Funding Medicaid Takes Center Stage in Gov's $88B Budget Proposal

(Source: MIRS.news, Published 02/11/2026) Facing a $1.8 billion budget hole going into Fiscal Year (FY) 2027, Gov. Gretchen Whitmer proposed on Wednesday an $88.1 billion spending plan based on roughly $800 million in tax increases, $630 million in cuts and $400 million from the rainy day fund.

The plan puts a premium on preventing cuts to Medicaid, the health program that roughly 1 in 4 Michiganders count on to cover their care. The One Big Beautiful Bill Act (OBBBA) pushed new eligibility requirements and costs for Medicaid and Supplemental Nutrition Assistance Program (SNAP) recipients onto the states.

“We can talk about efficiencies,” said Senate Appropriations Committee Chair Sarah Anthony (D-Lansing). "We can talk about tightening our belts and increasing revenues, but we also need to pause to think about the fact that there were decisions made at the federal level, and when I look at who is holding the bag, it's people. Michigan families."

Budget Director Jen Flood made it clear to a joint hearing of the House and Senate appropriations committees on Wednesday that Whitmer is not going to throw people off their care, so a “responsible” funding plan was crafted to keep the program afloat amid an otherwise generally flat budget.

According to the Budget Office, Kentucky is proposing a $1 billion rainy-day fund withdrawal to cover the shortfall. Washington is proposing to end corporate tax exemptions and use $1 billion in reserves. Alaska is proposing a new sales tax. Delaware is proposing tax increases. Idaho is looking at a 2% cut to K-12.

Whitmer's plan suggests $804.4 million in tax increases to gaming, tobacco, vaping and digital advertising as a way to make up for the declining federal dollars and new eligibility requirements for Medicaid and food assistance, among other health initiatives.

Every payer of health care is in a difficult position, according to Elizabeth Hertel, director of the Department of Health and Human Services (DHHS), and without the revenue increases, “people would feel it.”

Rep. Phil Green (R-Millington) said he's been asking for years about getting hooked on limited-time federal American Rescue Plan Act (ARPA) dollars and what would happen when they went away.

“I feel like we're boohooing when we knew this was coming,” he said. “I feel like we weren't prudent. And now we're going, ‘oh, crud, now what are we going to do?’”

Anthony suggested the Budget Office prepare a spreadsheet on the one-time projects the ARPA dollars were spent on “so that we don't continue to uplift a talking joint that we blew $9 billion on waste.”

Despite steep health care increases, Whitmer is also hoping to raise enough money to get a new psychiatric hospital up and running to care for more people, a raise for health care workers and expanded community violence intervention services.

The DHHS estimates it will cost $97 million to implement the OBBBA. The state is being asked to cover 75% of SNAP benefits as opposed to 50% starting in FY 2027. That's another $97 million. To oversee Medicaid compliance means another 589 assistance payment workers, inspectors, analysts, supervisors and administrative assistants, costing $80.3 million more.

Among other things in the proposed $41 billion DHHS budget, Whitmer also wants to give direct care workers a $3.40-an-hour raise, costing $258.4 million this year with a special $1.27 per hour more starting next year.

To pay for this and a variety of other health and social service initiatives, Whitmer is proposing:

A Tobacco Tax – Forecasted to generate $232 million in FY '27.

Vape (Electronic Cigarette) Tax – Forecasted to generate $95 million in FY '27, supporting cancer prevention, smoking prevention, children’s health programs and the Medicaid Benefits Trust Fund.

New Internet Gaming Tax Rate on Largest Casinos – Forecasted to generate $135.5 million in FY '27, with most revenue directed to the Medicaid Benefits Trust Fund.

Per-Wager Sports Betting Tax – Forecasted to generate $38.8 million in FY '27 for the Medicaid Benefits Trust Fund.

Elimination of Free Play Deduction (Gaming) – Forecasted to generate $21.1 million in FY '27 for the Medicaid Benefits Trust Fund.

Digital Advertising Tax – Forecasted to generate $282 million in FY '27.

The efficiencies in the budget aren't as easy to spot. House Appropriations Committee Chair Ann Bollin (R-Brighton) asked Flood where they were, but outside of mentioning Medicaid, a forensic lab consolidation and consolidating some rural development functions, Flood didn't seem to satisfy Bollin's curiosity.

Speaking during his regular press conference, House Speaker Matt Hall (R-Richland Township) firmly rejected any tax increase on the budget proposal on things like delivery, internet gaming, vapes and tobacco as a way to fund Medicaid or social services. He instead argued to cut “waste, fraud and abuse,” and that he had already saved Medicaid.

“We're getting all of our Medicaid funding,” he said. “(Senate Majority Leader) Winnie Brinks (D-Grand Rapids) and others were whining and whining about Medicaid, and I got to work with them. We rolled up our sleeves, and we said, we just have to make minor changes to our Medicaid system. We get all the money.”

Said Rep. Julie Rogers (D-Kalamazoo), the minority vice chair of the House Medicaid budget, “The problem with cutting Medicaid is it (is) a lifeline for so many Michiganders. Of the pregnant individuals, 45% of babies are on Medicaid, so when you take that away, where do people show up? In emergency rooms, and that is the most expensive place to treat people, so it has a cascading effect on pushing on a hospital system that's already fragile, particularly in our rural areas.”

The chair of the House Human Services Appropriations Subcommittee, Rep. John Roth (R-Interlochen), said he's open to a tax increase to balance out a property tax cut, but he's a “no” vote on raising money to fund Medicaid.

“There are other cuts that we'd have to make,” Roth said. “I'm a little disappointed to see 1,000 new employees in DHHS when I just got rid of 800 in the last budget.”

House Appropriations Vice Chair Matt Maddock (R-Milford) was a bit more direct in his comments, calling the plan “absurd.”

"You don’t need to raise taxes on anybody when millions in wasteful and fraudulent spending are still sitting in the state budget waiting to be cut,” he said.

Maddock emphasized that House Republicans provided the roadmap last year on how to handle this by cutting hundreds of millions in waste, fraud and abuse and eliminating thousands of ghost employees in state departments during the budget process. “This approach is the only option and needs to remain the focus as we build next year’s budget,” said Maddock.

Still, various interest groups issued press releases in support of Governor Whitmer's commitment to “fully funding” Medicaid amid the “affordability crisis,” including the Michigan Health and Hospital Association (MHA), Michigan HomeCare & Hospice (MHHA), the Michigan League for Public Policy and the Michigan Association of Health Plans.

“When funding does not keep pace with need, providers are forced to cut services, reduce access, or operate at a financial loss. These outcomes inevitably harm patients, particularly seniors and people with disabilities who rely on home-based care to live safely and with dignity," said MHHA President and CEO Laura Haynes.

As an aside, Whitmer's plan calls for using $400 million in rainy day fund money, leaving it with $1.8 billion in reserves in FY '27.