3.4.26 - House DHS Budget Hearing Overview

DHS Budget Hearing: What Lawmakers Pressed, What DHS Promised, and What HR1 Could Mean for Pennsylvania

Opening context and committee setup

The committee convened the Department of Human Services (DHS) to testify on the Governor’s proposed budget and DHS’s role as Pennsylvania’s largest “cradle-to-grave” service agency. Early exchanges set the tone: members repeatedly framed DHS as a department serving the Commonwealth’s most vulnerable residents and asked for clarity on how federal policy shifts—especially HR1—could reshape costs, eligibility, and program administration.

1) DHS “big picture” overview: the budget is far larger than the state-only number

In the opening rounds of questioning, DHS emphasized that budget hearings often focus on the state share, but DHS programs are heavily intertwined with federal funding.

• DHS referenced the Governor’s proposed state portion for DHS in FY 2026–27 as “about $21 billion.”
• DHS then added that, when federal dollars are included across programs, DHS’s total budget is “about $64 billion… actually larger than the state budget.”
• DHS also put scale to the caseload:
  • “Just under 3 million” people enrolled in Medicaid
  • “Just under 2 million” enrolled in SNAP
  • DHS licensing teams oversee 11,093 licensed facilities statewide

That framing became a recurring theme: small percentage changes in federal match rates, administrative cost shares, or financing rules can translate into very large impacts in Pennsylvania’s operating reality.

2) HR1 dominates the hearing: cost shifts, IT upgrades, and a “worst case” Medicaid hole

SNAP administrative cost shift and new systems costs

DHS discussed HR1-driven changes that increase Pennsylvania’s share of SNAP administration and require updates to state systems.

• DHS described HR1 pushing SNAP administrative cost-sharing toward the “75% of the admin share” structure discussed in testimony.
• DHS also flagged IT changes needed to implement and administer “community engagement” and related compliance requirements, citing current costs “about $2.1 million,” with an expectation those costs will grow as systems are ramped up.

Emergency Medicaid FMAP reduction

The hearing included a detailed explanation of how HR1 changes the federal match (FMAP) for emergency Medicaid:

• DHS explained that emergency Medicaid is federally required for states operating Medicaid and covers emergency care for individuals “without any legal status… [who] show up in an emergency.”
• DHS stated HR1 drops the match from the Medicaid expansion FMAP (referenced as 90%) to the “regular FMAP,” with estimated costs of “$18 million this year and about $24.3 million next year.”

“$20 billion hole” worst-case scenario

A key exchange focused on DHS’s warning that HR1 could create a major long-term Medicaid financing gap.

• DHS acknowledged discussion of a “$20 billion hole… over the next decade” in Pennsylvania under a “worst case scenario,” potentially beginning in 2028, with uncertainty about whether it could be delayed to 2030.
• DHS attributed the “lion’s share” of that risk to HR1 ratcheting down funding obtained through provider assessments.

Interpretation (clearly labeled): The repeated use of “worst case” language signals DHS is trying to (a) put a credible upper bound on exposure while (b) preserving negotiating space—both with federal partners and with the General Assembly—around mitigation timelines, state policy options, and contingency budgeting.

3) Rural health: hospital finances, maternal health access, and a $193 million transformation funding stream

Rural health emerged as one of the most sustained lines of questioning, particularly around maternal health access and rural hospital stability.

$193 million and the rural transformation approach

Members referenced new federal attention and funding toward rural maternal health and rural system capacity:

• A member noted “$193 million being infused into Pennsylvania” to address rural maternal health access challenges and asked DHS for more detail on spending categories and proposals.
• DHS responded that rural health has been a priority since the administration began, citing the ending of the prior federal rural health model and describing a series of 10 or 12 rural health summits used to shape the new rural health transformation plan.

Rural hospitals and closure risk

Separately, DHS painted a grim financial picture for rural hospitals and warned that HR1-driven pressures could push some over the edge.

• DHS said it is “deeply concerned,” emphasizing rural hospitals are already “hanging on by a thread,” often with negative operating margins.
• DHS referenced a Pennsylvania hospital finance analysis suggesting “12 hospitals are really close to having to close” given the types of impacts being discussed.
• Members added on-the-ground examples: layoffs, closure of maternity wards, and tightening cash flow as uninsured rates rise and reimbursements fall.

4) Mental health, crisis response, and “988” capacity growth

The hearing also returned to behavioral health infrastructure and crisis response, especially 988.

