State Strategies to leverage D-SNPs in the Face of Medicaid Cuts

On May 22, 2025, the House of Representatives passed the One Big Beautiful Bill Act (H.R.1), a budget reconciliation bill that proposes to cut billions of dollars in state Medicaid funding. On June 16, 2025, the Senate released its own legislation that would make deeper cuts to Medicaid than the House bill. Given that each chamber has been working on its own bills, a legislative compromise will likely be needed to reconcile differences, with that unified bill receiving a final vote from each. While Congress considers these cuts, states are simultaneously forecasting slower revenue growth, increased spending pressure, and uncertainty in the U.S. economy, which makes it unlikely they will fill subsequent gaps in Medicaid spending. With limited Medicaid funding, states will make difficult decisions and Medicaid members are at risk of reduced access to health care coverage and worse health outcomes, which can lead to a greater strain on the broader health care system.  

Dually eligible beneficiaries – those enrolled in both Medicare and Medicaid programs – are some of the most vulnerable Medicaid members. They have a higher prevalence of many health conditions than their Medicare-only and Medicaid-only peers, are more likely to report poor health, and often have unmet health-related social needs. States will need to be nimble in their decision-making to ensure dually eligible beneficiaries continue receiving access to high quality care.  

Despite looming cuts to state and federal Medicaid budgets, there are steps states can take to help alleviate some of the financial strain caused by reductions in Medicaid funds while continuing to provide much-needed services to dually eligible beneficiaries. 

The Roles of CMS and States in D-SNP Policy 

Across 46 states, the District of Columbia, and Puerto Rico, dually eligible beneficiaries have the option to receive Medicare benefits by enrolling in a dual eligible special needs plan (D-SNP). D-SNPs are Medicare Advantage (MA) plans that only enroll dually eligible beneficiaries and are designed to better meet the needs of these beneficiaries by coordinating care across Medicare and Medicaid. States can play a role in leveraging D-SNPs to provide integrated care for dually eligible beneficiaries that goes beyond the minimum federal requirements. 

States play a unique role in developing the policies that shape D-SNPs, as each D-SNP is required to have a State Medicaid Agency Contract (SMAC) in each state in which they operate. While there are minimum federal SMAC requirements, states have broad latitude to incorporate state-specific policy requirements to align with their Medicaid program, to meet policy goals and the specific needs of the population of dually eligible beneficiaries, to enhance care for enrollees, and to help reduce spending. As the number of dually eligible beneficiaries enrolled in D-SNPs continues to grow, it is valuable for states to consider how they can leverage their D-SNP SMACs to best meet state priorities. 

State Policy Options to Reduce Medicaid Spending among D-SNP Enrollees

Because Medicare is the primary payer for dually eligible beneficiaries and Medicaid is the payer of last resort, states can take steps to prevent cost-shifting from Medicare to Medicaid. Ensuring Medicare pays for benefits and services where Medicare and Medicaid coverage may overlap can also benefit enrollees by providing a more integrated and streamlined experience. States can leverage their SMACs to create policies that preserve or enhance high quality care for dually eligible beneficiaries and reduce unnecessary Medicaid spending. As examples, states can take the following actions: 

• Cover Medicaid benefits using supplemental benefits. Each year CMS establishes a bid benchmark, which is a financial benchmark used to determine MA plans’ estimated costs per member. MA plans, including D-SNPs, must submit to CMS a bid on an annual basis. The bid is the individual MA plan’s estimate of the revenue they require to provide coverage to an MA-eligible beneficiary. When an MA plan, including a D-SNP, submits a bid below the CMS-defined benchmark, a portion of the difference between the benchmark and MA plan’s bid is allocated to the plan as rebate dollars. Those rebate dollars must be used to provide Medicare supplemental benefits. States can include SMAC requirements that D-SNPs use rebate dollars to first cover Medicare supplemental benefits such as dental, vision, and hearing that would otherwise be covered by Medicaid. In this way, some or all the cost to cover such Medicaid benefits is shifted from Medicaid to Medicare. 

• Ensure D-SNP care coordination activities meet Medicaid standards. D-SNPs are required to coordinate care across Medicare and Medicaid. When states have Medicaid care management requirements, they can include SMAC language that requires the D-SNPs to meet any specific care coordination requirements and shift the care coordination responsibility from the state or Medicaid managed care plan to the D-SNP. States can also require D-SNPs to train their care coordination staff on Medicaid benefits and programs such as behavioral health and long-term service and supports (LTSS) delivery. For example, California requires each D-SNP to train designated staff to identify and understand the full spectrum of Medicare and Medi-Cal LTSS, including payment and coverage rules. 

• Require D-SNPs to share Medicare bid information. States can require D-SNPs to share annual Medicare bid information with the state Medicaid agency and actuaries. States and their actuaries can review each D-SNP’s Medicare bid to ensure the state is not making duplicate payments to a D-SNP’s affiliated Medicaid plan. A state’s actuarial firm can also use this information to help establish accurate Medicaid rate setting. 

Looking Ahead 

Aurrera Health helps states build capacity, expertise, and strategies to meet state policy goals and better serve their dually eligible populations. If you would like to discuss how your state can leverage SMACs and other tools to reduce Medicaid costs and enhance care for dually eligible beneficiaries, please reach out to Kristal Vardaman. 

---

Authors

Anna Williams [Deputy Director]