “unlikely,” and only one state indicated that replacement funding using state dollars was “likely.”

5. Workforce and Immigration Issues

A few states specifically expressed concern regarding the impact of current immigration policy on services for legal immigrants with disabilities and existing HCBS workforce shortages. Because immigrants make up a significant share of the direct care workforce, workforce shortages could limit HCBS providers’ ability to meet authorized service levels.

6. Resources States Need to Address Reductions

If states need to reduce Medicaid funding for disability programs and services as a result of PL 119-21, survey respondents identified several resources that would be helpful in navigating the reductions. In particular, states noted interest in obtaining information about non-government funding sources. Respondents highlighted the value of connecting with and learning from other states, Medicaid beneficiaries with disabilities, and leaders of disability-led and disability-serving organizations to better understand potential approaches and impacts.

Considerations for Future Planning

As states prepare for potential shifts in Medicaid financing for people with disabilities, several opportunities are emerging that can help guide efforts to support this population. The following considerations can help inform planning in the months ahead.

Shared Priority Areas in Need of Support

CHCS’ survey findings align closely with results from the Disability Philanthropy Forum’s national survey of disability-led and disability-serving organizations. This includes several shared priority areas that may require critical attention:

• Potential reductions to case management and employment training;
• Challenges serving communities of disabled people who are also immigrants; and
• Need for information on alternative funding sources for disability services.

Diversity of Potential Impact Requires Tailored Approaches

Defining these high-priority areas helps clarify where some states may need additional support as they assess and plan for potential funding changes. Notably, a few states that responded to the survey anticipated “no to low impact expected on disability services, and no changes planned for disability services at this time” due to the specific Medicaid financing structures in those states (e.g., provider tax programs that are already compliant with PL 119-21). Several other states noted that potential disability service reductions will depend on forthcoming federal guidance and state budget decisions made by legislatures. Yet, while the survey did not indicate that all state respondents expect Medicaid funding reductions, the findings suggest that Medicaid-funded disability services in most Western states are likely to be impacted in some way.

Additional Analysis and Action

The results of CHCS’ survey highlight how reliant state Medicaid disability service systems are on federal funding and, therefore, particularly vulnerable to disruptions from budget changes and policy shifts. Further analysis is needed to better understand how provider taxes are used to fund Medicaid disability services across all states. In addition, opportunities to support dialogue among state Medicaid leaders, Medicaid beneficiaries with disabilities, and disability-serving organizations may help identify community-based alternatives that promote continuity of Medicaid disability services for the people and families who rely on them.

Together, these insights underscore the importance of continued monitoring and collaboration as states prepare for significant changes in Medicaid financing affecting populations with disabilities.