• DHS referenced support for 988 and requests for funding to “continue to grow” community programs that transition people out of state facilities (including justice-involved individuals and people with serious mental illness who no longer need state hospital-level care).
• DHS tied these investments to system flow: strengthening community capacity frees state-facility space for those who truly require that level of care.

5) Long-term care and nursing facilities: PDPM changes vs. the Budget Adjustment Factor (BAF)

Nursing facility rates and access were addressed through a technical—but important—exchange distinguishing federally mandated rate methodology changes from Pennsylvania’s budget adjustment mechanism.

• DHS discussed a federally mandated change intended to better support facilities serving higher-acuity patients (e.g., ventilator/trach patients).
• DHS then clarified that those calculations are “totally separate” from the BAF (Budget Adjustment Factor), which DHS described as an adjustment applied to ensure spending stays within the amount appropriated by the General Assembly.
• Members pressed DHS on the real-world tension: facility closures, an aging population, and the need to maintain access for people who cannot be safely served in the community.

Staffing ratios and quality oversight

A separate long-term care exchange focused on staffing ratios and quality.

• DHS noted a federal final rule to increase staffing ratios in nursing facilities (issued under the Biden administration) was “rescinded” under the Trump administration, which DHS said many nursing facilities were “pleased to hear.”
• DHS pointed to the Department of Health’s “Long-Term Care Quality Transformation Program” as a quality-improvement mechanism and expressed willingness to coordinate on quality goals.

6) Program integrity and fraud: DHS emphasizes cross-agency enforcement partnerships

DHS underscored its posture as “careful stewards” of taxpayer dollars and emphasized enforcement coordination:

• DHS described close work with the Office of the State Inspector General, the Attorney General, and the Department of State, referring suspicious activity for investigation and prosecution when warranted.

7) Administrative modernization: prior authorizations and provider-facing systems

The hearing included discussion of operational pain points—especially provider frustration with prior authorization and legacy workflows.

• DHS described modernization of its Medicaid management information system and a new module designed to streamline prior authorization.
• DHS said the next phase (in pilot) would allow providers to enter and manage authorization requests online rather than faxing/calling, with a portal “scheduled to be released in the summer of 2026.”
• DHS also referenced procurement for a new provider management system to reduce manual staff interaction and potentially automate some authorizations through data cross-checking.

Bottom-line takeaways from the hearing

• DHS repeatedly framed HR1 as the defining variable shaping DHS fiscal risk, administrative redesign, and long-term Medicaid financing exposure.
• DHS highlighted concrete HR1-driven cost impacts: emergency Medicaid FMAP changes ($18M this year; $24.3M next year) and IT build costs that are expected to rise.
• Rural health was treated as urgent, with funding and planning structured around transformation efforts and a strong warning about rural hospital fragility and potential closures.
• Long-term care discussion turned on the distinction between federally required payment model changes and the BAF mechanism used to stay within appropriations—while members pushed DHS on access and facility closures.
• DHS emphasized modernization (prior auth portal, provider management systems) with a timeline pointing to summer 2026 for a key provider-facing portal release.

Key Issues Discussed at Pennsylvania DHS Budget Hearing: Child Welfare, Medicaid Policy, Workforce Challenges, and Federal Funding Impacts

Pennsylvania lawmakers recently held a budget hearing with leadership from the Department of Human Services (DHS), examining the agency’s programs, fiscal outlook, and policy challenges affecting vulnerable populations across the Commonwealth. The discussion covered a wide range of issues—from child welfare oversight and Medicaid policy to workforce shortages in the intellectual disability system and the impact of potential federal funding changes.

Throughout the hearing, legislators questioned DHS officials about program effectiveness, fiscal sustainability, and policy decisions that affect healthcare access, social services, and community support systems across Pennsylvania.

Below is a detailed overview of the major topics discussed.

Support for Rape Crisis Centers

One of the first issues raised during the hearing focused on funding and support for rape crisis centers across Pennsylvania.

A legislator questioned whether demand for these services had plateaued in recent years. DHS leadership pushed back on that characterization, explaining that the need for rape crisis services remains significant and has not “flatlined.” Officials highlighted the work being performed by staff and attorneys at these centers, noting that many legal professionals provide critical services to victims despite being able to pursue more lucrative careers elsewhere.

DHS also acknowledged that financial pressures have made operations difficult for many of these organizations in recent years. Department officials indicated they would be open to reviewing any legislative proposals that seek to strengthen funding for rape crisis programs.

