Trump’s Federal Grant Freeze Threatens Medicaid Funding

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Key Takeaways

The federal funding freeze excludes individual assistance programs but leaves Medicaid funding uncertain, affecting state budgets and health care services.
The OMB memo creates exceptions and requires agencies to align awards with administration priorities, potentially modifying or canceling conflicting awards.
Medicaid, covering nearly 80 million Americans, faces funding uncertainty, with states potentially needing to cut services or delay payments.
States like New York and California plan legal action against the funding freeze, arguing it threatens essential Medicaid payments and access to care.

The pause has raised concerns among health officials and state leaders, as the vague wording leaves billions in Medicaid funding at risk, potentially disrupting coverage for millions of Americans.

The Trump administration placed a freeze on federal financial assistance, raising alarms among health care experts and state officials as the phrasing puts Medicaid funding at risk.

White House and money | Image credit: W.Scott McGill – stock.adobe.com

The Trump administration placed a freeze on federal financial assistance. | Image credit: W.Scott McGill – stock.adobe.com

Issued Monday night, a memo from the Office of Management and Budget (OMB) ordered all federal agencies to suspend grant payments pending review, a move that could disrupt billions of dollars in health care funding.¹ According to the OMB memo, 2 CFR 200.1 defines federal financial assistance as “[a]ssistance that recipients or subrecipients receive or administer” in various forms, though this term does not include assistance provided directly to individuals.

During a White House press conference Tuesday, Karoline Leavitt, White House press secretary, emphasized that the freeze would not affect individual assistance programs, which include Medicare, Social Security, food stamps, welfare benefits, and other “assistance that is going directly to individuals.”²

However, Medicaid is not included in these protections, leaving states uncertain about whether they will continue receiving federal Medicaid matching funds, and exactly how long this “temporary pause” will take place. The OMB memo stated that the pause will go into effect Tuesday at 5 pm ET with no mention in the memo or during the press conference when it would be lifted.^1,2

The memo also said that OMB may grant exceptions on a case-by-case basis to allow federal agencies to issue new awards or take other actions.¹ Agencies must also assign senior political appointees to oversee financial assistance, review pending awards to ensure alignment with administration priorities, and modify or cancel awards that conflict with those priorities when legally permissible. Additionally, agencies are required to enhance oversight, conduct investigations into underperforming recipients, and take corrective actions, including canceling awards if necessary.

Medicaid is the largest public health insurance program in the US, covering nearly 80 million Americans, including low-income families, individuals with disabilities, and seniors who require long-term care.³ The program is jointly funded by state and federal governments, with the federal government covering at least half of each state’s Medicaid costs. In 2023 alone, Medicaid spending reached $871.7 billion, with the federal government contributing $591.4 billion, according to the CMS.⁴ The new funding pause has created uncertainty about whether these essential payments will continue as scheduled.

State Attorneys General Plan Lawsuit

Within hours, a handful of states are already responding to President Donald Trump’s federal funding freeze with legal action, arguing that the move threatens critical health care funding, particularly for Medicaid.⁵

Attorneys general from states including New York, California, Illinois, and Massachusetts plan to sue the administration to block the order, which could disrupt billions of dollars in Medicaid payments to states. The lawsuit, announced by Senate Majority Leader Chuck Schumer, seeks to prevent what state officials call an unconstitutional pause on funds that Congress has already approved.

“My office will be taking imminent legal action against this administration's unconstitutional pause on federal funding,” Letitia James, JD, Democratic New York Attorney General, said on social media.

The legal challenge underscores growing concerns over Medicaid funding, as states rely on federal contributions to provide health coverage for low-income populations. For example, New York expects to receive approximately $60 billion in Medicaid funding this year, covering care for seven million residents. If the freeze extends, states could be forced to cut services, delay payments to health care providers, or find alternative funding sources, potentially jeopardizing access to care for millions of Americans.

References

Vaeth MJ. Temporary pause of agency grant, loan, and other financial assistance
programs. Office of Management and Budget. January 27, 2025. Accessed January 28, 2025. https://www.documentcloud.org/documents/25506191-omb-memo-1-27/
Trump White House to hold first news conference. Washington Post. January 28, 2025. Accessed January 28, 2025. https://www.washingtonpost.com/video/politics/trump-white-house-to-hold-first-news-conference/2025/01/28/KTDW3DYOONFORP6I3DMO4FG6RY_live.html
October 2024 Medicaid & CHIP enrollment data highlights. Medicaid. Updated January 15, 2025. Accessed January 28, 2025. https://www.medicaid.gov/medicaid/program-information/medicaid-and-chip-enrollment-data/report-highlights/index.html
NHE fact sheet. CMS. Updated December 18, 2024. Accessed January 28, 2025. https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet
Schwartz M, Oreskes B. States will sue Trump to stop federal grant freeze. The New York Times. January 28, 2025. Accessed January 28, 2025. https://www.nytimes.com/2025/01/28/us/politics/states-lawsuit-trump-federal-grants-pause.html