The 2025 reconciliation law cuts $911 billion from federal Medicaid over 10 years — 14% of total spending. Because HCBS is optional and nursing home care is mandatory, home and community-based services bear disproportionate risk when states face budget pressure.
The 2025 reconciliation law cuts $911 billion from federal Medicaid over 10 years. This represents 14% of total projected federal Medicaid spending — a reduction without precedent in the program’s 60-year history.
The cuts operate primarily through reductions in the Federal Medical Assistance Percentage (FMAP) — the federal share of Medicaid costs. When the federal match decreases, states must either increase their own spending to maintain current services or reduce services to match the lower federal contribution. In practice, most states cut services.
Medicaid funds approximately 60% of all long-term care in America. It is the primary payer for nursing homes, HCBS programs, and the workforce that delivers both. A 14% reduction in federal Medicaid funding does not remove 14% of bureaucratic overhead. It removes 14% of the funding that pays for direct care — workers, services, and the infrastructure that keeps people out of institutions.
The cuts arrive at the worst possible moment: when the home care workforce is already in crisis, when 10,000 Americans are turning 65 every day, and when the FLSA companionship exemption is already depressing the wages that drive workforce stability. The federal cuts don’t create a new crisis — they accelerate every dimension of the existing one.
Under federal Medicaid law, nursing home care is a mandatory benefit. States must cover it. They cannot cut it, cap it, or reduce eligibility for it without a federal waiver. Home and community-based services are optional. States can expand them, reduce them, freeze enrollment, or eliminate them entirely — at any time, for any reason.
The mandatory/optional asymmetry means that when states face budget pressure, they can only cut in one direction: toward the more expensive option. They can reduce home care (optional, $48,000/person) but not nursing home coverage (mandatory, $128,000/person). The fiscal architecture of Medicaid structurally favors institutional care — not because institutional care is better, but because the law makes it the only setting states cannot reduce.
This asymmetry has produced an absurd outcome: the care setting that costs 2.7 times more, that most people want to avoid, and that produces worse quality-of-life outcomes is the one the system protects. The care setting that costs less, that most people prefer, and that produces better outcomes is the one the system puts at risk every time budgets tighten.
Most state HCBS programs operate under Section 1915(c) waivers — federal permissions that allow states to use Medicaid funds for home care instead of institutional care. These waivers must be renewed periodically, can be modified, and can be revoked. The entire home care system for millions of Americans rests on a regulatory permission structure that can be withdrawn — while the nursing home entitlement is written directly into statute.
The last comparable fiscal squeeze provides a direct preview of what the 2025 cuts will produce. During the Great Recession, all 50 states cut HCBS programs. The cuts were not hypothetical. They were documented, quantified, and devastating.
States froze new HCBS enrollment, trapping eligible people on waiting lists. They reduced authorized service hours, forcing families to fill the gap or go without. They cut provider reimbursement rates, driving agencies out of business and workers out of the sector. They lengthened waiting lists that were already months or years long. Every cut moved people closer to institutional care.
The result of the 2008–2011 cuts was predictable: more people in nursing homes, higher total Medicaid costs, and a workforce crisis that took a decade to partially recover from. The states that cut HCBS the deepest saw the largest increases in institutional admissions. The savings were illusory — what was saved on home care was spent at 2.7× the rate on nursing homes.
After the 2008 cuts, it took states more than a decade to partially rebuild their HCBS systems. Provider agencies that closed did not reopen. Workers who left the sector did not return. Waiting lists that grew during the crisis remained long for years. The 2025 cuts are significantly larger than the 2008 shortfall, and they arrive when the workforce is already at its weakest point in modern history. The recovery from these cuts — if recovery is possible — will be measured in decades.
The federal Medicaid cuts do not arrive in isolation. They compound three existing pressures, each of which is already driving the workforce crisis.
The companionship exemption depresses wages across the home care sector. Workers earn a median of $14.98/hr — below the poverty line for a family of four. Low wages drive turnover, turnover drives instability, and instability drives the substitution trap. Federal cuts arrive on top of a wage floor that is already too low to sustain the workforce.
The proposed rescission of the 2013 DOL overtime rule would remove the only federal protection that partially addressed the exemption. When the rule was in effect, the GAO found that employers capped hours rather than paying overtime, worker pay did not increase, and the home care workforce declined 11.6%. Rescission eliminates even the incomplete protection the rule provided.
10,000 Americans turn 65 every day. By 2030, all baby boomers will be 65 or older. The population needing long-term care is growing exponentially while the workforce available to provide it is contracting. Federal cuts accelerate the contraction at the exact moment demand is accelerating.
Each pressure is serious independently. Together, they create a compounding fiscal crisis where the cheapest care setting collapses and the most expensive one absorbs the overflow. The FLSA exemption suppresses wages. The DOL rescission removes protections. The demographic wave increases demand. And the federal cuts reduce the funding available to address any of it. This is not a policy disagreement — it is a fiscal and humanitarian emergency.
Wisconsin provides a detailed case study of how federal cuts flow through to the state level. The state faces an estimated $6.4–$16.8 billion loss over 10 years, depending on how FMAP reductions are structured and how the state responds.
Federal Medicaid cuts reduce the FMAP — the percentage the federal government pays. When the federal match drops, Wisconsin must choose: (1) increase state spending to maintain services, (2) cut provider reimbursement rates (driving more workers out of the sector), (3) reduce authorized service hours (increasing family burden), or (4) freeze HCBS enrollment (growing waiting lists). During 2008–2011, Wisconsin chose all four. The 2025 cuts are larger.
Wisconsin already has 27.8% caregiver vacancy rates and projects 178,800 direct care openings over the next decade. Federal cuts that reduce provider rates or freeze enrollment will push vacancy rates higher, accelerate the substitution trap, and increase total Medicaid costs as more people enter nursing homes. The cuts designed to save federal dollars will generate state-level costs that exceed the savings.
What happens in Wisconsin will happen in every state. The mandatory/optional asymmetry, the workforce crisis, and the demographic wave are national. States with stronger HCBS systems will face pressure to cut them. States with weaker systems will face pressure to eliminate them. And 69% of total Medicaid spending serves elderly and disabled populations — the very populations whose care depends on the HCBS programs most vulnerable to cuts.
Reconciliation law figures: Congressional Budget Office scoring. FMAP data: Federal Register / CMS. Wisconsin impact estimates: Wisconsin Legislative Fiscal Bureau / Georgetown University Center for Children and Families. Historical HCBS cuts: Kaiser Family Foundation, Medicaid Budget Survey (2009–2012). Mandatory/optional benefit structure: Social Security Act §1902(a)(10), §1915(c). Workforce data: Wisconsin DHS, BLS, PHI. See Methodology for full sourcing.
People without HCBS are 5× more likely to enter nursing homes. When home care fails, 63% of families step in unpaid and 31% go without care entirely.
→ The substitution research27.8% vacancy. 50% turnover. $14.98 median wage. The workforce behind home care is collapsing — and the demographic wave is just beginning.
→ Workforce dataThe full picture: cost comparisons, savings illusions, counter-evidence, and the fiscal architecture driving America’s long-term care crisis.
→ Crisis overviewModel legislation, talking points, FOIA templates, and more. Every tool is free to use and adapt.
→ Action Toolkit