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A KFF News analysis estimates that nursing home state-directed payments total $3.7 billion a year, including $2.2 billion in federal funding that could be affected by limits in the 2025 federal budget reconciliation law. The scale and timing of any reductions remain uncertain, but providers say lower payments could put pressure on services and Medicaid bed availability.
A KFF News analysis estimates that $2.2 billion in federal funding for nursing home services could be affected by new limits on Medicaid state-directed payments under the 2025 federal budget reconciliation law. The payments total about $3.7 billion annually nationwide, but the exact effect of the limits on state programs and facility finances is not yet known.
At least 15 states use state-directed payments, which states use to increase Medicaid payments to nursing homes and other health care providers. KFF’s estimate puts federal funding at almost 60% of the annual nursing home payment total. The analysis identifies Pennsylvania as having the largest share, with an estimated $1 billion in federal funding a year—nearly 47% of the nationwide federal amount.
Payments in Texas, New Mexico, Rhode Island, Illinois and Indiana may also be affected, though the extent is uncertain. The federal law sets new limits on these payment arrangements. The report says reductions could strain nursing home finances, potentially affecting services and the number of beds available to Medicaid residents. Those outcomes are possible effects, not confirmed changes already made to facility operations.
State-level details complicate estimates of the potential impact. Pennsylvania’s 2025 payment rate used in KFF’s analysis was 74.6% of average commercial rates, combining county and nonpublic facilities. The state’s 2026 filing separates those categories, reporting 48.5% for nonpublic facilities and 97.5% for county facilities. The Pennsylvania Health Care Association said these differences matter when evaluating how changes could affect provider types.
Pennsylvania Faces the Largest Exposure
The estimate points to a potentially significant funding issue for nursing homes that rely on Medicaid revenue to care for residents. If state-directed payments shrink, affected facilities could face additional financial pressure, which providers warn may make it harder to sustain services or keep beds available to people whose care is paid for through Medicaid. The size of any effect will depend on state payment arrangements and how federal limits are applied.
Pennsylvania stands out in the analysis because its estimated $1 billion in federal payments represents nearly half of the national total. That does not establish that Pennsylvania will lose that amount: the figure describes current estimated federal funding at risk, not a final cut. Providers and state officials will need more specific payment data and the final federal requirements to determine what would change for individual facilities and residents.
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How State-Directed Payments Work
Medicaid state-directed payments are mechanisms states use to increase payments to health care providers, including nursing homes. The source report says those payments help support nursing home services, especially for residents covered by Medicaid. The 2025 federal budget reconciliation law, commonly called OBBBA, introduces new limits on the arrangements.
The KFF figures are estimates of annual payments and the federal share, rather than a forecast of final reductions. A state’s payment structure, facility categories and the eventual federal rule will shape how much funding could change. The report also says comparisons with Medicare rates and more detailed state-level payment information are needed to estimate effects more reliably.
““It’s still too early to determine the specific impact these changes will have on Pennsylvania’s Medicaid program or individual nursing facility providers.””
— President and CEO of the Pennsylvania Health Care Association, speaking to Skilled Nursing News
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Final Cuts and State Effects Unknown
The $2.2 billion figure is an estimate of federal funding exposed to the new limits; it is not a confirmed amount that will be cut. The source report says it is too early to determine the effects on particular states, services or providers. Federal regulators’ final requirements and implementation will affect the outcome, and the available figures do not establish how each facility’s payments would change.
Pennsylvania’s different rates for county and nonpublic facilities illustrate why a single statewide figure may not capture the exposure of individual providers. The source material does not specify the final rule’s detailed caps, the precise schedule for every state, or whether and how states will change their payment structures. Providers’ concerns about fewer Medicaid beds and reduced services remain possible consequences, not confirmed results.
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Federal Rulemaking Will Set the Terms
The next key step is the final federal rule governing the new Medicaid limits. The Pennsylvania Health Care Association said the state-level impact depends on the final outcome and implementation. Saber Healthcare’s Shamberg urged the Centers for Medicare and Medicaid Services to account for potential effects before the rule is finalized.
State Medicaid agencies, governors and lawmakers will also have to consider how the limits apply to their payment structures. The American Health Care Association and National Center for Assisted Living said its state affiliates are working with state agencies and officials on possible approaches, including protecting base Medicaid reimbursement rates and access to care. The source report says payments may begin to shrink each year starting in 2028, but the specific reductions and their timing remain subject to final federal requirements.
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Key Questions
What does the $2.2 billion figure represent?
It is KFF’s estimate of the annual federal share of nursing home state-directed payments that could be affected by new Medicaid limits. It is not a confirmed amount of cuts.
Which state has the largest estimated exposure?
Pennsylvania, with an estimated $1 billion in federal nursing home state-directed payments annually, nearly 47% of the national federal total in the analysis. The estimate does not show how much the state will ultimately lose.
Could nursing home residents lose access to beds or services?
Providers warn that lower payments could put pressure on services and Medicaid bed availability. Those are potential effects; the source report does not confirm that facilities have reduced services or beds because of the new limits.
When could the payment limits affect funding?
The source report says payments may begin to shrink each year starting in 2028. The timing and amount of any changes depend on final federal requirements and implementation.
Source: rss
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