Trump's Law Alters Medicaid, SNAP, and Tax Structures for States

Impacts of New Law on State Finances and Welfare Programs

In 2026, U.S. states will navigate critical fiscal decisions as a new law signed by President Trump significantly alters the landscape of social safety net programs. This shift places the burden of increased costs for Medicaid and the Supplemental Nutrition Assistance Program (SNAP) on state governments, leading to potential budgetary challenges and cuts in federal funding.

As states prepare for these changes, they must consider how to utilize their own tax revenues to counteract the reductions in federal assistance. Many will also evaluate whether to implement work requirements for Medicaid, a move expected to decrease Medicaid expenditures but risk leaving millions without coverage.

Tim Storey, CEO of the National Conference of State Legislatures, expressed concern about this impending crisis, stating, “There’s a big storm coming for state budgets.” The discussions around these decisions will kick off when state legislatures and governors convene in January to set their agendas for the upcoming year.

SNAP Administrative Cost Increases

The Supplemental Nutrition Assistance Program, which currently supports 42 million Americans, is slated to become increasingly expensive for states to manage. Presently, the federal government provides $94 billion in benefits and shares $6 billion in administrative costs. However, starting in October, states will assume three-fourths of the administrative expenses, with a significant shift occurring by 2027 when states with high error rates will have to cover more benefit costs.

Various states are already allocating funds to mitigate the financial stresses associated with SNAP. California, for example, has designated $84 million to address errors in its SNAP program, while Florida is grappling with a $50 million administrative bill that could escalate to $1 billion if the benefits program is fully transferred to state oversight, as indicated by Sky Beard of No Kid Hungry.

Medicaid Work Requirements and Budgetary Effects

Another significant aspect of the new law is the introduction of work requirements for Medicaid recipients, set to take effect by 2027. These regulations will have a major impact on state budgets. For instance, Nebraska plans to implement these requirements in May, a decision that Governor Jim Pillen has lauded for its beneficial potential.

However, preparing for the implementation of these work requirements is expected to incur substantial costs. Missouri, for example, has requested $33 million to upgrade technology and staffing for these changes. This reform will affect Medicaid recipients in 40 states and the District of Columbia, particularly targeting those who benefitted from the Affordable Care Act of 2010. The Congressional Budget Office projects that these shifts could lead to a $911 billion cut in Medicaid spending, potentially leaving around 10 million individuals without health insurance by 2034.

States may respond by tightening Medicaid eligibility criteria or decreasing reimbursements to healthcare providers. This trend has been observed already in areas like the District of Columbia, Colorado, and Idaho, with services such as home care and dental benefits likely to be impacted.

State Tax Decisions in Response to Federal Changes

The newly enacted law also introduces numerous alterations to taxation, including a suspension of taxes on tips, overtime, and new deductions for seniors. States are now faced with the choice to incorporate these tax changes into their local tax codes. Some states may automatically align with these federal updates, while others must deliberate on the implementation of such measures.

States like Michigan have already adopted these tax relief measures for tips and overtime, while Arizona is positioning to embrace similar federal tax cuts come January, a move backed by Governor Katie Hobbs to alleviate living expenses, with bipartisan support expected in the state legislature.