Update on Proposed Cuts to Medicaid Funding

June 6, 2025

Background

Medicaid is a key component of the U.S. healthcare system, providing health insurance coverage for approximately one in five Americans, including low-income children, adults, and people with disabilities. Medicaid plays a significant role in the behavioral health system, accounting for a quarter of all spending for both mental health and substance use treatment, making it the largest single payer of behavioral health services in the United States. Nearly 40% of adults under the age of 65 enrolled in Medicaid have a mental health or substance use disorder – a higher prevalence rate among those with private health insurance, Medicare, or without insurance. 

Medicaid also covers the costs of prenatal care, labor and delivery, and other maternity-related services for an estimated 41% of births in the U.S. It also supports health care for almost half of all children in the country and covers more than 60% of services for nursing home residents. In addition, it provides long-term services and supports, as well as cost-sharing assistance, for millions of Medicare beneficiaries, including 1 in 10 veterans. 

With the enactment of the Affordable Care Act in 2010, states were allowed to expand Medicaid coverage to include adults without children with income up to 138% of the federal poverty level ($21,597 in annual income for 2025). All but ten states have implemented “Medicaid expansion” coverage, extending health insurance coverage to more than 20 million people.

On May 22, 2025, the House of Representatives passed H.R. 1, the “One Big Beautiful Bill Act”. The bill includes $4 trillion in proposed tax cuts. These cuts are partially offset by proposed reductions of more than $800 billion in federal Medicaid funding. The legislation is now being considered by the Senate.

The House passed the legislation before the Congressional Budget Office (CBO) was able to complete a full analysis of the combined effects of the provisions developed by various House committees. However, CBO’s initial estimates indicate that the legislation would result in almost 8 million individuals losing their health insurance coverage under Medicaid, and roughly 3 million people losing coverage under marketplace plans. CBO projects that another 5 million people covered under marketplace plans would become uninsured with the expiration later this year of the expanded premium tax credits for purchasing marketplace plans.

The largest share of Medicaid spending reductions is tied to a new requirement that, beginning in 2026, states implement verification systems to ensure enrollees have completed at least 80 hours of community engagement activities in the month prior to enrolling. Although referred to as new “work requirements,” more than 90% of Medicaid enrollees are either already employed, in school, serving as caregivers, or are unable to work due to a disability or health condition. 

The process of documenting community engagement activities, as well as exemptions, adds administrative complexity for both enrollees and administrative staff. For example, a previous effort to implement work requirements in Arkansas led to 18,000 people losing coverage before the initiative was stopped by a court order. In Georgia, only a small fraction of the potential enrollee population was able to meet the paperwork and reporting requirements, and the state reportedly spent nearly five times more on implementation costs than on health care services. 

In the name of reducing fraud, the legislation would also eliminate recently adopted rules that simplified eligibility and enrollment processes for both Medicaid coverage, as well as financial assistance for low-income Medicare beneficiaries to help pay premiums and cover cost-sharing requirements. 

APA/APASI Assessment

APA is deeply concerned about the potential impacts of H.R. 1 on access to health insurance coverage and services under Medicaid. These proposed cuts are expected to impact state budgets, healthcare access, and public health with particular implications for individuals in need of behavioral health services. 

Key concerns include:

• Behavioral health access: Reductions in federal Medicaid funding may lead states to limit eligibility, reduce covered benefits, or lower provider reimbursement rates. Behavioral health services, which are classified as optional under Medicaid, are frequently among the first to be reduced when states face budget constraints. This could result in significantly reduced access to mental health and substance use disorder treatment for those who need it. 
• Impact on health care providers, facilities, and clinics: Medicaid typically reimburses providers at lower rates than Medicare and private insurance. However, many community-based healthcare providers, especially those in underserved or rural areas, rely heavily on Medicaid reimbursement to remain operational. A significant decrease in federal funding may challenge the financial viability of many providers, and potentially further reduce access to care. It could also have a negative impact on psychology training sites that rely on Medicaid, reducing future training options.
• Protection of vulnerable populations:  Medicaid serves vulnerable and underserved populations across the country, including children (who make up over one-third of enrollees), people with disabilities, individuals living with mental health conditions, and low-income adults. Non-elderly adults and children in small towns and rural areas are more likely to rely on Medicaid than those living in metro areas. Proposed funding reductions would likely have a disproportionate impact on these populations.
• Reduced access to reproductive and gender-related health care: H.R. 1 would eliminate Medicaid funding for any health care services provided by affiliates of Planned Parenthood. It would also prohibit coverage or reimbursement for gender-affirming care under Medicaid, CHIP, and marketplace plans. 
  

