Don’t Be Fooled by the Rural Health Transformation Grants

The Centers for Medicare & Medicaid Services (CMS) is taking a victory lap, announcing Rural Health Transformation grant awards to states one by one. Don’t be fooled. The program totals $50 billion and expires in 5 years — the law that created it, the 2025 Republican reconciliation bill, H.R. 1, cuts more than $1 trillion in federal support for health care. No amount of spin can make $50 billion fill a $1 trillion hole.

Although the Rural Health Transformation Program may provide some states with an initial injection of real dollars that can fund health initiatives to address the very real challenges facing people seeking health care in rural communities, this program was not born out of a good faith effort to solve these perennial problems. Rather, it was created in a cynical attempt to provide political cover for Members of Congress so they could vote for H.R. 1’s deep cuts to Medicaid — the very same cuts that are now leading to rural clinic closures and threatening the communities who depend on them for care. Now CMS is handing out checks as if they solved the problem they created.

This is the reality:

• H.R.1 cut $911 billion in federal Medicaid spending over 10 years, plus more in federal support for the Affordable Care Act marketplaces. The Rural Health Transformation Program totals $50 billion — just 5.5% of what those Medicaid dollars to states would have been.
• The changes in how states can fund their Medicaid programs (e.g. provider tax rates) are permanent, thus the cuts will keep growing after 10 years. Again, the Rural Health Transformation Fund only lasts 5 years.
• No more than 15% of Rural Health Transformation grants to states can be used to pay providers for patient care. Over 95% of federal Medicaid funding for states is spent on patient care. This means only $7.5 billion in RHT funds are available to make up for the $865 billion in federal Medicaid funding that likely would have gone to patient care.

Instead of touting these one-time grants, the real focus should be the cascading fiscal crisis that HR 1 triggered in states across the country. Several states are now cutting millions — and in some instances — billions of dollars from different state programs to help keep their Medicaid programs afloat:

• Idaho made across the board cuts between 3% and 4% for all state agencies, to save $131.3 million in state general funds to help balance its state budget.
• Michigan cut its School Aid Fund by $1.7 billion to help offset federal funding losses and allocated $185 million to stabilize Medicaid funding and protect coverage for Michiganders.
• Missouri’s Governor froze $441 million in FY2027 budget allocations, which means the allocations will remain unfunded until revenue becomes available. Freezing these funds allows Missouri to transfer $469 million in new general fund dollars to its Medicaid managed care program.

In other instances, states are already making direct cuts to Medicaid to balance their state budgets:

• Colorado is cutting $135 million in provider rates and Medicaid services, in addition to extending its waitlist for 24/7 care for adults with developmental disabilities by only enrolling one new member for every two spots vacated. This change is expected to double the waiting period for services from 7 to 14 years.
• Nebraska’s budget mid-biennium adjustment cuts $231 million from Medicaid in FY2027, which means less Medicaid funding will be available for patient care.

Even in states where lawmakers were able to avoid the most severe cuts, those states are shifting dollars away from state general funds to plug holes in their Medicaid budgets instead of using the funds for other vital services like education, housing, and food assistance:

• Alaska moved $34 million from state general funds to cover Medicaid gaps in its supplemental FY2026 budget and FY2027 budget.
• Iowa legislators already needed to address pre-existing Medicaid budget shortfalls of $90 million in FY26 and $167 million in FY27, in addition to new shortfalls created by H.R. 1. To balance its budget, Iowa shifted $89 million in general fund dollars and $350 million from Iowa’s Taxpayer Relief Fund to its Medicaid budget.
• Maine is increasing taxes on incomes over $1 million to help the state allocate $141 million in new state funding for Medicaid. Maine’s supplemental budget also transferred $53 million to the MaineCare Stabilization Fund to address future budget shortfalls, adjusting Maine’s hospital tax to generate an additional $24 million annually, and provided the Governor with authority to spend up to $30 million from its Budget Stabilization Fund to take emergency budget measures related to future federal actions.

And H.R.1’s moratorium on new Medicaid provider taxes is even boxing in non-Medicaid expansion states. The moratorium is forcing states like Kansas and Florida to make dramatic budgetary changes with sweeping long-term impacts.

• To keep KanCare whole, the Kansas state budget includes a 1.5% budget cut for many other state agencies and programs, on top of a $91.7 million cut in state general fund spending on education, and an $11 million cut for higher education.
• Florida is shifting $1.2 billion in new general fund dollars into Medicaid. These funds could have been used for other state priorities like public safety or child care.

These drastic cuts and shifts in budgets highlight what advocates always knew to be true — the Rural Health Transformation Program is simply not a reasonable replacement for the security and predictability of Medicaid funding. Program dollars also come with restrictions and limitations that prevent them from offsetting the impact of cuts from H.R. 1 at the state level.

So don’t be fooled as you hear about new announcements related to Rural Health Transformation grants to the states. The states are hurting. State budget cuts and major shifts to keep Medicaid budgets balanced have been enacted. The Rural Health Transformation grants will not prevent or fully offset the harm to states from H.R.1.