CMS Halts Medicaid Funding for Social Determinants Programs

On April 14, 2025, the Centers for Medicare & Medicaid Services (CMS) announced a significant policy shift, declaring it would no longer approve or extend federal Medicaid funding requests for certain state health programs, specifically Designated State Health Programs (DSHPs) and Designated State Investment Programs (DSIPs). These programs, designed to address social determinants of health (SDOH) such as housing, nutrition, and access to technology, have been a cornerstone of innovative Medicaid strategies under Section 1115 waivers. The decision, described by Katherine Hempstead, senior policy adviser at the Robert Wood Johnson Foundation, as “the end of an era of being open to a broader conception of health within the Medicaid program,” has sparked debate about the future of Medicaid’s role in addressing social needs and the balance between federal oversight and state flexibility. 

The Role of DSHPs and DSIPs in Medicaid 

Medicaid, the nation’s safety-net health insurance program, serves millions of low-income Americans, including children, pregnant women, seniors, and individuals with disabilities. Section 1115 waivers allow states to experiment with innovative approaches to managing their Medicaid programs, tailoring solutions to local needs while maintaining federal oversight. DSHPs and DSIPs, authorized under these waivers, have enabled states to secure federal matching funds for initiatives that address SDOH, freeing up state budgets to support Medicaid demonstrations. 

These programs have funded diverse initiatives, from grants to labor unions to reduce health insurance costs for childcare providers in New York to investments in telehealth equipment and high-speed internet access for healthcare providers. By addressing social factors like poverty, food insecurity, and lack of access to technology, DSHPs and DSIPs aim to improve health outcomes and reduce long-term healthcare costs. For example, providing stable housing or nutritional support can prevent chronic conditions from worsening, ultimately decreasing hospital admissions and emergency room visits. 

The growth of these programs has been notable. According to CMS, eligible expenditures for DSHPs and DSIPs increased from approximately $886 million in 2019 to nearly $2.7 billion in 2025. This expansion reflects states’ growing recognition of the link between social determinants and health outcomes, as well as their reliance on federal funds to support these initiatives. 

The CMS Decision: A Shift in Policy 

The CMS’s decision to halt federal funding for DSHPs and DSIPs marks a sharp departure from the policies of the Biden administration, which had encouraged states to pursue SDOH-focused programs. The agency argues that these programs duplicate resources available through other federal and state initiatives and serve as an “overly-creative financing mechanism to skirt state budget responsibilities.” In a press release, CMS described DSHPs and DSIPs as “essentially a tap on the federal Treasury for programs that states have determined are priorities outside of the federal commitment to the Medicaid program.” 

The agency further contends that the funds have not been sufficiently tied to direct services for Medicaid enrollees. Examples cited include grants to organizations that do not directly serve Medicaid beneficiaries and investments in infrastructure that may benefit providers more than patients. CMS also emphasized that Section 1115 waivers are intended to be budget-neutral, meaning they should not increase overall federal spending. Critics within the Trump administration, including influential voices shaping the current policy, argue that the accounting for these waivers has been flawed, driving up costs without delivering measurable improvements in health outcomes. 

This is not the first time the Trump administration has taken a skeptical stance on DSHPs. In 2017, CMS under Trump’s first term announced it would not approve or renew funding requests for these programs, citing a lack of evidence that they were a sound federal investment and noting that states were not contributing sufficiently to healthcare delivery reform. The Biden administration reversed this policy, prioritizing SDOH initiatives as a means to reduce healthcare disparities and long-term costs. The latest decision reinstates and expands the earlier skepticism, signaling a narrower view of Medicaid’s scope. 

Implications for States and Medicaid Beneficiaries 

The CMS’s decision has significant implications for states, healthcare providers, and Medicaid beneficiaries. Without federal matching funds, states will face a stark choice: fund SDOH programs entirely with state resources or abandon them altogether. Given tight state budgets and competing priorities, many states are likely to scale back or eliminate these initiatives, as Hempstead noted. This could curtail innovative programs that address root causes of poor health, potentially exacerbating disparities among vulnerable populations. 

For Medicaid beneficiaries, the loss of DSHPs and DSIPs could mean reduced access to services that bridge the gap between healthcare and social needs. Programs that provide transportation to medical appointments, support for stable housing, or access to healthy food have been shown to improve health outcomes and reduce healthcare costs. Without federal support, these services may become less available, placing additional strain on an already stretched safety-net system. 

