Medicaid, SNAP Changes Have States Eyeing Their Education Budgets

Medicaid, SNAP Changes Have States Eyeing Their Education Budgets

Less federal spending on these programs could have implications for state and local school budgets.

Many schools are eligible for a federal program that allows schools with large numbers of students from low-income families to provide free meals to all students. (SDI Productions/Getty Images)

The domestic policy law signed by President Trump this summer brings significant changes to Medicaid and SNAP by reducing federal spending on these programs by more than $1 trillion over the next decade.

Some of the spending reductions of $911 billion for Medicaid and $186 billion for SNAP will be achieved by shifting program costs to states, especially for SNAP. However, most Medicaid spending reductions will be achieved through stricter eligibility requirements and other programmatic changes. Many of these changes may not impose direct costs on states, but they could present complications as states craft their budgets in the coming years.

Related: NCSL's analysis of the new SNAP and Medicaid provisions

When states experience fiscal pressure, education spending is often the centerpiece of budget conversations as K-12 education, Medicaid and higher education are the three largest state expenditures, respectively. Higher education, in particular, is often referred to as the "balance wheel" of budgets.

In addition to state budget impacts, the changes to Medicaid and SNAP could have implications for local school budgets. SNAP participation often certifies student eligibility for free and reduced-price school meals, which is in turn frequently used as a proxy for low-income status in state school funding formulas. Many schools also receive Medicaid reimbursements for school-based services.

Predicting state fiscal conditions always presents a challenge, but it's especially difficult with these changes. Many of the key provisions phase in over time, giving states an opportunity to plan. Responses will vary considerably by state, and the interactive effects of policy choices could offset or amplify fiscal impacts.

SNAP Changes and State Budgets

Changes to the SNAP program pose the clearest and most direct fiscal impacts for states by creating a new cost share for program benefits and increasing by 25% the state share of administrative costs. Starting in fiscal year 2028, a state's cost share of benefits will be based on its payment error rate. States with payment error rates above 6% will be responsible for between 5% and 15% of SNAP benefits.

SNAP Changes and School Budgets

The expanded work requirements and additional costs to states may require lawmakers to consider changes to SNAP eligibility, which could lead to decreased program enrollment. Fewer families receiving SNAP benefits may have downstream effects on how schools calculate free and reduced-price meal eligibility and how funding is distributed to schools through state formulas.

Free and Reduced-Price Meal Eligibility

Schools can use SNAP enrollment to directly certify student eligibility for free and reduce-price meals without parents filling out a form. Families no longer eligible for SNAP benefits will need to apply for their students to be eligible for free or reduced-price meals.

Increased reliance on meal applications may result in lower rates of free and reduced-price eligibility if families do not complete their application. The federal government reimburses schools at a higher rate for free and reduced-price meals than for paid meals, meaning fewer students receiving free and reduced-price meals would result in less federal funding and could increase the share of school spending on meal programs.

Additionally, many schools are eligible for the Community Eligibility Provision, or CEP, which allows schools with at least 25% of students who are directly certified as eligible for free and reduced-price meals to provide free meals to all students. If fewer students are directly certified through SNAP, it could become harder for schools and districts to meet the minimum CEP threshold. The nine states that provide universal free school meals may be especially impacted, as many rely on eligible schools and districts to opt into CEP as a way to maximize federal reimbursements.

Per Pupil School Funding

Almost all states use some proxy indicator for student poverty to determine how much funding to provide districts to support the education of low-income or at-risk students. As of 2024, 33 states used eligibility for free and reduced-price meals or participation in CEP as a proxy, and 12 states used participation in SNAP as a proxy. The decision to use these proxies is made by states and is not associated with any federal requirements.

Schools may receive less per pupil funding through their state's school funding formula if there is a decrease in students receiving SNAP benefits or student eligibility for free and reduced-price meals.

Medicaid Changes and State Budgets

Medicaid accounts for over half of federal funds received by states, according to the National Association of State Budget Officers. Reductions in federal Medicaid funding are likely to exert pressure on other state expenditures, particularly in education.

The new law reduces federal Medicaid spending by almost $1 trillion dollars, primarily by limiting eligibility, limiting state reliance on provider taxes, which are used to finance the state's share of Medicaid expenses, and reducing provider payments. Every state is likely to see a reduction in federal Medicaid funding, ranging from 4% to 19%, according to KFF.

The fiscal impact will vary widely based on each state's unique context and the state's response to federal changes. Limiting eligibility and reducing provider payments in Medicaid may shrink the program's budgetary footprint in the state. But limits on state financing through provider taxes shifts costs to states and exerts additional pressure onto the state general fund and local sources of funding, according to the Government Accountability Office.

The timing also matters. Most limits on Medicaid eligibility go into effect in October 2026 or January 2027. Limits on provider taxes and provider payments begin in January 2028 and grow in magnitude over time.

It is highly likely that states will be grappling with shifting budget dynamics over the next five to 10 years. State legislatures and governor's offices may consider options to raise revenue or cut costs across programs to manage those dynamics. But the magnitude of state budget impacts and the necessary responses will be state-specific and remain unclear.

Medicaid Changes and School Budgets

The new law does not change the way states cover and pay for Medicaid services in schools. However, changes to student Medicaid eligibility and potential cost pressures on the state share of Medicaid spending could impact school budgets.

Medicaid reports that it spends about $7.5 billion on school-based services annually, which makes it the fourth-largest federal funding stream for districts. Schools use Medicaid to provide a variety of school-based health, mental health and special education services.

Federal funding is automatically available for services provided to Medicaid-eligible students with individualized education plans, or IEPs. States can choose whether to cover services provided to all other Medicaid-eligible students. Currently, at least 25 states cover school-based services beyond those available to Medicaid-eligible students with IEPs.

Medicaid Coverage and Payment for School-Based Services

Medicaid is a particularly important source of funding for special education. Schools are required to provide educationally and medically necessary services to students based on their IEPs. If a student is not enrolled in Medicaid, or if the school-based services for Medicaid-enrolled children without IEPs are not covered by the state, then the district must cover the cost of services.

If budget pressures result in state Medicaid programs limiting or reversing coverage of school-based services for students without IEPs, then school districts could see an increase in costs to provide school-based services.

Medicaid Eligibility

The new law also changes immigrant eligibility for the Medicaid program, which could reduce the number of Medicaid-eligible students. Starting Oct. 1, 2026, students who are asylees, refugees, victims of domestic violence or human trafficking, or who have certain other immigration statuses, will no qualify for Medicaid coverage.

Fewer students covered by Medicaid could lead to increased costs for districts if they continue to provide services to students not eligible for Medicaid. While this may particularly impact school districts in the 25 states that cover school-based services for all Medicaid-eligible students, any school district that serves immigrant students with IEPs may also be affected.

Emily Katz Sayag is an associate legislative director in NCSL's State-Federal Affairs Division.

Kathryn Costanza contributed to this article.