Growing Medicaid deficit and higher SNAP costs for state is lowering chances of tax cuts in Wisconsin

Wisconsin’s projected budget deficit for Medicaid grew again in the first 3 months of 2026. And the Department of Health Services says our state is not alone in struggles to pay the costs of providing medical services.

Medicaid provides essential health care services to one in five Wisconsinites and is a key cornerstone to the state’s health care system. Across the country, payors and providers are experiencing a shifting healthcare landscape with costs increasing overall. While states’ Medicaid programs vary significantly, programs are facing growing budgetary challenges with approximately two-thirds of states predicting a high likelihood of budget shortfalls in the near term. Ongoing uncertainty around federal policy implementation and unpredictable economic conditions in the medium-term are further compounding these budget challenges.

Since December, the Department received an additional three months of data regarding enrollment and service utilization. The Department now projects Medicaid expenditures will exceed the available budget by $263.5 million GPR by the end of the biennium, which is 2.7% above budgeted GPR levels under 2025 Act 15, the 2025-27 biennial budget.

Then DHS goes on to break down the areas where expenses are running higher than expected.

The Wisconsin DHS goes on to say that this is generally due to larger-than-expected enrollment and higher-than-expected costs of services in these areas.

This deficit appears is separate from the $72.7 million that was added to the DHS budget to pay for additional positions and state costs associated with SNAP benefits. Gov Evers signed that state bill into law this week, and the moves are an effect of the Big Bunch of Bollocks Bill from Trump/GOP last July that passed additional expenses and responsibilities down to the state.

Historically, the federal government covered half of the administrative costs for SNAP, known as FoodShare in Wisconsin. But the federal GOP bill dropped the feds’ share to 25% starting in federal fiscal year 2026-27.

The federal legislation also requires states to keep their error rate below 6%. Those that eclipse that mark for ineligible enrollees must cover at least 5% of the total cost for SNAP benefits beginning in federal fiscal year 2027-28. If Wisconsin hit 6%, its share of the costs for benefits would amount to $68.2 million. If it climbed to 10%, that penalty would jump to $204.6 million.

The state’s error rate was 4.5% for federal fiscal year 2023-24. The error rate for 2024-25 won’t be out until this summer.

The law Evers signed includes 28 federally funded project positions at DHS for FoodShare quality control over the next four years. It also cuts authorization for 14 other federally funded project positions elsewhere in the agency.

Put that together with the $263.5 million Medicaid deficit, and that’s an added state cost of more than $336 million if trends continues. That’ll take care of more than 13% of the $2.5 billion in the state’s bank that’s projected to be around at the end of June of next year, and the extra costs for products and services in other areas that are likely to come from higher-than-expected inflation also seem likely to cut into the budget surplus.

In addition, Wisconsin doesn’t have its sales tax put onto gasoline sales, so there isn’t going to be any extra revenue coming in as a result of that. And if people drive less, it’ll reduce available funding for an already-tight Transportation Fund.

I’m not even adding in the potential budget damage that may come if we fall into recession that results in job loss and lower economic activity in general. So I guess I’m trying to say that we may not have as much money for a special session for tax cuts than we thought a couple of months ago. Which makes me wonder if us in Wisconsin are are able to get any tax relief at all before the November elections, and that’s not a lack of outcome I would have thought we’d have before the bombs started falling in Iran.

I'd certainly hope Gov Evers holds off on any special sessions for tax cuts for at least another month, as 2025's income tax cuts at the state level that are increasing refunds, but also are reducing the amount of revenues that are going into the state's coffers. If revenues start running below the Legislative Fiscal Bureau's estimates from January, we would have even less cushion to give in tax cuts. And with Dems becoming more likely to be able to put in their plans for taxing and spending for the first time in 16 years, it would be useful for them to have fiscal breathing room to increase their chances of getting some real changes done.