New Federal Policy Threatens to Reduce Community-Based Care for People with Disabilities

Sweeping cuts to Medicaid implemented by both state and federal governments have continued to take effect in recent months. Americans with disabilities, their family members, advocates, and representatives are now bracing for drastically different care amidst changing public policy and said cuts. Individuals who have been receiving disability-related services in their communities are particularly concerned about a series of state-specific bills targeting this healthcare structure. While lawmakers believe the legislation is necessary to manage their budgets, opponents insist the cuts will hurt community-based care access, revive the likelihood of sweeping institutionalization, and lead to enormous financial costs in the long-term.

Historical Progress

Prior to the 1970s, many of those with disabilities who required ongoing attention were placed in large, state-governed facilities with a history suggesting substandard quality of care, and staffing that led to unsafe conditions or neglect. Concerted efforts by advocates shed a light on these conditions and put pressure on legislators, presidents, and courts to change the paradigm. These efforts eventually led to three landmark events:

• The 1973 passage of the Rehabilitation Act, which prohibited federal employment discrimination against Americans with disabilities.
• The 1990 passage of the Americans with Disabilities Act, which broadened the scope of the 1973 law, bookended by the 2008 addition to include employment discrimination in the private sector and to articulate the specific mental and physical disabilities protected.
• The 1999 Olmstead v. L.C. decision by the U.S. Supreme Court, which affirmed the rights of individuals with disabilities who meet certain parameters to live in their own communities rather than being placed in institutional care.

These moments heralded greater independence and more equal rights for the disabled community while driving a shift toward innovations such as in-home healthcare and adaptive tools–partially supported by Medicaid funding. Today, more than 8 million Americans with disabilities receive community-based services, while approximately 1.5 million receive care in facilities. Research has also consistently shown that community care is less costly than institutionalization. Medicaid recipients who receive home and community services cost an average of $17,298 annually, while those who receive care in institutions cost an average of $54,462 annually as indicated by recent data. Analysis has shown that while there are higher short-term budget costs in shifting to community-based care, long-term plans indicate significant savings for states.

For decades we have very intentionally been shifting resources away from institutional care and into the community…and it’s more cost effective. We can serve, generally, three people in the community for every one person in an institution. And it leads to better outcomes.

-Alison Barkoff, Hirsh Health Law & Policy Program at George Washington University

Furthermore, surveys conducted by the Medicaid and CHIP (Children’s Healthcare Insurance Program) Payment and Access Commission show this system to be widely popular, with 82% of service recipients agreeing that at-home care is preferable to institutional care.

Recent Setbacks

In the past three months the Department of Justice (DOJ) has issued memoranda outlining the Trump administration’s priorities on federal disability laws, including a reinterpretation of the rights afforded under the Olmstead decision. Per the DOJ:

• States are no longer mandated to provide financial support for individuals with disabilities receiving community-based services in lieu of institutional care. (June 2026)
• Longstanding guidance on enforcement of Olmstead that required public entities to provide community services when possible will no longer be followed. (July 2026)

The forthcoming provisions of the One Big Beautiful Bill Act in combination with these memos have prompted some states to propose other cuts to disability services through their Medicaid programs or filing federal lawsuits citing new, state-specific, funding flexibility.

• Maryland has cut $126 million from the agency overseeing Medicaid support for people with developmental disabilities.
• Ohio recently proposed—and then rescinded under public outcry—a bill that would prohibit Medicaid payments to family members who function as caregivers.
• Texas is currently suing the federal government to stop supporting federally mandated community services as a state.
• Florida has cited an earlier DOJ memo to appeal a judgment prohibiting the state from placing children with disabilities in a nursing home.

California, Idaho, Indiana, Minnesota, and Nebraska have also taken steps to limit community-based services, and other states are exploring ways to dismantle their existing civil rights protections for people with disabilities.

Proponents of these measures feel that the federal government is overreaching by regulating how individual states serve their citizens with disabilities. Those same representatives go on to state that the new work requirement stipulations for Medicaid recipients will free up funding to support home care services as-is, and claim the existing methods of enforcing Olmstead have inadvertently left some patients without qualified care which could be provided by institutions.

Despite the current public policy trend promoting a reduction in community-based services citing budget concerns, advocates do see opportunities to hope. Bills in Georgia, Illinois, Ohio, and Wyoming have, in fact, recently expanded community service infrastructure.

Source: https://stateline.org/2026/08/06/as-federal-protections-fade-disabled-americans-fear-a-return-to-institutions/