DHS Grievance Process for Sub-Grantees

Legislators also raised concerns about oversight of organizations that distribute DHS funds to smaller nonprofit providers.

Specifically, a question was raised about whether DHS maintains a grievance process for organizations that serve as sub-grantees under larger grant recipients. Lawmakers suggested that without such a process, contracted organizations could potentially misuse their position to pressure sub-grantees or influence policy advocacy outside the scope of their contracts.

DHS officials explained that the department typically contracts with a lead organization responsible for overseeing sub-grantees and ensuring funds are used appropriately. Those lead organizations must report back to DHS regarding how funds are distributed and used.

Under the current structure, sub-grantees must utilize the grievance processes provided by the primary grantee organization. However, lawmakers suggested DHS may want to consider creating an independent grievance mechanism in cases where an imbalance of power between grantees and sub-grantees could discourage complaints.

EBT Card Security and Fraud Prevention

Food assistance fraud and security improvements for Electronic Benefit Transfer (EBT) cards were another major focus of the hearing.

Lawmakers questioned DHS about plans to enhance security features, including transitioning to chip-enabled EBT cards similar to credit or debit cards. DHS officials acknowledged that the estimated cost for implementing chip technology across the system would be approximately $17 million, and that there are technical challenges involved because only a small number of vendors currently provide EBT card infrastructure in the United States.

In the meantime, DHS has implemented new security features designed to give beneficiaries greater control over their accounts. One of these tools allows users to lock and unlock their EBT cards and restrict transactions outside Pennsylvania.

Fraud involving stolen SNAP benefits remains a significant issue, with some recipients reporting that their benefits are drained shortly after being deposited. DHS acknowledged the scope of the problem and stated that the agency is continuing to evaluate strategies to strengthen fraud prevention while minimizing disruption for legitimate recipients.

Medicaid Coverage for Individuals Reentering Society

The proposed budget includes an initiative to expand Medicaid coverage to individuals up to 90 days prior to their release from incarceration.

Under the proposal, individuals preparing for reentry could receive services such as medication management, substance-use treatment, and assistance with housing stability. Some lawmakers questioned whether Medicaid funds should be used for expenses like rent assistance, moving costs, or household items.

DHS officials argued that these supports are evidence-based strategies that reduce recidivism and improve health outcomes. According to the department, similar programs have demonstrated measurable benefits, including lower overdose rates, reduced emergency room visits, and improved adherence to medications.

Officials also emphasized that Medicaid remains the payer of last resort, meaning these resources are used only after other funding sources are considered.

Oversight of County Children and Youth Agencies

Child welfare oversight was another significant topic during the hearing, particularly in light of tragic cases of child abuse that have drawn public attention.

Some legislators questioned whether the current oversight system is sufficient, suggesting that the Commonwealth should consider establishing an independent Office of Child Welfare Ombudsman or Child Advocate with investigative authority and subpoena power.

DHS officials explained that Pennsylvania’s child welfare system is primarily administered at the county level, with DHS providing oversight and support. The department conducts investigations into county agency actions when concerns arise and publishes annual reports detailing county performance.

Officials noted that Pennsylvania consistently records between 55 and 60 child fatalities each year, and that in roughly half of those cases the families had no prior contact with child welfare agencies before the tragedy occurred.

To improve transparency, DHS is working toward developing real-time dashboards to track county performance and child welfare outcomes.

Black Maternal Health and Doula Services

Maternal health outcomes and access to doula services were also discussed during the hearing.

Pennsylvania recently expanded Medicaid coverage to include doula services as part of efforts to address disparities in maternal health outcomes. DHS reported that there are currently 299 certified doulas in the Commonwealth, with 155 actively serving Medicaid recipients across more than 200 service locations.

The certification process has been made cost-free to encourage participation. In addition, Pennsylvania became the first state in the nation to establish a registered apprenticeship program for doulas, providing paid training opportunities and helping build a stronger maternal health workforce.

Strategies to expand services in rural communities include telehealth options, mobile health units, and partnerships with federally qualified health centers.

Minimum Wage Proposal and Impact on Public Benefits

Governor Josh Shapiro’s proposal to raise the minimum wage to $15 per hour by January 2027 was also discussed.

DHS estimates that wage increases could shift thousands of individuals off Medicaid coverage as their incomes rise. Projections indicate that roughly 60,800 individuals could leave Medicaid, while approximately 19,000 children may transition from Medicaid to the Children’s Health Insurance Program (CHIP) over the next two fiscal years.

