How Potential Federal Cuts to Medicaid and SNAP Could Trigger the Loss of a Million-Plus Jobs, Reduced Economic Activity, and Less State Revenue

Abstract

• Issue: States are facing deep cuts in federal funding for Medicaid and the Supplemental Nutrition Assistance Program (SNAP), as envisioned by a U.S. House of Representatives budget resolution. These could include $880 billion in Medicaid cuts and $230 billion in SNAP cuts over 10 years.
• Goal: To estimate the impact of broad-based funding reductions in Medicaid and SNAP for all 50 states and the District of Columbia, assuming that cuts would be distributed evenly over the decade and proportionally across states.
• Methods: The IMPLAN economic modeling system was used to project the effects on state economies, employment, and taxes.
• Key Findings and Conclusions: Combined losses from proposed Medicaid and SNAP cuts would reach $1.1 trillion over a decade, including a $95 billion loss of federal funding in 2026 alone. State gross domestic products (GDPs) would be $113 billion lower, exceeding federal budget savings. About 1.03 million jobs would be lost nationwide in health care, food-related industries, and other sectors. State and local governments would lose $8.8 billion in state and local tax revenues. Not extending the enhanced health insurance premium tax credits that are scheduled to expire after December 2025 would lead to an additional 286,000 jobs lost in 2026, for a combined total of more than 1.3 million jobs lost in the United States.

Introduction

Congress is considering a joint resolution to set federal budget targets for the next 10 years. Although the actual policies will need to be specified in subsequent legislation, the U.S. House of Representatives budget resolution calls for cutting at least $880 billion over the next decade for programs under the jurisdiction of the House Energy and Commerce Committee and at least $230 billion for programs under the House Agriculture Committee. The principal entitlement programs under these committees are Medicaid and the Supplemental Nutrition Assistance Program (SNAP, formerly the Food Stamp Program), which indicates that these two programs are the principal targets for budget cutbacks.

The combined cuts represent a more than $1.1 trillion loss of services that millions of low-income Americans rely upon. The Senate budget resolution is less specific; it mentions cuts of at least $1 billion, although it would permit deeper cuts.

While Congressional consideration of budget proposals usually focuses on the effects on federal spending and the federal deficit, a fundamental question is: How will these cuts affect states in which Medicaid and SNAP benefits are received?¹

Reports by other analysts have illustrated possible implications of Medicaid and SNAP proposals, such as cutting the number of program participants or slashing their health benefits or food-purchasing power.² These find that program cuts could jeopardize people’s health, increase hunger, and exacerbate hardships for millions of families, including those with children, pregnant women, seniors, and people with disabilities.

Our analysis examines a different issue: how the proposed federal policy changes will affect state economies. Table 1 summarizes the impact on employment for the nation, for the five largest states, and for five other states selected from across the country. We present our complete findings later in this brief and in the accompanying data tables, which contain impact results for all 50 states and the District of Columbia.

How Cuts to Medicaid and SNAP Can Harm State Economies

While Medicaid is a health insurance program jointly administered by the federal government and the states, about two-thirds of funding for state Medicaid programs is federal. Medicaid is the largest source of federal funding for states.³ SNAP nutrition benefits, meanwhile, are funded solely by the federal government.⁴ As explained below, cutting hundreds of billions of dollars in federal funding for Medicaid and SNAP will necessarily weaken states’ economies and result in substantial job losses through a “multiplier effect.”

Although Medicaid and SNAP provide vital health coverage and food assistance to impoverished Americans, the direct recipients of Medicaid payments and SNAP benefits are health care providers — hospitals, doctors’ offices, pharmacies, and nursing homes, among others — as well as grocery and other food stores. Cuts in federal funding for Medicaid and SNAP shrink revenue for those businesses and their employees, and the effects ripple across other businesses and workers in their supply chains, such as medical equipment suppliers, food producers, and farms.

The affected businesses are forced to respond by reducing staffing, salaries, or purchases of other goods and services. As employees lose their jobs or income, they must reduce their spending on consumer goods and services, like food, housing, and transportation. This also lowers how much state and local governments can collect in taxes, including sales, income, and property taxes.

