Congressional Update –  FY26 Appropriations and Risk of Shutdown

As federal lawmakers return to DC from the winter holidays, the outlook for FY 2026 appropriations remains uncertain amid a growing dispute over Homeland Security funding that has raised the risk of a partial government shutdown ahead of the January 30 deadline. Senate Democrats are opposing the six-bill House-passed “minibus” package that includes Labor-HHS and are pressing for the Homeland Security bill to be removed following a recent ICE-involved shooting in Minneapolis. Senate GOP leadership has signaled an intent to move forward with the full package, but decoupling DHS would require sending the bill back to the House, which is out this week, complicating an already compressed timeline. With weather-related travel disruptions further tightening the schedule, clearing funding for agencies that account for more than three-quarters of federal discretionary spending is making a short-term shutdown increasingly likely absent a late-breaking agreement. 

Within the appropriations process, the House-passed FY 2026 Labor-HHS appropriations bill would advance a limited set of health extenders and policy provisions, including pharmacy benefit manager (PBM) reforms modeled on elements of a bipartisan deal dropped in December 2024, a two-year extension of Medicare telehealth flexibilities, a two-year delay of Medicaid Disproportionate Share Hospital (DSH) payment reductions, and continued funding for community health centers, rural health programs, and workforce initiatives. The package also does not address the expiration of enhanced ACA premium tax credits, which remain the subject of separate, unresolved Senate negotiations.

Per the National Council, if Congress is unable to pass a funding bill before the end of the month, the federal government will again experience a shutdown. Should that occur, HHS will furlough a large percentage of its staff (FY26 HHS Contingency Staffing Plan). HHS staff who administer mandatory programs, including Medicare and Medicaid, will continue to work and emergency surveillance operations will continue. It is expected that Medicaid and Medicare reimbursements would continue uninterrupted during a shutdown. However, with staff furloughs, certain Medicaid operations would slow and Medicaid-related rulemaking, along with activity related to approval of Medicaid waivers, would be suspended for the length of the shutdown. SAMHSA staffing furloughs may delay grant payments, grant application responses, but staff with continue to support 988 crisis calls and opioid treatment program operations.

As it was during the fall shutdown, if the Medicare telehealth waivers expire on January 30, absent Congressional action, the statutory limitations that were in place for Medicare telehealth services before the COVID-19 public health emergency would retake effect for most telehealth services beginning February 1st. HHS has posted summary of Medicare telehealth flexibilities and the Centers for Medicare and Medicaid Services has an FAQ.  For Medicare covered behavioral health services, this would mean the individual would need to have had an in-person visit within six months prior to the initiation of telehealth services.  Q&A 5 in the FAQ clarifies that if an individual has been receiving telehealth services prior to the end of the COVID-19 flexibilities, that individual is considered an established telehealth patient and would need to be seen in-person within 12 months.