APA’s Position

Consistent with our mission to advance the application of psychological science to benefit society and improve lives, APA and APA Services support efforts to protect and expand, not restrict, access to affordable, comprehensive mental and behavioral health services, including through Medicaid. 

Medicaid plays a key role in facilitating access to behavioral health care, advancing health equity among underserved populations, and supporting health throughout the lifespan. APA advocates for preserving Medicaid’s ability to adjust to meet population needs and provide access to essential behavioral health services for all, including vulnerable populations.

What Psychologists Can Do

As this situation develops, psychologists are encouraged to:

• Talk to your Medicaid patients: Help your patients understand the potential impact to their benefits. If there are options for your patients to continue obtaining care without Medicaid benefits, discuss them. 
• Engage in informed advocacy on behalf of your patients and their families: Connect and collaborate with APA/APASI, your state, provincial, or territorial psychological association, and other relevant professional and community organizations. Participate in advocacy efforts aimed at protecting Medicaid.
• APA Services Action Alert: Ask your Senators to vote against budget legislation that will remove health insurance coverage from millions of Americans.
  

What the Science Says

Psychological research provides critical insights into the role of Medicaid in supporting mental and behavioral health. Several studies have shown that individuals from low-income backgrounds tend to experience higher rates of mental illness and encounter greater barriers to accessing treatment, making Medicaid’s coverage of behavioral health services essential for addressing these disparities (Lund et al., 2010; Santiago et al., 2013; Reiss, 2013; Hodgkinson et al., 2017). More recently, Zhang et al. (2024) found that Medicaid beneficiaries in socioeconomically deprived areas had higher incidences of co-occurring mental and physical health conditions but limited access to mental health facilities. Similarly, Smith and Doe (2023) highlighted significant disparities in mental health service access among children from low-income families, with the caregivers of children who sometimes or never had health insurance coverage for mental or behavioral health reporting more difficulties in obtaining care than the caregivers of children who usually had medical coverage. These findings underscore the critical role of Medicaid in providing essential mental health services to underserved populations.

Resources on Medicaid

There are many resources available to learn more about Medicaid and the impact of the changes being considered:

• The Kaiser Family Foundation has extensive resources on Medicaid, marketplace plans, Medicare, and the health provisions in the reconciliation bill.
• The Modern Medicaid Alliance created a dashboard with state and congressional district data on covered populations, including estimated Medicaid enrollees with behavioral health conditions. 
• The Georgetown University Center for Children and Families has in-depth analysis and research on child and maternal health, Medicaid, and related federal health care policies.
  

Moving Forward

APA Services will continue working closely with coalitions of other health care provider and consumer organizations to advocate against significant Medicaid funding reductions, reductions in health insurance coverage under marketplace plans, and other provisions in H.R. 1 that would end health insurance coverage and access to care for millions of Americans. As part of this work, we encourage psychologists to contact their Senators to ask them to vote against significant Medicaid cuts.

References

Hodgkinson, S., Godoy, L., Beers, L. S., & Lewin, A. (2017). Improving mental health access for low-income children and families in the primary care setting. Pediatrics, 139(1), e20151175. 

Lee, R., & Kim, S. (2023). The impact of Medicaid expansion on mental health service utilization among low-income adults. Health Affairs, 42(3), 567–575.

Lund, C., Breen, A., Flisher, A. J., Kakuma, R., Corrigall, J., Joska, J. A., Swartz, L., & Patel, V. (2010). Poverty and common mental disorders in low and middle income countries: A systematic review. Social Science & Medicine, 71(3), 517–528. 

Reiss, F. (2013). Socioeconomic inequalities and mental health problems in children and adolescents: A systematic review. Social Science & Medicine, 90, 24–31. 

Santiago, C. D., Kaltman, S., & Miranda, J. (2013). Poverty and mental health: How do low-income adults and children fare in psychotherapy? Journal of Clinical Psychology, 69(2), 115–126. 

Smith, J., & Doe, A. (2023). Disparities in access to mental health services among children from low-income families. Journal of Child Psychology and Psychiatry, 64(5), 1234–1245.

Zhang, Y., Horth, R., Bose, S., Grafe, C., & Dunn, A. (2024). Geographic disparities in physical and mental health comorbidities among Medicaid beneficiaries in Utah. Frontiers in Public Health, 12, 1454783.