Update on Cuts to Medicaid Funding and Restrictions to Medicaid Access

Updated: July 16, 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. 


On July 4, 2025, the “One Big Beautiful Bill Act,” H.R.1, was signed into law. The legislation cuts federal funding for Medicaid by 15%, or $1 trillion, over 10 years. The nonpartisan Congressional Budget Office (CBO) estimates that these cuts will result in 11.8 million individuals directly losing their health insurance coverage under Medicaid, and an additional roughly 3.1 million people losing Medicaid coverage under marketplace plans. CBO projects that another 4.2 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 legislation implements these cuts over several years, with some restrictions taking effect immediately and others phased in over the next half decade. Several major provisions became effective upon enactment, including restrictions that block recently adopted rules designed to simplify enrollment for both Medicaid and Medicare assistance programs. 


Starting in 2026, several provisions take effect that will further reduce access to Medicaid. On January 1, 2026, the law sunsets the enhanced Federal Medical Assistance Percentage (FMAP) that had incentivized states to expand Medicaid under the Affordable Care Act. This enhanced match—typically covering 90% of expansion costs—was a key driver in expanding coverage to low-income adults in many states. Later that year, on October 1, 2026, Medicaid eligibility will be narrowed for certain non-U.S. citizens. By December 31, 2026, states will also be required to conduct Medicaid eligibility redeterminations at least once every six months, adding new administrative burdens that are expected to push more people off the rolls—even those who remain eligible. 


Beginning in January 2027, most Medicaid recipients will need to meet work requirements of 80 hours per month through employment, training, or volunteer activities to maintain their coverage. This requirement represents the largest component of the cuts, reducing federal funding by $325.8 billion over ten years. Exemptions include individuals under 19 or over 64, tribal members, parents caring for children under 14, and those considered medically frail. Evidence from prior state-level implementation suggests these policies are both ineffective and costly. 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. Moreover, 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. 


As of October 1, 2028, states must begin requiring cost-sharing for certain Medicaid-covered services—though exemptions will apply for primary care, mental health, and substance use disorder treatment, as well as services provided by federally qualified health centers (FQHCs), certified community behavioral health clinics (CCBHCs), and rural health clinics (RHCs). On the same date, the legislation also lowers the cap on provider tax rates, potentially jeopardizing a key financing mechanism many states use to support their Medicaid programs. Although these changes are framed as efforts to reduce waste, fraud, and abuse, their practical effect is likely to be the opposite: reducing efficiency, increasing administrative costs, and cutting off access to needed care.


For more information on H.R.1’s impact on Medicaid and access to behavioral health care, read our recent Washington Update article.

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 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. The significant decrease in federal funding under H.R. 1 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 metropolitan areas. The funding reductions in H.R. 1 will likely have a disproportionate impact on these populations. 
  • Reduced access to reproductive and gender-related health care: H.R. 1 eliminates Medicaid funding for any health care services provided by affiliates of Planned Parenthood.

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. 


APA Services spent many months in partnership with psychologists across the country advocating against this legislation, including through direct lobbying, leading coalition efforts, and engaging the voice of psychology. Since February, psychologists and psychology professionals sent more than 90,000 messages to Congress urging rejection of cuts to Medicaid, higher education, and federal food assistance. Although damaging, the legislation’s cuts could have been worse, as even more fundamental changes to Medicaid were being considered and the initial House version of the bill made steeper cuts to federal support for higher education. In addition to the aforementioned changes, provisions were added that seek to mitigate the effects on Medicaid recipients with mental health and substance use disorder services. A provision banning state regulation of AI, which APA strongly opposed, was also removed. While the bill, as passed, remains highly concerning, together we were able to mitigate some of the damage. Our collective advocacy made a difference.

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 profession, your patients, and their families: With the continued strong partnership of psychologists lifting up the critical constituent voice, APA Services will continue our advocacy to protect psychology, psychologists, and the communities they serve. 

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:

Moving Forward

Now that the "One Big Beautiful Bill Act" (H.R. 1) has been signed into law, attention will shift to the states, many of which are likely to face major budget shortfalls with the loss of federal support. The largest single policy change impacting Medicaid is the mandate that all states require individuals to prove they are engaged in work or other community-related activities as a condition of maintaining coverage. Although the bill provides an exemption from these requirements for individuals who are medically frail, including individuals with a disabling mental disorder or a substance use disorder, requiring these individuals to satisfactorily document their status to get and keep coverage will discourage enrollment. The voice of psychology will once again be critical in the states as these difficult funding decisions will be made in the coming months. 

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.