Specific Budget Cut Policies Are Not Clear Yet

Since we won’t know the specific parameters of any federal funding cuts to Medicaid and SNAP until the budget reconciliation legislation advances in Congress, our preliminary analysis looks instead at the impact of broad-based funding reductions. Our goal is to understand the general size and scope of the economic repercussions of Medicaid and SNAP funding cuts. We assume the cuts are distributed evenly over the decade and proportionally across states.

In late January, the House Budget Committee released a document that listed more than 20 options for Medicaid cuts and a dozen for SNAP cuts.⁵ Following are just a few examples:

• eliminating enhanced federal funding for state coverage of low-income, working-age adults who were made eligible for Medicaid under the Affordable Care Act (ACA)
• reducing SNAP benefits by canceling a 2021 update to the Thrifty Food Plan
• imposing work requirements on nonelderly adult Medicaid beneficiaries
• expanding work requirements in SNAP
• preventing states from using health care provider taxes to generate funding for the state share of Medicaid spending
• imposing per beneficiary caps on federal Medicaid spending, like a block grant.

Preliminary analyses of some of these options have already been released.⁶ We plan to conduct economic assessments of more specific proposals as they become clearer. Some proposals, such as reducing SNAP allotments by eliminating a 2021 update for the Thrifty Food Plan (which is used to set maximum benefit levels), would affect every state and its residents.⁷ Other policy proposals would differ across states. For example, eliminating the ACA federal funding enhancement for working-age adults would affect the 40 states that, along with the District of Columbia, expanded Medicaid eligibility but not the 10 states that have not done so. (It should be noted that states that have not expanded Medicaid have already lost tens of billions of dollars in potential federal funding by failing to opt into the expansion.⁸)

Key Findings from Our Impact Analysis

Below we present a summary of the economic, employment, and budget impacts of Medicaid and SNAP cuts across the United States, assuming there are broad-based cuts that are spread proportionately across all states and evenly over the decade. Detailed findings on these impacts for all 50 states and the District of Columbia are available in the accompanying data tables. Using IMPLAN, an economic modeling program widely used by analysts, we calculated the losses to states’ economies, the number of jobs that would be lost in each state, and the potential drop-off in state and local tax revenues, triggered by the loss of individual and business incomes in the states. (See “How We Conducted This Study” for a full explanation of study methods.)

Impact of Federal Cuts to Medicaid

If Medicaid funding is cut by $880 billion over 10 years,⁹ the amount that all states receive from the federal government would be 11.8 percent less than what they would get without any cuts. If cuts are evenly spread across the decade, $72.4 billion in funding would disappear nationwide in 2026, and losses would rise over the remainder of the decade. Detailed results for all 50 states and the District of Columbia are shown in Table 2.

The impact on state economies would be greater than the loss of federal Medicaid funding. This is because of the ripple effect of the cuts across the sectors of each state’s economy. We estimate that collectively, states’ gross domestic products (GDPs) would be about $95 billion smaller, and the total economic output lost would be even deeper ($157 billion). The average state’s reduction in its GDP for 2026 would be $1.9 billion.

Nationwide, about 888,000 jobs would be lost in 2026, including 477,000 health care jobs at hospitals, clinics, doctors’ offices, pharmacies, and nursing homes. Because of these losses, fewer health professionals would be available to provide care. Some health facilities, like rural hospitals, pharmacies, and nursing homes, might shutter, limiting access even for those who remain insured. Another 411,000 jobs would be lost as the effects extend to other industries, such as retail, construction, and manufacturing.

In addition, the loss of individual and business income would mean that state and local tax revenues would decline by $7.0 billion. This would make it harder for states and localities to balance their budgets and fund vital needs like education or infrastructure.

