The federal government is planning to stop funding Medicaid programs that cover non-medical needs such as housing, transportation or food, putting billions of future dollars for New York’s Medicaid pilot programs in jeopardy.
The U.S. Centers for Medicare and Medicaid Services sent letters to state Medicaid directors on Thursday saying that it would no longer match funding for certain state health programs that request to spend Medicaid dollars on needs outside of the program’s original scope. Such programs, which are funded through the 1115 waiver mechanism, have sparked “renewed concerns” from CMS about whether they are an appropriate use of federal dollars, Drew Snyder, deputy administrator and director at the agency, wrote in the letter.
The announcement raises concerns for New York, which is in the middle of rolling out a three-year, $7.5 billion Medicaid pilot program that allows community organizations such as food banks or housing programs to get reimbursed through Medicaid for non-medical purposes. The program, which relies on $4 billion in federal matching funds over the next few years, was designed to reimburse needs like housing and food to address health inequities and ultimately help the state reduce its medical costs.
Though the federal government has not rescinded any funding for the Medicaid pilot program, future support for state initiatives to expand Medicaid is now in jeopardy. States have designed waiver programs under the assumption that the federal government would continue to invest in the health care workforce and social needs through future requests, said Adam Herbst, partner at the law firm Sheppard Mullin and former deputy commissioner at the Department of Health.
“I think there’s a lot of question marks now,” Herbst said, adding that the federal policy shift raises questions about the long-term sustainability of such efforts and how states will adapt going forward.
Danielle De Souza, a spokeswoman for the Health Department, confirmed that the agency received the letter from the federal government outlining a “prospective policy change that will affect future federal 1115 waiver approvals.”
“The state Health Department remains committed to using its current federally approved 1115 waiver authority to improve health outcomes for eligible New Yorkers, while working to assess the impact this change may have on future 1115 waiver renewals,” De Souza said.
States’ use of Medicaid dollars for social needs has been on President Donald Trump’s radar since his first term. In 2017, the administration phased out funding for some state Medicaid pilot programs, noting that such “demonstrations have not made a compelling case” that federal funding is necessary to continue and that they were inconsistent with state-federal relationships defined under Medicaid statute, according to CMS.
The Biden administration reinstated such funding in 2021, albeit with some guardrails. The administration limited the size and scope of 1115 waiver demonstrations and required states to contribute more funding.
Still, nationwide spending on the programs has grown. The federal government contributed $886 million to state Medicaid programs in 2019, but by 2025 that number jumped to $2.5 billion, according to CMS.
New York has several programs funded through 1115 waivers, including a workforce training program and diversity in medicine programs. The federal government’s move to cease funding could put the onus on the state to fill in the gaps.
“Clearly, the state is in a position to continue these programs if it wants to,” said Michael Kinnucan, senior health policy advisor at the think tank Fiscal Policy Institute, pointing to continued reimbursement rate increases for hospitals in the state budget. “But is it going to want to?”
