By Megan Leonhardt

Healthcare has been the primary job growth engine in the U.S., but federal cuts to Medicaid funding are throwing a wrench in the works.

The cuts are already creating a drag in employment that will only get worse over the next two years.

Last year, Congress authorized nearly $1 trillion in Medicaid cuts over the next 10 years through the One Big Beautiful Bill Act, the biggest drop in funding in the program's 60-year history. The legislation imposes work requirements that will cut the number of recipients. And it placed limitations on state provider taxes, which are used by states to fund their portion of Medicaid financing.

The Centers for Medicare and Medicaid Services so far this year have deferred $1.3 billion in Medicaid matching funds to California, paused $259 million in federal Medicaid payments to Minnesota and sent pre-enforcement warning letters to Florida, Maine and New York. CMS also imposed a six-month nationwide freeze on new Medicare enrollments for hospices and home health agencies starting mid-May.

All of these actions, as well as the reduction in federal funding for Affordable Care Act $(ACA)$ marketplaces, pose a threat to healthcare jobs and, by extension, the wider labor market. The healthcare and social assistance sector added 627,000 jobs to the economy in 2025, according to the U.S. Bureau of Labor Statistics. The total U.S. labor market added just 164,000 jobs last year, with many other industries shedding jobs.

Thirty-eight out of 50 states would have suffered total job losses last year if not for hiring among nursing care facilities, residential intellectual and developmental disability facilities, home healthcare firms, services for the elderly, and vocational rehabilitation -- all areas that will be swept up in the Medicaid funding cuts. That's according to employment and wages data analyzed by Eric Pachman, executive director of Data 4 The People.

Leighton Ku, director for the Center for Health Policy Research at George Washington University's Milken Institute School of Public Health, estimates that by 2029, the cutbacks will cost 1.65 million jobs, causing a one percentage point increase in the unemployment rate.

"We're going to see millions of people losing health insurance coverage. That translates into economic harm," Ku says. Doctors, hospitals, pharmacies, and other healthcare providers will have to cut jobs in response.

The biggest effects will fall on the 41 states that have adopted the Affordable Care Act's Medicaid expansion, particularly in states with higher populations with chronic conditions That includes states like West Virginia, Louisiana, Kentucky, says Benjamin Sommers, professor of healthcare economics at Harvard University's T.H. Chan School of Public Health.

"They're not going to have the resources or the political will to fill in those gaps," Sommers says. Regionally, providers in rural areas that heavily rely on Medicaid payments, as well as safety-net hospitals found in major metros, could also face big funding shortfalls and job cuts.

Services for the elderly and disabled, many of which are run through state-run home and community-based services (HCBS) waiver programs, are also vulnerable. About 63.8% of state spending on optional Medicaid services goes to these programs, according to the 2023 Medicaid rebalancing report from the Centers for Medicare and Medicaid Services.

Nearly all states have initiatives that pay family caregivers in some capacity and about a dozen states have structured programs where participants get paid to provide care for relatives, friends and those they know with caregiving needs. An estimated 5.1 million Medicaid enrollees currently use home-based care programs, according to KFF.

That's helped boost employment: Job growth within services for the elderly and those with disabilities accounts for 57% of all U.S. job growth over the past year, Pachman's analysis shows.

Yet home programs are often the first types of programs to be cut when state budgets are squeezed. When Congress failed to extend financial crisis-era increases to Medicaid matching funds in 2011, every state cut spending to one or more of their HCBS programs.

The impact of these changes isn't going to be evenly distributed -- and could fall on families and workers who can least afford them. Samantha Phillis, a nurse in Mankato, Minn., has four daughters, three of whom are disabled and on Medicaid. She and her husband are both enrolled in state waiver programs that pay them to care for their daughters full-time.

"My family isn't possible without these waivers," Phillis says. "Having a full-time job outside of that isn't possible because I've tried."

Minnesota is undergoing a major initiative that is expected to cap costs for individual care waivers, but the details are still being finalized. Phillis fears the new support levels won't be enough to cover her family's care, which includes round-the-clock nursing from her and several home health nurses for her daughters.

For many family caregivers, the payment they receive is their main source of income, says Kezia Scales, vice president of policy, research & evaluation at PHI, a nonprofit focused on the direct care workforce.

The agencies who act as the fiscal intermediaries for these waiver programs, managing the financial and administrative tasks such as processing payroll, billing Medicaid, and maintaining tax records, as well as firms employing home health aides are also caught in the crosshairs.

Vince Moffitt, owner of Basin Health Companies in Farmington, N.M., says about 90% of his business, which includes home health, hospice, and caregiver services, is Medicaid focused. "We're the largest private employer in town," he added, noting that many of his employees directly support the local economy.

Beyond the employment and economic implications, Moffitt says if these programs get cut or substantially reduced, it's going to increase the number of people who go to hospitals and even nursing facilities. That will increase the crowding in those systems, reduce access to care, and could drive up costs for everyone.

"We're a very rural state. A lot of people could be 30, 40, 50 miles from a medical facility in their community. These services really help keep them healthy and help prevent a healthcare desert," Moffitt says.

Write to Megan Leonhardt at megan.leonhardt@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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June 20, 2026 03:30 ET (07:30 GMT)

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