September 26, 2025

Bringing you the latest news impacting our network from Congress and the Administration.

Federal Funding Showdown, Looking Ahead to Midterm Elections and More

Fiscal Year 2026 Federal Funding Outlook

The federal funding outlook for Fiscal Year 2026 remains unclear, with current funding set to expire at the end of the day on September 30. Although the House passed a continuing resolution to extend funding through November 21, the Senate has not acted and negotiations between Republicans and Democrats have stalled, making a government shutdown increasingly likely starting October 1.

While Republicans support a short-term funding patch to allow more time for negotiations, Democrats are demanding a permanent extension of expiring health insurance premium tax credits as part of the package. What has followed is President Trump’s threat to use a shutdown to lay off federal workers and shutter unfunded programs leading to the current stalemate. Congressional Democratic leadership continues to meet to discuss options but thus far, no agreement has been reached. Given the potential disruption to services and programs, we want you to be aware of the evolving situation so you can consider potential impacts and work through contingency plans.

Looking Ahead to the Midterm Elections

At the same time, the 2026 midterm election is just over a year away and has the potential to change the balance of power in Congress. Control of both the U.S. House of Representatives and the Senate is at stake, although there is a more difficult path for any change in the Senate given the current divide (Republicans 53 and Democrats 47) and limited races that are considered toss-ups.

The Cook Political Report offers insights on the races to watch in both the House and Senate and this is a good time to familiarize yourself with the incumbents up for re-election and the emerging candidates in key races. The best way to make your voice heard is to engage early and often in cultivating relationships with current and future elected officials. Consider scheduling meetings, engaging in town halls and/or offering elected officials or candidates tours of your organization. We will continue to shed light on the races to watch in future updates.

HHS/CMS Priorities and Program Updates

The U.S. Department of Health and Human Services (HHS) and agencies under it, including the Centers for Medicare and Medicaid Services (CMS), have recently offered insights into their priorities that signal significant policy shifts for Medicaid, Medicare and broader health-related programs. This includes a new “strategic direction” at the Center for Medicare and Medicaid Innovation, also known as the CMS Innovation Center, and the release of the “Make America Healthy Again” key strategies report.

At the same time, as we shared earlier this month, CMS officially launched the Rural Health Transformation Program, a $50 billion initiative included in H.R. 1 to address rural health challenges. Subsequently, The Robert Wood Johnson Foundation released a new resource to help track state applications , while Modern Healthcare published an in-depth explainer of the program. These resources provide valuable background and practical insights for navigating the application process.

States have until November 5, 2025, to apply for funding. CMS will announce funding levels by the end of the year, with $10 billion available annually for five years beginning October 1. Half of the funding will be evenly distributed among states with approved plans, while the remaining $25 million will be awarded based on state-specific metrics and proposals that demonstrate the greatest potential impact on rural health outcomes. We encourage stakeholders to review both the original CMS materials and the new resources to support strong applications.

Medicaid Program Changes – Early Impacts

Although the Medicaid funding cuts and program changes included in H.R. 1 have not yet taken effect, states and providers are already responding to what’s ahead. Several states are proactively adjusting their Medicaid programs in anticipation of new eligibility checks, work requirements, and coverage restrictions by implementing reimbursement cuts and budget-driven service reductions that reflect the anticipated federal changes.

At the provider level, some organizations serving Medicaid clients are modifying the services they offer, restructuring employment models, or even closing clinics—especially in rural and underserved areas. These shifts are driven by financial uncertainty and concern over the nearly $1 trillion in federal Medicaid cuts expected to begin in 2027, with ripple effects on access to care and local economies.

What We're Reading

• Understanding the legal framework governing a shutdown
• Government Shutdown: What Should Nonprofits Do?
• CBPP has just released a paper on Medicaid eligibility and enrollment changes under H.R. 1
  • Report on Georgia’s Medicaid work requirements program finds spending twice as high on administrative costs as on healthcare 
• San Diego hospital cuts readmissions by 26% with its virtual clinic

ICYMI: Webinar on Federal Grants from The National Council of Nonprofits

Our coalition partners, the National Council of Nonprofits, are hosting a webinar on Monday, October 6, at 3 pm ET called “What Nonprofits Need to Know About the Current Federal Grant Landscape.” The free webinar will help nonprofits navigate recent changes to federal grants as they prepare for future grant applications. Registration is open now.

For more information, please contact Sarah Dobson, Senior Director of Public Policy and Advocacy, or Bill Kallestad, Senior Director, Public Policy and Advocacy, Disability Network.

Lutheran Services in America is one of the nation’s largest national networks of health and human service providers with a mission to cultivate caring communities that advance health and opportunity for all. With 300 nonprofit organizations across 1,400 U.S. communities and more than $26 billion in combined annual services, the Lutheran Services in America network advances equitable outcomes for children, youth and families, improves independence and choice for older adults, champions meaningful services and support for people with intellectual and developmental disabilities, and strengthens stability and purpose for veterans and others. Formed in 1997, Lutheran Services in America brings together a network of leaders, partners and funders to catalyze innovation, strengthen organizational capacity and advance public policy.