Impact of Federal Cuts to SNAP

While the potential SNAP budget reduction is smaller ($230 billion over 10 years) than the potential Medicaid reduction, it represents a 20.6 percent funding cut in SNAP benefits, almost twice as deep. If spread evenly across the decade, $22.1 billion in federal funding would be lost in 2026, and annual losses would mount over the remaining years. Under our broad-based scenario, an average state would lose $433 million in SNAP funding in 2026. The losses would range from $13 million in Wyoming to $1.6 billion to $1.7 billion in Florida, Texas, and New York and $2.9 billion in California. Results for every state are shown in Table 3.

State economies would be seriously harmed by the SNAP cutbacks. Their aggregate GDPs would be nearly $18 billion lower, and total economic output would be $30 billion lower.

About 143,000 jobs would be lost nationwide, including 78,000 direct job losses in food-related sectors such as agriculture, retail grocery, and food processing. (Our analysis does not include jobs at restaurants and other dining establishments, since SNAP benefits can be used only for food for home consumption). Another 65,000 jobs would disappear in other business sectors as the economic effects of the funding cuts spread.

Finally, budget cuts for SNAP could cause state and local tax revenues to fall by $1.8 billion in 2026.

Combined Impact of Medicaid and SNAP Cuts

Taken together, the Medicaid and SNAP federal budget reductions would equal $1.11 trillion over a decade, or $95 billion in 2026 alone. Our analyses indicate that state GDPs would be $113 billion lower in that year. The total loss to state economies would exceed the $95 billion in federal budgetary savings.

Nationwide, 1.03 million jobs could be lost due to broad-based Medicaid and SNAP budget cuts, including 477,000 health jobs, 78,000 food-related jobs, and 476,000 other jobs.

Table 4 summarizes the combined Medicaid and SNAP results for each state. It shows that every state, except Wyoming, loses at least 1,000 jobs due to the Medicaid and SNAP budget cuts (Wyoming loses about 800 jobs).

In an earlier brief, we estimated that not extending the enhanced premium tax credit for marketplace health insurance coverage, due is to expire at the end of 2025, would result in the loss of 286,000 jobs nationwide.¹⁰ If that cut is combined with the losses from cutting Medicaid and SNAP, a total of 1.3 million jobs could be lost across the United States in 2026.

Discussion

Some have argued that Medicaid or SNAP budgets can be cut harmlessly by eliminating “waste or fraud.”¹¹ But as we’ve shown in this brief, drastic reductions in federal funding will necessarily have major financial repercussions, because they shrink the flow of dollars into states’ economies.

One Medicaid proposal, for example, would limit states’ ability to use health care “provider taxes” to help finance their share of total Medicaid spending.¹² States use their constitutional powers to establish state taxes to help meet their financial obligations for Medicaid and other programs and services; these may include general revenue taxes, such as income or sales taxes, and more specialized ones, like taxes on health care providers.¹³ Prohibitions on the use of provider taxes would force states to find alternative revenue sources or, more likely, to cut back their Medicaid expenditures by limiting program eligibility, reducing optional benefits, or cutting payments to providers. Any of these would inevitably withdraw billions of dollars from health care, causing harmful economic repercussions. States might find alternative revenues by cutting spending on other services or by raising other taxes, but these also have the net effect of withdrawing funds from state economies.

Other policy proposals would impose work requirements nationwide in Medicaid or increase them in SNAP. Extensive research has determined that previous work requirement experiments failed to meaningfully increase employment and led to loss of health insurance or food assistance among low-wage workers, who simply are unable to navigate complex reporting systems.¹⁴ Work requirements ultimately lead to a drop in federal funding to support health care providers or grocery stores, which trigger state economic losses.

No matter what form they take, any severe cuts in federal funding for Medicaid or SNAP will inevitably inflict economic and employment losses across states.

How We Conducted This Study

Medicaid Analysis

For Medicaid, we used states’ estimates of their federal medical assistance expenditures for fiscal year (FY) 2025.¹⁵ These were inflated to 2026 levels, based on the Congressional Budget Office (CBO) baseline.¹⁶ We applied the $880 billion federal Medicaid reduction over the FY 2025–34 period, assuming an equal percentage cut in each state over the 10-year period. This resulted in an 11.8 percent reduction in federal Medicaid funding in every state.

