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PA Budget Proposal Boosts Human Services Spending as Federal Medicaid Cuts Loom

Kyle Fisher

Governor Shapiro's proposed budget for fiscal year 2026-2027 includes significant investments in health care and human services — but looming federal Medicaid cuts threaten to overshadow those gains. Here's what you need to know.

The Big Picture

In early February, Governor Shapiro unveiled his $53.3 billion budget proposal—a 5.4% increase ($2.7 billion) over the current fiscal year spending. The Department of Human Services (DHS) would receive $21.9 billion in state general funds and $67.2 billion overall, a $1.36 billion increase in state funding. Major areas of spending include Medicaid and health care delivery ($30.4 billion), Long-Term Living ($20.7 billion), and Intellectual Disability/Autism services ($7.3 billion). Some of the increased state spending is offset by a bump in Pennsylvania's federal Medicaid match rate, which rises from 56.06% to 57.41% in October 2026.

Impact of H.R.1

The effects of H.R. 1 — the federal law passed last summer containing the largest Medicaid cuts in the program's history — are already showing up in this budget. The proposal includes $87 million to cover new SNAP administrative costs that HR1 shifted onto states.  Changes to how states can finance Medicaid through provider assessments begin phasing in during fiscal year 2027-2028.  DHS Secretary Arkoosh told the General Assembly that these changes could cut Pennsylvania’s Medicaid funding by $20 billion over the next decade. 

New Investments in Health & Other Initiaves

The budget includes three pilot programs, called “Investments in Health”, that begin implementing the Keystones of Health Section 1115 demonstration approved in 2024, along with several other notable investments:

Table 1.
Key health and human services investments in the FY 2026–2027 budget
🍎
Food is medicine INVESTMENT IN HEALTH
Medically tailored meals for Medicaid recipients with diet-sensitive health conditions
$2.3M
$900K state funds
🏠
Housing stability INVESTMENT IN HEALTH
Connecting Pennsylvanians experiencing homelessness to housing and services to reduce hospital and ER use
$2.5M
$1M state funds
🔗
Reentry supports INVESTMENT IN HEALTH
Pre-release Medicaid coverage to prevent gaps in pharmacy and SUD treatment for individuals leaving prison
$2.7M
$900K state funds
🤝
Expanded ODP waiver capacity
850 more people in Community Living Waiver + 400 more in Consolidated Waiver — continuing effort to end emergency wait list
$66.2M
$30M state funds
LARGEST INVESTMENT — 1,250 additional waiver slots
🏥
Rural hospital support
Supplemental payments to maintain direct financial support for rural hospitals across the Commonwealth
$36.7M
$10M state funds
📞
988 Suicide & crisis lifeline
$10M to sustain 988 Lifeline operations and enhance crisis services + $5M for walk-in crisis stabilization centers
$15M
$15M state funds
Total across these initiatives
~$125.4 million ($56.8M in state funds)
Source: DHS Executive Budget ("Blue Book") FY 2026–2027

What Happens Next?

In February and March, Pennsylvania's General Assembly held appropriations hearings, where DHS Secretary Arkoosh testified before the House and Senate Appropriations Committees, answering questions about Medicaid costs, H.R.1 impacts, and program spending. Those hearings are now finished, and the budget moves into the negotiation phase, where legislators and the Governor's office work together to shape a final spending plan. 

Pennsylvania's fiscal year runs from July 1 to June 30, and lawmakers typically aim to complete the budget by June 30 , though that goal is not always realized. Last year's budget was enacted 135 days late, in mid-November, after months of gridlock between legislative leaders.

For more information about the proposed budget, see the DHS Blue Book here. PHLP will continue to track state budget developments and will provide updates as the budget takes shape this spring and summer.