DHS warns CMS review and federal changes could delay 2025 law implementations and stress state budget

Department of Human Services budget director Elise Bailey told lawmakers that federal developments are driving implementation risk for many provisions enacted in 2025 and that CMS scrutiny is leading to longer approval timelines for state plan and waiver amendments.

Bailey said HR 1 (passed July 4, 2025) includes major changes to Medicaid — including potential work requirements, six-month renewals for some populations, cost-sharing changes, and altered retroactive coverage periods — all of which increase complexity for administration and for counties and tribes that help operate the program.

She reported that CMS had sent DHS and the governor a letter indicating intent to withhold roughly $550 million per quarter (a related discussion cited $515 million per quarter), and that the department has submitted an appeal that is pending. Bailey said such withholding would amount to more than $2 billion annually and would materially affect the state’s fiscal picture and the agency’s ability to implement new policies on the expected timetable.

Bailey outlined the state’s approval process for state-plan and waiver amendments: DHS drafts amendments, posts changes for public comment (often 30 days), submits to CMS (starting a 90-day review clock), answers informal questions and may receive a formal RAI (request for additional information) that 'stops the clock' until DHS responds. That process, she said, and reduced CMS staffing and increased scrutiny, explain many of the delays to targeted effective dates.

On specific program changes, Bailey said DHS implemented the patient-driven payment model for nursing facilities on Oct. 1 but is still awaiting federal approval; several other nursing-facility rate changes, CFSS rate adjustments tied to a bargaining agreement, and Min/Min Choices assessment changes are pending CMS approval and likely to be delayed from their 2026 target effective dates.

Bailey added that DHS serves over 1,000,000 people on Medicaid and that in 2026 it expects roughly $14 billion in federal funds and about $10.8 billion from the general fund, underscoring the magnitude of federal funding dependencies.

Lawmakers asked for additional forecasts, including an estimate of how many people could lose coverage under HR 1; Bailey said DHS would provide numbers from the November forecast and staff discussion suggested approximately 140,000 expansion-group individuals could be affected by some HR 1 provisions. Committee members asked how budget choices would be made if federal funds are withheld; Bailey said decisions would be made by the Legislature and could affect Medicaid or other state priorities.

DHS said it would continue to post public notices, respond to CMS queries and return to the committee with more-detailed implementation timelines and figures.