While state programs expect Medicaid enrollment to be flat, they're also anticipating medical costs to rise in 2026, according to a new report.
As part of the post-COVID "unwinding" process, enrollment in Medicaid decreased by 7.6% in 2025 and states expect that figure to be largely flat in 2026. However, total spending increased by 8.6% in 2025, and is projected to further increase by 7.9% in the coming year.
States name as key drivers rising provider rates, higher enrollee health needs and rising costs for long-term care, pharmacy benefits and behavioral health services, per the KFF report.
"The pandemic, and the ensuing federal and state responses, led to significant changes in Medicaid enrollment and spending," the researchers wrote.
The data come as states brace for significant policy changes in Medicaid as well as a tenuous financial situation in the coming year. Under the One Big Beautiful Bill Act, states will be required to implement work requirements and face federal spending cuts of about $911 billion.
States are also constrained in implementing new provider taxes or expanding existing ones, which further tightens the purse strings. The study found two-thirds of states estimate they have a 50-50 shot of a budget shortfall in 2026.
While most of the provisions in the OBBBA do not take effect until 2027, states are already preparing for the financial impacts and changes, according to the report.
For example, the number of states that are increasing reimbursement rates for certain providers is on the decline, while many are instead putting a focus on rate restrictions. States are also weighing strategies to control the rising cost of prescription drugs.
Interest in expanding coverage for GLP-1s for obesity is on the decline, the study found, and some states are weighing further coverage restrictions moving forward. While states are required to cover diabetes and cardiovascular drugs, coverage for obesity is not mandated.