Summary
Following a failed meeting with President Trump in which a bipartisan compromise was not achieved, government funding will expire at midnight, and a shutdown will ensue. This is the culmination of Republicans forging ahead on a continuing resolution (CR) without any Democrat input, and Democrats refusing to support the package without a Republican commitment to addressing the health crisis caused by H.R. 1 and the expiring enhanced premium tax credits.
During the White House meeting, it was reported that the Trump administration expressed a willingness to negotiate on a possible extension of the enhanced premium tax credits, but only under the condition that the government remains open, which would force Democrats to support the CR. However, Democrat leadership was not willing to commit to this proposition on verbal promises alone. The key to a government shutdown off-ramp likely lies with a compromise on a modified extension of the enhanced premium tax credits, but until then the nation’s health and wellbeing will be impacted by the shutdown in the ways described below.
Background. The ongoing reduction in force (RIF) at the Department of Health and Human Services (HHS) has eliminated about 10,000 positions and, combined with other workforce cuts, shrunk the department by roughly 25%. At the same time, the administration has moved to consolidate functions into a new Administration for a Healthy America and cut contract spending by 35%. These actions have significantly reduced the number of employees and contractors available to perform exempt functions, amplifying the risks of a shutdown even for programs supported by mandatory or prior-year appropriations. The combination of fewer staff, fewer contractors, and more centralized operations increases the likelihood of bottlenecks in areas such as grants management, policy guidance, and Center for Medicare & Medicaid (CMS) payment processing. For example, while Medicare and Medicaid claims will continue to be paid, furloughs of CMS staff who maintain system edits, issue guidance to MACs, and resolve disputed claims will create backlogs and delays.
In a recent memo, Office of Management and Budget (OMB) Director Russell Vought instructed agencies to use the shutdown as an opportunity to consider RIF notices for employees in programs, projects, or activities (PPAs) that meet all three conditions: (1) discretionary funding lapses on October 1, 2025; (2) no alternative source of funding (e.g., H.R. 1) is available; and (3) the PPA is not aligned with the President’s priorities. By this standard, within HHS, certain federally funded community health and workforce programs, public health preparedness grants, health equity and prevention initiatives, discretionary research and training activities, and global health programs appear most at risk.
Adding to the concern, at the request of Sen. Joni Ernst (R-IA), the Congressional Budget Office (CBO) analyzed the fiscal impact of a shutdown. CBO estimated that 750,000 federal employees would be furloughed daily, with about $400 million in compensation costs accruing each day. These wages must ultimately be repaid once funding resumes. However, CBO noted that if OMB proceeds with further RIFs, the long-term cost of furloughs would decrease, underscoring how workforce cuts and fiscal pressures are now tightly linked in the administration’s strategy.
Compounding these risks, just days before the potential shutdown, the Supreme Court allowed the administration to withhold $4 billion in foreign aid, including HIV/AIDS funding, despite congressional appropriations. The decision expands executive discretion over federal spending and heightens concern that, during a shutdown, the administration could further restrict or redirect funds, an approach the OMB Director has previously endorsed.
Shutdowns are not unprecedented, there have been three since 2002, but a prolonged, full shutdown now would likely be without precedent in both length and consequence. The 34-day partial shutdown of 2018, during the first Trump administration, remains the longest on record. This time, however, the Trump administration has taken a more openly antagonistic posture toward federal agencies and shown less willingness to compromise with congressional Democrats, raising the prospect that a shutdown could stretch even longer and be more disruptive. For health care stakeholders, these dynamics increase the likelihood of extended disruptions to CMS operations and HHS program implementation, even in areas traditionally insulated from lapses in appropriations.
Next Steps. If Congress fails to pass a CR by October 1, agencies will immediately implement contingency plans, issuing furlough notices and designating excepted functions. In the near term, Medicare, Medicaid, and CHIP payments will continue, but guidance, contract oversight, and grants management will stall. If the shutdown stretches beyond two weeks, backlogs in claims processing, grant disbursements, and program oversight will deepen, with impacts that persist even after appropriations resume.
Politically, the most likely off-ramp remains a compromise around enhanced premium tax credits, but both sides remain far apart. Meanwhile, OMB will shape the shutdown’s trajectory by defining excepted functions, potentially advancing new RIF notices, and exercising expanded discretion to restrict or redirect funds.
Our full memo, including an overview of relevant department and agency contingency plans is attached.