Nursing home operators are considering operational adjustments and, in some cases, calling for redoubled advocacy efforts as states enter state budget discussions. In several states, Medicaid reimbursement changes are already underway amid ongoing financial pressures and the provisions of the 2025 reconciliation law, fueling concerns.
For most states, budgets will be adopted by June 2026 for the July 2026 to June 2027 fiscal cycle, but some states have already indicated they will reimburse providers at lower Medicaid rates, while others face the grim likelihood of cuts in 2027. Since it takes a lot of planning to adjust, providers are seeking more clarity sooner rather than later.
Although many federal Medicaid provisions – such as those outlined in the One Big Beautiful Bill Act (OBBBA) related to hospital provider taxes won’t go into affect until 2028, several states have already acted in FY 2026 and are proposing additional changes for FY 2027. The law reduces the cap on provider taxes – a key funding tool states use to draw federal Medicaid matching funds – from 6% to 3.5% by fiscal year 2032 for states that expanded Medicaid under the Affordable Care Act.
Among the states that have enacted changes for fiscal 2026 is Idaho, which implemented a 4% across-the-board provider rate reduction. Meanwhile, Colorado reversed a 1.6% provider rate increase to address budget shortfalls. Besides these two, Texas is among states considering reimbursement cuts for FY 2027, with Idaho likely extending its 4% rate reduction for that year, per a KFF News analysis.
Additional cuts could emerge as more governors release FY 2027 proposals and federal Medicaid funding changes take effect.
The case of Illinois
Illinois is one of the states that potentially faces a looming multibillion-dollar Medicaid budget crisis due to federal changes enacted under OBBBA and pending changes to hospital provider taxes.
In 2025, Illinois spent $33.7 billion on Medicaid, with $4.7 billion in state funding coming from provider taxes. The state is expected to be hit hard because its hospital and managed care organization taxes exceed the new cap, according to an analysis of Capitol News Illinois is a nonprofit, nonpartisan news service. Revenues could drop by up to $2 billion by FY 2033, resulting in total annual losses of $3.3 to $5.3 billion when accounting for lost federal matching funds.
Lawmakers must find alternative funding or reduce program costs.
According to COO Steve Hart of Heritage Operations Group, which operates 20 facilities across Illinois, his organization has been battling low Medicaid reimbursements for a while, and has adapted by putting operational strategies proactively in place, but fears more change is on the horizon.
“Medicaid rates in Illinois have remained relatively unchanged over the past year, and it is unclear whether funding will incrementally grow over the next few years,” Hart told Skilled Nursing News. “Knowing that the State’s ability to levy provider taxes will begin shrinking in 2028, I hope the state soon provides a roadmap detailing how a variety of health care services will be impacted so that operators have time to adapt.”
Reduced Medicaid funding would wreak havoc beyond provider profits – and the walls of the nursing home.
“When making this decision, I hope [lawmakers] recognize how important access to long‑term care is for the health of our communities,” Hart said. “There is a real possibility that families would face these [tough choices] if Medicaid funding were reduced in Illinois.
Without access to long‑term care facilities, working‑age adult children may find themselves pulled away from the workforce as they shift to caring for an elderly parent, Hart said. Spouses, who may be frail themselves, could also be required to serve as caregivers and may see their own health decline, Hart noted.
Heritage continues to plan operational changes such as staffing adjustments, reduced admissions and the use of AI tools to better manage reimbursement – in response to potential Medicaid cuts.
“Heritage Operations Group has been working diligently to improve its revenue while ensuring that expenses remain lean and meaningful. Generally speaking, we are preparing as if Medicaid funding will remain stagnant, or will fall modestly, over the next few years,” Hart said.
However, if the Medicaid cuts exceed expectations, Hart said, it will be tough going for Illinois – and his organization – given how Heritage already runs a pretty lean operation.
“Significant cuts to Medicaid funding would be difficult to offset for many providers throughout Illinois, and I expect the consequences would be dire. Revenue improvements, which are modest, are being achieved by focusing on clinical process consistency and emphasizing to staff the importance of capturing events accurately in clinical documentation,” Hart said. “From an expense perspective, cost savings are being achieved through process improvements and by eliminating waste in our operations.”
Case of Idaho, Washington
Cascadia Healthcare, which operates in six states, including Idaho and Washington, is feeling the pinch, but according to Chief Financial Officer Steve LaForte, the Medicaid challenges in Idaho and Washington stem mainly from state budget mismanagement, not the immediate impact of the OBBBA.
That said, the two states have been creative in providing offsets to their lowered Medicaid rates by giving the nursing home sector a bed tax carve-out and rural health care funding, which may help limit long-term care Medicaid cuts, LaForte said.
“The two states where we currently have Medicaid issues are Idaho and Washington. The current analysis is that it is more due to their ongoing budget issues than the immediate effect of the OBBBA,” LaForte told SNN. “We appreciate that the Federal government mitigated the negative impact on our sector with the bed tax carve-out, indicating the integral and important nature of the care and access … that [nursing homes] provide. This coupled with the rural health care funds, we feel that opportunity has been created for mitigating effects on Medicaid relative to long term care.”
Cascadia operates 58 facilities across Idaho, Washington, Montana, Oregon, Arizona, and New Mexico.
In Idaho, where Cascadia has the largest footprint, LaForte attributed the budget problems to using surpluses for tax cuts instead of planning for Medicaid expansion in the midst of a growing senior population. In Washington, he linked the state’s fiscal issues to spending priorities and resource allocation.
“Washington’s budget woes relate as much to a misallocation of resources for other prioritized spending projects.
All of this has meant reinvigorated efforts by skilled nursing providers to influence lawmakers to provide adequate funding.
“We continue to push active advocacy in both states and remain optimistic that sustainable Medicaid funding over the next few years will be obtainable,” Laforte said.
In the end, quality of care could suffer. A new study indicates that low Medicaid rates are directly relate to quality of care at nursing homes.
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