State Auditor Rob Sand Warns of 'Fiscal Time Bomb' in Light of Looming Medicaid Deficits

You'll want to remember this moment. Help us record what's happening in Decorah. DES MOINES, Iowa — State Auditor Rob Sand on Tuesday highlighted concerns about Iowa's budget, pointing to potential impacts on Medicaid funding and projected increases in costs for Iowans. Sand said reliance on one-time funding, such as federal COVID-19 relief funds, has created challenges for long-term budget planning. He also cited rising expenses for programs such as Education Savings Accounts as contributing to what he described as fiscal pressures. "My predecessors and I have always cautioned that reliance on one-time funding, such as COVID-19 funds, for long-term budget needs is irresponsible," Sand said. "This, combined with intentional decline in revenue yet also increased spending on things like Education Savings Accounts, creates a fiscal time bomb. We now know, among the first in the path of the shock wave are Iowa's most vulnerable—children, seniors, and disabled Iowans—which will only lead to rising costs for every Iowan." A report released Sept. 8, 2025, by the Medicaid Forecasting Group, made up of the nonpartisan Legislative Services Agency in collaboration with the Department of Health and Human Services and the Department of Management, estimates that under current appropriation levels, Medicaid deficits will reach nearly $76 million and $181 million for fiscal years 2026 and 2027, respectively. The projected deficits are largely attributed to the decline in the Federal Medical Assistance Percentage and the end of the pandemic-related Public Health Emergency in May 2023. Federal support tied to the PHE, often referred to as COVID-19 funds, totaled $1.17 billion from 2020 to 2024. During that period, unexpended funds were carried forward into the next fiscal year. The carryforward funds peaked in fiscal year 2024 at nearly $368 million but have since declined. There are no projected funds to carry into fiscal year 2027, as shown in Graph A: Revenues from Iowa's health care trusts, the Medicaid Fraud Fund and the Managed Care Organization premium tax are also projected to shrink through fiscal year 2027. At the same time, expenditures, including MCO capitation rates, are expected to increase. The "capitation rate" is a negotiated, fixed amount paid by the state to MCOs for managing members' care. It is expected to increase by nearly $114 million in fiscal year 2026, the second-highest increase since 2019, as shown in Graph B. The estimated $181 million shortfall for fiscal year 2027 assumes no MCO capitation increase for that year, which has not occurred since the IA Health Link program began. "This report is more evidence that the fuse on the fiscal time bomb that I warned about in May is burning faster than expected," Sand said. "These projected Medicaid shortfalls are in addition to the $900 million deficit the state is facing this year. The consequences of irresponsible management of taxpayer dollars by politicians will unfortunately be paid by every Iowan in rising costs and reduced quality of care." Join the community of savvy subscribers (for free)! Get the latest updates, tips, and insider information by subscribing to the free newsletter today.