Trump Team’s Use of Arcane Budget Rule Threatens Medicaid Coverage

About 200,000 low-income Arkansans could see major changes to their health coverage next year after the Trump administration recently informed state officials it will not renew a key Medicaid agreement with the federal government.

The decision by federal officials, citing authority granted under President Donald Trump’s signature tax-and-spending law, suggests the GOP-led state’s predicament could foretell other repercussions in how states are allowed to run the program under federal waivers.

Nearly every state has at least one waiver to run its Medicaid program differently than required by federal law, such as allowing the use of private managed-care plans or expanding eligibility for mental health or long-term care services. Some Medicaid waivers have stretched decades, renewed by presidential administrations of both parties, effectively making the demonstration programs they created permanent.

Arkansas is one of a dozen states with a waiver expiring Dec. 31 that face the additional restrictions the Trump administration has placed on new or renewed waivers.

Though it has yet to finalize its decision, the federal Centers for Medicare & Medicaid Services said Arkansas’ 13-year-old waiver does not comply with new “budget neutrality” rules that take effect in January, said Gavin Lesnick, a spokesperson for the Arkansas Department of Human Services. The rules tighten a policy forbidding Medicaid waivers from increasing federal spending on the program beyond what it would have increased without the waiver.

The state is now seeking a two-year extension after hearing from CMS that its request for a five-year renewal would not be granted. If its Medicaid expansion waiver is not renewed, Arkansas officials have said they will continue offering expanded eligibility through existing Medicaid law, a change that could leave enrollees with access to fewer doctors and other health providers.

Rather than place more people in its traditional Medicaid program serving largely children, pregnant women, and disabled people, Arkansas obtained a waiver to buy Affordable Care Act marketplace policies from private insurers for adults covered by the Medicaid expansion. This “private option” gave enrollees greater choice of doctors and other health providers, because some doctors are more willing to see patients with private coverage, which generally pays more than regular Medicaid.

The move helped cut the state’s uninsured rate by nearly half, but it also ended up costing more than if beneficiaries were covered under Medicaid’s traditional, fee-for-service program.

Critics characterize the new waiver rules as part of a Trump administration effort to dramatically shrink Medicaid, the government program for those who are low-income or disabled, which grew rapidly under Presidents Barack Obama and Joe Biden.

“What we have here is a sneaky way to cut Medicaid expansion and the Medicaid program,” said Nicole Huberfeld, a professor of health law at Boston University.

Medicaid enrollees won’t know whom to blame if they lose coverage because the administration is using arcane regulatory processes to make the changes, Huberfeld said.

At issue are waivers granted by the government that allow states flexibility from existing Medicaid law in how they cover low-income residents, as long as the changes will not increase what Medicaid costs the federal government.

Pivoting from the long-standing practice of checking only retroactively whether states were keeping their budget promises, the Trump administration said in June that it would not renew or approve any waivers unless CMS first certified that they would not increase costs to the federal government.

In its new guidance, the agency said the new waiver rules are expected to reduce federal spending.

“Characterizing enforcement of a statutory budget neutrality requirement as a cut misrepresents both the law and this guidance,” CMS spokesperson Timothy Foster said in an email to KFF Health News. The federal waivers are intended “to test innovative approaches to delivering care, not provide an open-ended mechanism for increasing federal spending.”

Other states with waivers expiring at the end of December include Georgia, which has added about 18,000 low-income people to Medicaid under its waiver, and California, which has used its waiver to expand coverage of social services including food and housing.

California and Georgia Medicaid officials told KFF Health News that they are still working with CMS in hopes of renewing their waivers. The loss of federal waiver approval could cause states to curtail benefits or eligibility expansions.

In Arkansas, it would mean redesigning the state’s Medicaid expansion program.

Arkansas’ initial waiver was granted in 2013, when its Democratic governor at the time worked with a Republican-controlled legislature to adopt a pioneering style of Medicaid expansion under the Affordable Care Act.

It was one of the first Southern states to expand Medicaid, granting coverage to many low-income residents. Forty states and Washington, D.C., have also fully expanded Medicaid to cover more low-income adults under the law also known as Obamacare.

The state’s Medicaid expansion enrollees were already facing a confusing time. Starting in January, they will need to prove they work or meet an exemption to be eligible for coverage under Trump’s law, the One Big Beautiful Bill Act. And one of the state program’s two private health insurers — Centene — announced in July that it was pulling out at the end of the year.

Sam Dubke, a spokesperson for Republican Arkansas Gov. Sarah Huckabee Sanders, told KFF Health News that the Sanders administration is trying to negotiate a temporary extension of its waiver “to ensure impacted Arkansans maintain access to quality, affordable healthcare during this transition period.”

“Looking ahead to the next legislative session, CMS has provided the state with an opportunity for bold, conservative healthcare reform, and the governor will work with her partners in the legislature to build a sustainable model that maintains the same high quality of care and saves taxpayer dollars,” Dubke said.

The Trump administration’s new restrictions on waivers, implemented under the same law that imposes work requirements as a condition of eligibility and reduces Medicaid spending by about $900 billion over a decade, could affect millions of enrollees and billions in spending. About a third of the almost $600 billion in federal spending on Medicaid and the Children’s Health Insurance Program in 2024 supported programs created by waivers, according to CMS.

In a 2014 report, the Government Accountability Office found that the three-year spending limit the federal government approved for Arkansas’ Medicaid waiver was nearly $800 million more than what the state would have spent through its traditional Medicaid program.

Arkansas is one of several states that expanded Medicaid under the ACA using a waiver, with others including Indiana, Michigan, New Hampshire, and Iowa.

States will have to clear several more bureaucratic hurdles to retain waivers under the new CMS guidance, said Alice Lam, a managing director with consulting and legal firm Manatt. That could lead to fewer benefits or reduce the number of people eligible for Medicaid, she said.

Robert Nelb, director of policy at America’s Essential Hospitals, which represents safety net hospitals, said he and most experts believed when it passed that the One Big Beautiful Bill Act was merely codifying CMS policy on budget neutrality.

But the Trump administration has interpreted the law to restrict states’ use of waivers, he said.

Nelb said many long-standing waivers that have been renewed multiple times are now at risk and that the loss of state waivers could threaten money hospitals rely on to cover uninsured patients and improve care in their communities.

“There is a real concern that this will put added burdens on states up front and slow down new innovations in Medicaid,” Nelb said.

In 2025, the Trump administration told states it would no longer renew Medicaid waivers to help enrollees with job training or to allow continuous eligibility for adults and children for specific time periods without verifying their income eligibility.

KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF—an independent source of health policy research, polling, and journalism. Learn more about KFF.This article first appeared on KFF Health News and is republished here under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.