Healthcare providers, particularly those serving low-income communities, may also feel the impact. Investments in telehealth infrastructure, for example, have enabled providers to reach patients in rural or underserved areas. The withdrawal of federal funds could limit such advancements, hindering providers’ ability to deliver care efficiently. 

The Broader Context: Medicaid Under Pressure 

The CMS’s decision comes at a pivotal moment for Medicaid. Dr. Mehmet Oz, the physician and television personality recently confirmed as CMS administrator, assumed leadership of the agency just days before the announcement. His tenure begins amid a turbulent period for the program, with lawmakers approving a budget resolution in April 2025 that could lead to cuts in Medicaid funding. These budgetary pressures, combined with the administration’s focus on fiscal restraint, suggest that Medicaid may face further restrictions in the coming years. 

The decision also reflects a philosophical shift within the Trump administration about the role of Medicaid. While the Biden administration embraced a holistic view of health, incorporating social determinants into Medicaid’s framework, the current administration appears to prioritize a more traditional, medical-focused approach. This shift aligns with broader efforts to curb federal spending and limit the scope of safety-net programs, even as healthcare costs and disparities continue to rise. 

Stakeholder Reactions and Criticisms 

The CMS’s announcement has elicited varied responses from stakeholders. Hempstead’s assessment—that the decision marks the end of an era—underscores the significance of the policy change. She argues that the broader conception of health, which includes addressing social needs, has been a hallmark of recent Medicaid innovation. The reversal of this approach could stifle progress in reducing healthcare disparities and improving population health. 

Advocates for SDOH programs contend that the CMS’s critique overlooks their long-term benefits. Studies have shown that addressing social determinants can lead to significant cost savings by preventing chronic conditions and reducing reliance on expensive medical interventions. For example, a 2019 study by the Commonwealth Fund found that interventions targeting housing and nutrition reduced healthcare costs by up to 20% for Medicaid enrollees with chronic conditions. Critics argue that CMS’s focus on direct services ignores these broader impacts. 

On the other hand, supporters of the CMS’s decision, including some within the Trump administration, argue that DSHPs and DSIPs have strayed too far from Medicaid’s core mission of providing healthcare coverage. They point to examples like grants to labor unions or infrastructure investments as evidence of misuse of federal funds. By redirecting resources to direct medical services, the administration aims to ensure that Medicaid remains focused on its primary purpose. 

The Future of Medicaid Innovation 

The CMS’s decision raises critical questions about the future of Medicaid innovation. Section 1115 waivers have long been a tool for states to experiment with new models of care, from managed care programs to coverage expansions. The rejection of DSHPs and DSIPs could discourage states from proposing bold, unconventional solutions, particularly those that address social determinants. This shift may limit Medicaid’s ability to adapt to the evolving needs of its beneficiaries, especially as social and economic challenges continue to shape health outcomes. 

At the same time, the decision could prompt states to seek alternative funding sources for SDOH programs, such as private philanthropy, local taxes, or partnerships with community organizations. Some states may also explore other federal programs, like those administered by the Department of Housing and Urban Development or the Department of Agriculture, to fill the gap left by CMS’s withdrawal. However, these alternatives are unlikely to match the scale and flexibility of Medicaid funding, leaving many initiatives at risk. 

The CMS’s decision to halt federal funding for DSHPs and DSIPs represents a turning point for Medicaid, signaling a retreat from the broader, more inclusive approach to health that has defined recent years. By prioritizing fiscal restraint and a narrower definition of Medicaid’s role, the Trump administration is reshaping the program’s priorities, with profound implications for states, providers, and beneficiaries. 

As Dr. Mehmet Oz and the CMS navigate this new landscape, they will face the challenge of balancing cost control with the need to address persistent healthcare disparities. The loss of federal support for SDOH programs could exacerbate these disparities, particularly for low-income communities that rely on Medicaid as a lifeline. At the same time, the decision underscores the ongoing tension between innovation and accountability in one of the nation’s most critical safety-net programs. 

The end of this era, as Hempstead described, may close one chapter of Medicaid’s evolution, but it also opens a new one. How states, advocates, and policymakers respond to this shift will determine whether Medicaid can continue to adapt to the complex needs of its beneficiaries in an increasingly challenging healthcare environment.