Despite these changes, the overall fiscal impact of the policy is expected to produce net savings of nearly $50 million due to reduced Medicaid enrollment.

Early Intervention Services Funding

Lawmakers also addressed the funding gap in Pennsylvania’s early intervention services for infants and toddlers.

A 2024 study found that early intervention services were underfunded by approximately $71 million statewide. DHS officials noted that while the latest state budget included funding increases—retroactive to July 1—providers are only beginning to see those funds due to delays in finalizing the budget.

Department leaders emphasized that DHS regularly evaluates service rates and access, though budget constraints often require difficult decisions about where resources are allocated.

Personal Care Homes and SSI Funding

Another area of concern involved closures of personal care homes that serve low-income seniors.

Since 2021, more than 110 personal care homes have closed, displacing over 1,000 residents. Legislators attributed many of these closures to stagnant funding levels under the Supplemental Security Income (SSI) supplement program, which has not been increased since 2022.

DHS officials acknowledged the issue and invited the General Assembly to propose funding increases to help stabilize the personal care home system.

Federal Policy Changes and HR1

Federal legislation—referred to during the hearing as HR1—was another major topic of discussion.

DHS officials warned that proposed changes could significantly affect Pennsylvania residents, particularly those in rural communities. According to DHS data cited during the hearing:

• Approximately 36,000 individuals could lose SNAP benefits
• Nearly 75,000 individuals could lose Medicaid coverage in rural areas

These losses could have serious consequences in areas already facing healthcare shortages and hospital closures.

Officials also noted that HR1 would shift additional administrative costs to states, including approximately $87 million in SNAP administrative expenses and $18 million related to emergency Medicaid funding changes.

GLP-1 Medication Coverage

DHS also discussed its decision to limit Medicaid coverage of certain GLP-1 medications used primarily for weight loss.

Beginning in January 2024, the department stopped covering GLP-1 medications such as Ozempic when prescribed solely for obesity treatment. These drugs remain covered for other approved conditions, including diabetes and certain cardiovascular conditions.

The change is projected to generate significant savings—approximately $348 million in the current fiscal year, with annual savings expected to reach $836 million in future years.

DHS officials explained that the decision reflects both budget pressures and limited long-term data on the effectiveness of GLP-1 medications for sustained weight loss outcomes.

Justice-Involved Youth Placement

The hearing also highlighted improvements in the placement of justice-involved youth awaiting treatment.

In 2023, the waiting list for secure treatment placements reached approximately 175 youth statewide. Since then, new facilities and expanded capacity have reduced the waiting list to between 9 and 15 youth on a typical day, with placements now occurring within roughly two weeks.

A new Southeast Treatment Unit opened in 2024 with capacity for approximately 40–45 youth, helping stabilize the overall system.

DHS officials emphasized that prevention and family stability programs remain a top priority in reducing youth involvement in the juvenile justice system.

Child Care Works Program

The Child Care Works program, which subsidizes childcare costs for low-income families, currently serves approximately 93,000 families across Pennsylvania.

DHS reported that there is currently no waiting list for the program due to improved management of available funding and slots.

Families qualify for assistance up to 200% of the federal poverty level, with a state-funded “off-ramp” extending eligibility to families earning up to 300% of the federal poverty level.

Officials noted that extending this off-ramp further would require additional state funding but could help families remain in the workforce by preventing sudden loss of childcare support.

Workforce Challenges in Disability Services

Workforce shortages in services for individuals with intellectual disabilities and autism were also discussed.

DHS reported significant investments in increasing wages for Direct Support Professionals (DSPs), resulting in higher pay and improved recruitment. Vacancy rates in the workforce have fallen to approximately 14%, though staffing shortages remain a concern.

A new certification program is also helping create career pathways for DSPs, improving retention among workers in the field.

Looking Ahead

The hearing highlighted the scale and complexity of Pennsylvania’s human services system, which touches nearly every aspect of healthcare, child welfare, disability services, and economic assistance.

With a proposed DHS budget approaching $22 billion, lawmakers will continue debating how to balance fiscal sustainability with growing demand for services.

As federal policy changes, workforce shortages, and demographic shifts continue to shape the system, the discussion made clear that policymakers face difficult decisions about how to fund and reform critical programs that support Pennsylvania’s most vulnerable residents.