States across the nation are facing a new fiscal reckoning as the era of COVID-era federal largesse comes to a close, just as the federal government itself is embarking on a sweeping overhaul of Medicare policy that could reshape health care for more than 65 million Americans. The collision of shrinking state budgets and ambitious federal reforms is forcing lawmakers, administrators, and ordinary citizens to grapple with tough questions about spending, sustainability, and the future of social safety nets.
During the pandemic, states like California, Illinois, Louisiana, Pennsylvania, and Washington basked in a flood of federal dollars, dramatically increasing their budgets. But with the public health emergency officially over for three years now, and the federal government—$38 trillion in debt—reining in its support, these states are scrambling to balance their books without resorting to layoffs or cutting essential services. According to The Center Square, the consequences are already being felt in legislative chambers and state agencies from coast to coast.
Consider Washington state, where spending has more than doubled in the past decade. The state’s budget ballooned from about $80 billion in 2013-15 to over $173 billion today—a 116% increase during a period when inflation rose just 35.63%. Rep. Travis Couture, R-Allyn, a member of the state Economic and Revenue Forecast Council, voiced a sentiment many taxpayers share: “At the end of the day you have to ask yourself, ‘What did we get for that new spending?’” he asked. “At the end of the day, we don’t see the results on what we’re spending on.”
Washington’s fiscal woes are compounded by a staggering 500% increase in Medicaid spending since 2013, with enrollment nearly doubling to 2.2 million—meaning more than one in four residents now receives Medicaid. The program’s expansion even included $150 million for healthcare for undocumented immigrants. Caitlin Safford, Senior Health Policy Advisor to Governor Bob Ferguson, told the state Senate Health & Long-Term Care Committee, “We're in the worst budget crisis we've ever had.”
California, too, is feeling the strain. Since Governor Gavin Newsom took office in 2019, annual state spending has soared by more than $100 billion—a 50% per capita jump. Taxpayer advocates say this surge has been fueled by overly optimistic revenue projections and creative accounting. “The Newsom administration and the Legislature have been recklessly over-projecting revenue to meet the requirement for a balanced budget while increasing spending,” Susan Shelley, Vice President of Communications for the Howard Jarvis Taxpayers Association, wrote to The Center Square. “They’ve used accounting trickery that would make Enron blush.”
Illinois tells a similar story. Since Governor J.B. Pritzker’s tenure began nearly seven years ago, discretionary spending has risen by more than $16 billion—a 43% increase. The state’s general fund spending now stands at about $55 billion, after a series of pandemic-era increases. Ravi Mishra of the Illinois Policy Institute told The Center Square, “Having one party basically in control over your state gives a bit too much power to do whatever they want.” The new Commission on Equity and Inclusion, for example, doubled its budget but reportedly produced worse outcomes for minority and women-owned businesses seeking government contracts.
Pennsylvania’s budget has swelled by nearly 64% under Governor Josh Shapiro and his Democratic predecessor, with a projected $4.8 billion structural deficit looming this year. “The situation would be worse if the legislature hadn’t rejected those spending increases – and rejected several proposed tax increases in that time,” Nathan Benefield of the Commonwealth Foundation told The Center Square. Governor Shapiro, meanwhile, has publicly criticized Republican lawmakers, saying, “They elect their senators to be part of a full-time Senate to get paid full time, and then they worked 32 days over the last 246. It's time for the Senate to come back to work [and] be serious about passing a budget.”
Louisiana’s budget, buoyed by federal disaster and pandemic relief, has grown more than 71% in the past decade, with a 27% jump during the pandemic years and another 14% since 2023. Erin Bendily of the Pelican Institute for Public Policy warned, “That growing dependence on federal money can be dangerous.” But Jan Moller of Invest in Louisiana countered, “Most of this growth is in health care. Louisiana bought something very important with that, which is health care coverage for people who didn’t have it before.” Governor Jeff Landry has pledged to cut waste and keep spending in check, stating in a recent video, “This budget was built on the goal of flat funding for this fiscal year when compared to last year. It continues the trend of decreasing the overall amount of money that we spend. This is a tremendous step forward for fiscal responsibility.”
As states wrestle with their budget hangovers, the federal government is charting a new course for Medicare. On November 27, 2025, the Centers for Medicare & Medicaid Services (CMS) announced a raft of proposed and final rules that could fundamentally alter how seniors receive health plans, pay for drugs, access home health care, and obtain medical equipment. The centerpiece is the 2027 Medicare Advantage and Part D proposed rule, which aims to rewrite quality ratings, enrollment protections, and codify drug benefit changes from the Inflation Reduction Act, while narrowing equity-focused requirements.
Among the key changes, CMS proposes removing 12 administrative measures from the Star Ratings system and introducing a new Depression Screening and Follow-Up measure starting in 2029. The agency also plans to eliminate the Excellent Health Outcomes for All reward—previously known as the Health Equity Index—for the 2027 Star Ratings, choosing instead to focus on consistent high performance across all measures. Special enrollment periods for Medicare Advantage beneficiaries would be simplified, allowing enrollees to switch plans more easily when providers leave networks.
CMS is also seeking public comment on Requests for Information about risk adjustment, special needs plans, and well-being, signaling that even more dramatic policy shifts could be on the horizon. The goal, officials say, is to balance cost control, market competition, and benefit design while improving quality and access to care.
These federal reforms come at a time when states are being forced to reckon with the long-term consequences of their own spending decisions. With federal COVID funding drying up, states that built budgets on an inflated base are now searching for ways to avoid painful cuts. Meanwhile, the federal government is retooling Medicare to ensure sustainability for future generations—changes that could ripple down to state Medicaid programs and the millions who rely on them.
The coming months will be decisive. State lawmakers must make tough choices about taxes, services, and fiscal discipline, while CMS invites public input on the most significant Medicare overhaul in years. For ordinary Americans—whether they’re state employees, Medicaid recipients, or Medicare beneficiaries—the stakes couldn’t be higher. Their access to care, the cost of their prescriptions, and the stability of the services they depend on all hang in the balance as the nation’s leaders try to navigate a new era of fiscal reality and health care reform.
As the dust settles from the pandemic and the policy debates heat up, the choices made now will shape the landscape of American health care and public finance for years to come.
