Beshear announces use of surplus funds to close Medicaid funding gap, reverse 4% cut

LOUISVILLE, Ky. (WDRB/WKYT) — Kentucky Gov. Andy Beshear said Wednesday he will use millions in state surplus funds to close a Medicaid funding gap and reverse a 4% cut that was set to take effect Aug. 1.

The move affects an estimated 1 million Kentuckians who are on Medicaid through this fiscal year, which concludes at the end of June 2027.

During a news conference in Frankfort, Beshear said the state's budget had a projected $156 million shortfall for fiscal year 2026, but instead saw a $476 million surplus, in part, thanks to the collection of more than $350 million in corporate income tax payments made in July.

The governor said the budget surplus from fiscal year 2025, combined with that $350 million in extra tax payments, leave $781 million in surplus funding available in the state right now.

The governor blamed the state budget lawmakers passed this legislative session for the cuts. While Republicans said the budget set aside $290 million to address rising Medicaid costs, Beshear said the budget cut Medicaid by $2.7 billion and would hurt Kentucky families by "fueling hospital and clinic closures, rate cuts and elimination of services like hospice, mental health services and more."

"I'm taking action," Beshear said Wednesday. "My administration will apply $255 million from these funds to close the Medicaid gap and reverse the general assembly's cuts. This means the providers and services that our families rely on will not be at risk this year. There will be no 4% cut."

Beshear said the funds would typically go into the state's rainy day fund, and despite the investment in Medicaid and the reversal of cuts, more than $400 million will still be deposited into that fund.

"By the end of the fiscal year, I believe I will ultimately deposit about or over a billion dollars of unexpected dollars into that rainy day fund, representing more than a 25% growth in the fund in one year," he said.

In June, Beshear told providers they would see a 4% reduction in Medicaid reimbursement starting Aug. 1, according to The Kentucky Lantern. Wednesday, he said new notices will go out "shortly."

Families across the state traveled to the state capitol last week, asking lawmakers to scrap proposed cuts they said would make it harder for people with disabilities to get the care they need.

About 100 families, caregivers and providers rallied in Frankfort over a proposed 4% cut to Medicaid waiver reimbursement rates. They said the change could drive caregivers away, reduce services and lead to longer wait lists.

The state's 1915(c) Medicaid waivers help people with disabilities stay in their homes instead of institutions. The funding also helps pay for caregivers and other daily support.

The proposed reimbursement cut came after lawmakers approved House Bill 500. According to the Kentucky Center for Economic Policy, the legislature provided about $691 million less than the Department for Medicaid Services requested to fully fund Medicaid benefits.

The funding announced Wednesday will close the gap and fund the additional costs of existing waiver slots that Beshear said were underfunded.

It will also add an additional $4 million to the state's senior meal program for the fiscal year 2027.

"Today is not a magic wand, it's not a magic bullet," Beshear said. "There are still people out there suffering, but I know that there will be fewer that suffer and more that get their services because of this move."

In a statement, Republican House Speaker David Osborne said, in part, that lawmakers approved more Medicaid funding than the governor originally requested in the budget proposal filed by the House minority this legislative session. He also said Beshear's administration had not provided evidence of why additional money was needed.

Meanwhile, in a joint statement, the Kentucky House and Senate Democratic caucuses applauded the governor's move.

"This is welcome news for patients, families, and providers," the statement said. "This solution is made possible by the governor's record of economic growth, responsible fiscal stewardship, and careful management of state finances, which have put Kentucky in a position to avoid the cuts that were part of the budget passed by the general assembly's supermajority."