Medicaid cuts will hurt schools

Last July, Congress cut Medicaid by nearly $1 trillion over a decade as part of the One Big Beautiful Bill Act (OBBBA). Over 150,000 Vermonters—including 60,000 children—receive health insurance through Medicaid. Up to ten percent of adults could lose health coverage due to changes in eligibility and enrollment requirements, and kids may also lose coverage.

For Vermont’s schools and students, reduced Medicaid payments could mean budget shortfalls.

Under federal law, states may receive reimbursements for certain health care services provided to students with Medicaid and for related administrative costs. Medicaid is the fourth-largest funding stream for public schools, providing over $7.5 billion nationally each year.

Each state has its own requirements for what services receive reimbursements and who is eligible. In Vermont, schools receive reimbursements for certain health care services for students enrolled in both Medicaid and an Individualized Education Program (IEP)—a plan for services and accommodations tailored to meet each kid’s specific needs—and for activities that facilitate Medicaid access. Beginning in October 2026, Vermont will expand Medicaid reimbursements to cover students enrolled in Medicaid without an IEP. In 2023 (the last year for which we have data), 16,152 Vermont students had an IEP, nearly three-quarters of them eligible for Medicaid.

In Fiscal Year 2025, Vermont received $31.7 million for school-based health services through Medicaid, with about half of that funding going directly to schools. The other half went to the Education Fund, and to state agencies to pay for the program’s administration. While it comprises a small share of total education spending, this funding targets two areas where costs are increasing: special education and mental health. Over the course of the pandemic, some schools reported mental health costs tripling. From 2022 through 2025, statewide special education aid increased by 15 percent, and the number of mental health service professionals in schools more than quintupled. By comparison, total state education spending increased by roughly 25 percent over the same period.

If fewer children are insured through Medicaid because of federal changes, schools and the Education Fund stand to lose those reimbursement dollars. But the federal Individuals with Disabilities Education Act requires the provision of essential health services to students with IEPs. So schools will have to figure out other ways to cover the increasing costs.

The changes will also complicate the way economically disadvantaged students are identified for budgeting purposes.

Vermont counts—or “weights”—pupils who need additional support as more than one student, including those who are economically disadvantaged. Schools identify economically disadvantaged students using enrollment data from federal benefits programs. In 2025, over 16,000 students—almost half of all low-income students—were identified through their Medicaid enrollment. Another 13,000 were identified because they receive SNAP benefits. Together, these two programs identified 85 percent of all low-income Vermont students.

Federal cuts to Medicaid and SNAP will likely lead to a drop in the number of students directly certified as economically disadvantaged. Schools will need to find alternative ways to identify low-income students to ensure they’re counted correctly to provide support.

Families could fill out a household income form, even if they lose federal benefits. But that is likely to yield less reliable counts, especially since completing the form is not mandatory. Without certification of all eligible students, schools could face a drop in funding while serving the same number of low-income students and providing the same services.

OBBBA also caps taxes on health care providers and payers and prohibits new provider taxes, a change that could cost Vermont a total of $347 million by Fiscal Year 2032. This funding shortfall could result in cost-cutting measures, such as reducing reimbursements, restricting eligibility, or discontinuing services.

Instead of leaving schools to pick up the tab from federal cuts, Vermont can strengthen funding streams to support the students who need state assistance the most. The state has the capacity to do it.

Along with Medicaid and other program cuts, Congress also granted massive tax cuts to the wealthiest Vermonters. The top 5 percent of Vermonters—those with incomes above $320,000—are expected to reap $440 million in savings annually. By recapturing some of these funds, the state could help offset the loss in Medicaid funding to schools and ensure that all students get the support they need and deserve.