We produced our estimates of the economic, employment, and tax effects of reduced federal funding with IMPLAN, a widely used input–output economic impact software system.¹⁷ The underlying logic is that funding cutbacks have a “multiplier effect” that is felt initially in the health care sector but soon spreads to other economic and employment sectors as well.

For Medicaid, we partitioned each state’s Medicaid loss in four health care sectors: hospital, ambulatory care, pharmaceuticals, and long-term care, based on estimated Medicaid spending in these sectors.¹⁸ Our methodology is similar to that described in our recent brief, although here we focused on broad-based changes in Medicaid-related health expenditures.¹⁹

SNAP Analysis

State-level SNAP benefit expenditures for FY 2024 were reported by the Food and Nutrition Service of the U.S. Department of Agriculture.²⁰ We adjusted these to 2026 levels using CBO baseline estimates.²¹ The $230 billion SNAP cut was allocated proportionately using the baseline estimates for FY 2025–34; this yielded a 20.6 percent cut in federal SNAP funding for every state.

Our IMPLAN-based analysis of the cuts in SNAP funding was similar to that used for Medicaid but focused on changes in food-related expenditures. SNAP benefit levels are based on recipients’ incomes and household sizes: those with no income get the maximum allotment, while those with incomes closer to the poverty line get no or low benefits.

Households use a blend of SNAP benefits and their own income to purchase groceries. Because of the blending of resources and the necessity of eating regardless of SNAP benefit levels, economists realize that increases in household’s grocery purchases are generally less than the value of their SNAP allotments. This is called the “marginal propensity to consume.” A conservative estimate is that 30 percent of the value of SNAP benefits is used to increase grocery purchases (including the underlying costs of food production, wholesale, and retail grocery distribution). The other 70 percent is used to purchase food that they would have bought anyway; this frees up other available household income for the purchase of other essential consumer goods like rent, utilities, and clothing.²² Because SNAP participants are poor, our analyses examine changes in the consumption patterns for households with annual incomes between $15,000 and $30,000.

We use the estimated changes in federal SNAP funding ($22.1 billion in 2026 across all the states) and allocate each state’s share in two parts: a 30 percent reduction in food purchases and a 70 percent reduction in other consumer goods. In our analysis, we present the employment effects of the direct food-related effects (for example, employment in groceries, farming, and food production) and other effects, which include employment in all other business sectors.

Both the Medicaid and SNAP analyses use IMPLAN’s Multi-Regional Input-Output (MRIO) methodology to account for cross-state effects of the policies (sometimes called “leakages”).²³ For example, some of the food purchased in Georgia may have been grown in Kansas or processed in Tennessee, so lower grocery purchases in one state may cause losses in other states. A nurse who loses her job at a Louisiana clinic might reside in Texas; thus a job lost in one state could create economic losses in another.

How the Multiplier Effect Works

The figure below illustrates how the multiplier effect works for Medicaid and SNAP.

For Medicaid, the reduction in federal Medicaid funds lead to reductions in state Medicaid programs’ budgets. In turn, the loss of insurance coverage lowers revenue to health care providers, like hospitals, clinics, pharmacies, and nursing homes. These are the direct effects.

In turn, health care providers must compensate for revenue losses by reducing how much they spend on staff and on goods and services from vendors (such as medical supplies, equipment, rent, and IT). These businesses also must reduce spending on labor, goods, and services; the reductions in labor expenses means health providers and other businesses must lay off staff and reduce compensation. These are the indirect impacts of the policy change.

Finally, as employees lose income, they purchase fewer consumer goods and services (e.g., retail goods, transportation, groceries, rent). These are known as induced losses. Falling personal and business income also lowers state and local revenue from income, sales, and other taxes, such as real estate taxes.

These principles also apply to the loss of federal SNAP funding. Although SNAP is administered by state agencies and benefits are distributed to recipients, the SNAP funds actually flow directly to grocery stores for food purchases, although as described above, economists recognize that consumers redeploy their available household income to purchase other goods and services. Parallel to the Medicaid example, these effects can be viewed as direct, indirect, and induced effects.

