When Government Shuts Down: The Effect on Medicaid
As shutdown looms (again), here’s a quick reminder of what it would mean for Medicaid.
Author: Nick Bath
Editors: Patti Boozang and Amanda Eisenberg
tl;dr
Congress has until 11:59pm on Tuesday, September 30 to avert a shutdown;
In general, federal workers that support mandatory programs like Medicaid are protected from furlough;
However, Medicaid’s unique status as an advanced appropriation means funding runs out in the first quarter of next year, should the shutdown last that long.
The 80 Million Impact
Shutdown is likely
Before it adjourned last week for a scheduled district work period, the House passed a bare-bones seven-week continuing resolution (CR) on largely partisan lines (one Democrat supported the measure) – this bill would have extended discretionary government funding at current levels. The Senate voted on, and failed to pass, both the House-passed CR and a Democratic alternative authored by Appropriations Committee ranking members Rep. Rosa DeLauro (D-CT) and Sen. Patty Murray (D-WA). As a result, Congress will have roughly 48 hours when it returns next week to avoid a lapse in Executive Branch authority to spend appropriated funds – commonly known as a shutdown. While the Senate is scheduled to return on Monday, the Speaker has not called the House back in session before the shutdown date, widely seen as a tactic to put maximum pressure on the Senate to pass the House measure.
All shutdowns are partial
In general, the immediate effect of a shutdown is that all Executive Branch activities funded by appropriations (also known as discretionary programs) can no longer legally operate and the employees supporting them are furloughed without pay. However, the law does make exception for employees deemed “essential,” the definition of which is sufficiently vague to give the Administration broad latitude in retaining certain categories of employees. Federal agencies have not updated their staffing contingency plans in the event of a shutdown since President Trump took office. There are some concerns that, given this Administration’s focus on shrinking the size of the federal workforce, a narrower definition of “essential” may be employed this time around, resulting in more employees being furloughed.
Other programs, and the employees supporting them, are exempt from furlough because their funds are not authorized by appropriations bills but rather are mandatory spending. This category includes federal entitlements like Medicare and Medicaid. Thus, employees at the Center for Medicaid and CHIP Services (CMCS) working on Medicaid are generally exempt from furlough.
Medicaid is an exception within the exemptions
However, at least theoretically, Medicaid is more vulnerable to a lapse in appropriations than other entitlement programs. This vulnerability arises from its unique hybrid status as an “appropriated entitlement,” an historical artifact in which spending occurs automatically (dictated by existing statutory eligibility and reimbursement formulas) but Congress appropriates those funds based on spending projections.
Typically, appropriators provide Medicaid with funding for the fiscal year of the appropriations bill in question and an advance appropriation for the first quarter of the following fiscal year. The spending bill expiring on September 30 was no exception, providing an advance appropriation of $261.1 billion for the first quarter of FY2026. Should the shutdown stretch into the second quarter of 2026, federal payments to states will stop and employees will begin to be furloughed unless funds are left over from the first quarter appropriation. As far as we are aware, this has never occurred.
The Bottom Line
During a shutdown, states, providers, and enrollees can feel generally secure that federal funding for the Medicaid program will continue and the employees at CMCS supporting the program will be at work – unless the shutdown stretches into the first quarter of next year.
Please join us for The 80 Million’s next Ask Manatt session focusing on the Rural Health Transformation Fund with Patti Boozang and Anne O’Hagen Karl from Manatt Health, Deputy Secretary for North Carolina Medicaid Jay Ludlam and Homeward Health Founder and CEO Jennifer Schneider, MD on Sept. 29.