H.R.1’s Budget Cuts Could Squeeze Arizona Medicaid, Stir Political Fallout

By Steve Kirwan, Editor
Phoenix, Ariz. — October 10, 2025

Arizona officials are warning that the federal government’s new budget law, H.R.1—a.k.a. the “One Big, Beautiful Bill”—could deal a financial blow to the state’s Medicaid program and reignite political tensions ahead of the 2026 elections.

The sweeping legislation, signed into law this summer, combines tax reductions and border-security funding with major rollbacks to federal spending, including cuts to Medicaid. The Congressional Budget Office estimates the law will reduce federal Medicaid outlays by more than $800 billion over the next decade. State analysts say those reductions, despite focusing on waste, fraud, and abuse, will likely shift significant costs to the states, including Arizona.

Arizona Representative John Gillette (R-30) takes issue with the idea that the bill makes “cuts.” He stated, “Federal matching funds, expansion incentives, and loose eligibility rules under Obamacare fueled massive growth in Arizona’s Medicaid system (AHCCCS). Now, those federal dollars are tightening, and states must prove that every recipient actually qualifies. This is existing law under Title 42, but not enforced under the Biden administration, and waived under COVID.”

According to preliminary projections from the Arizona Joint Legislative Budget Committee (JLBC), lower federal matching funds could leave the state responsible for new administrative costs, replacement programs, and potentially higher uncompensated care bills for hospitals and counties, totaling up to $1 Billion. “This isn’t just a Washington issue,” one JLBC analyst said. “The pressure will land directly on Arizona’s general fund.”

Gillette rebutted, “Arizona’s Joint Legislative Budget Committee, Auditor General, and legislative appropriations staff warned repeatedly that inflated enrollment and lax eligibility screening would create a fiscal cliff once COVID funding expired.” In short, the impact and any pain it caused were self-inflicted by Medicaid itself.

Politically, the legislation presents both an opportunity and a challenge for Arizona Republicans. The tax cuts and border spending are broadly popular among conservatives, but potential disruptions to Medicaid could provide Democrats with ammunition in swing districts.

“Republicans wanted to prove fiscal discipline; Democrats will say it’s coming at the expense of working families,” said political analyst Chris Heredia. “This bill could shape Arizona’s 2026 races more than any single issue.”

Governor Katie Hobbs has not yet detailed how the state will respond, but said her administration is “evaluating all options to protect Arizona’s most vulnerable residents.” Lawmakers from both parties are expected to debate state-level fixes during the upcoming legislative session.

Rep. Gillette believes that Governor Hobbs was part of the problem: “We saw this coming,” he said. “Senator Rogers, Majority Leader Carbone, and I each drafted multiple bills to tighten eligibility for services—including voting, healthcare, and other state benefits—using cross-checks with the Secretary of State, Department of Revenue, MVD, and Department of Corrections to confirm residency and remove ineligible or temporary residents from the rolls. Governor Katie Hobbs vetoed or ignored every one of those reforms.”

He added, “The result: Arizona now faces hundreds of millions in cost exposure as federal reimbursements decline under H.R. 1’s accountability mandates. H.R. 1 requires work participation, semi-annual eligibility reviews, and provider-tax limits reforms that will save Arizona an estimated $363 million by FY 2027, according to JLBC analysis.”

Gillette concluded, “Obamacare’s forced compliance created dependency and ballooned AHCCCS enrollment beyond lawful limits. Taxpayer protection now depends on tightening screening and enforcing residency and work rules, removing the NGO workarounds for illegals receiving benefits. These are not cuts; they are corrections that protect taxpayers and restore accountability after years of unchecked spending.”

For now, the fiscal and political consequences of H.R.1 remain uncertain—but in Arizona, where Medicaid covers more than 2 million people, the stakes could not be higher.