Why We Focus on Changes in Federal Funding

We focus on the effects of changes in federal funding because these are exogenous changes (“shocks”) in the resources available to each state and its residents, caused solely by the federal policy changes. There may be other compensatory changes in state, business, or consumer economic behaviors, but these involve shifting resources away from other uses, which also have economic consequences. Focusing on the federal budgetary changes makes our estimates more conservative.

For example, if SNAP benefits are reduced, a family might compensate by spending more of its own income to buy enough groceries, however it would then have less money to pay for other essentials like rent, clothing, or utilities, so there are economic losses due to reduced spending for those goods. Similarly, some who lose Medicaid coverage may be able to receive uncompensated health care from a community health center or safety-net hospital, but this means that those providers lose revenue and are less able to pay their staff or buy medications or medical supplies, so economic losses still occur because of the reduction in federal funding. If state governments compensate for lost federal Medicaid or SNAP benefits by using state funds to augment health or food assistance, then states have less to spend for education, infrastructure, or services, creating other economic losses.

Why Our Estimates Are Conservative

Medicaid and SNAP cutbacks could have other harmful effects on health, nutrition, and well-being. A large body of research has demonstrated how the expansion of Medicaid coverage under the Affordable Care Act led to improved health access, better health, and greater financial and mental well-being.²⁴ SNAP has also been associated with better health and lower financial strain.²⁵ The loss of health and nutrition benefits could impair health or mental well-being, leading to additional losses in productivity or higher health care costs. Our analyses do not account for these other health and social costs; they are based entirely on the economic repercussions of federal funding reductions on state economies and employment.

About Our Measures of Economic and Employment Impact

The data shown in Tables 2, 3, and 4 accompanying this brief are estimated changes in the economic value or the number of jobs in a state in 2026, compared to baseline scenarios in which Medicaid or SNAP funding are not cut. The negative numbers mean there are losses in federal funding, state economic activity, employment, and/or tax revenues.

The specific measures we use are:

• Federal funding (in millions of nominal dollars): The estimated change in federal Medicaid and SNAP funding.
• Economic output (in millions of nominal dollars): The estimated change in total economic activity due to the policy change. This may overstate the effect on the state gross domestic product (GDP), since it sums output at all stages of production and processing.
• State GDP (in millions of nominal dollars): The estimated change in a state’s GDP, which is the conventional measure of economic activity in a state, based on the value of goods and services, less the inputs used up in production. It is equal to the change in net economic activity, or value added, because of the policy change.
• Total jobs (in thousands of jobs): The estimated change in the total number of jobs (full-time, part-time, and seasonal) in the state, compared to the number who would have been employed under a baseline scenario in which Medicaid and SNAP funding is not cut.
• Direct health or food-related employment (in thousands of jobs): For Medicaid, this is the estimated change in the number of jobs in the directly affected health care providers, like hospitals, clinics, pharmacies, and nursing homes. For food-related employment, this is the change in the number employed in the food sector, including grocery stores, agriculture, and other food processing and production businesses.
• Other jobs (in thousands of jobs): The estimated change in the number of jobs is due to indirect and induced effects which primarily affect other sectors, like retail, real estate, construction, and manufacturing. For the Medicaid analyses, these are principally jobs outside the health sector and for SNAP these are jobs outside the food sector.
• Federal tax revenue (in millions of nominal dollars): The estimated change in federal tax revenues (including income tax, social insurance, and business taxes) in each state is due to changes in business or individual income due to the Medicaid and SNAP cuts. (Note: Tax revenues are based on tax rates as of 2023. These may change if there are changes in tax rates in future years.)
• State/local tax revenue (in millions of nominal dollars): The estimated change in state and local tax revenues, including income, sales, property, and other state or local taxes (including school district or metropolitan levies) owing to changes in business or individual income related to the Medicaid and SNAP cuts. (Note: Tax revenues are based on tax rates as of 2023. These may change if there are changes in tax rates in future years.)