First-year Rural Health Fund grants range from less than $100 per rural resident in ten states to more than $500 in eight

On December 29, 2025, the Centers for Medicare & Medicaid Services (CMS) announced first-year state grants under the $50 billion Rural Health Transformation Program (the “Rural Health Fund”), which is administered by a new Office of Rural Health Transformation. The Rural Health Fund was created as part of the July 2025 Budget Reconciliation Act, sometimes called the One Big Beautiful Bill, to help offset the law’s impact on rural areas, which includes an estimated $911 billion reduction in federal Medicaid spending over ten years, including about $137 billion in rural areas. All 50 states applied for the rural health fund and each state received an award. CMS will distribute $10 billion each year between fiscal years 2026 and 2030, starting this year.

State grants for 2026, the first of five years, average $200 million, ranging from $147 million in New Jersey to $281 million in Texas (Figure 1). Differences in total allocations across states in the first year (and most likely in subsequent years) are modest compared to the large differences in rural populations and rural health needs in general. For example, Texas has about thirty times as many rural residents as New Jersey (4.3 million versus about 140,000), but only receives about twice as much funding in its first year ($281 million versus $147 million). Differences in total allocations among states are relatively modest, primarily because half of the rural health fund (50%) is distributed equally among approved states regardless of need, as required by law. Since all states have been approved for funding, each is expected to receive $100 million from that half of the fund in 2026 and each year from 2027 to 2030.

Texas, Alaska, and California receive the most awards in the first year. While Texas and California have the largest and fourth largest rural populations in the country, respectively, Alaska has the fifth smallest rural population. Alaska likely received a relatively large reward, at least in part because part of the fund was distributed to the five largest states based on land area. New Jersey, Connecticut and Rhode Island receive the smallest awards in the first year. These are all states with relatively small rural populations.

Figure 1

First Year Award per rural resident vary widely from state to state, ranging from less than $100 in ten states to more than $500 in eight states, according to KFF’s analysis (see Figure 2). State scholarships are partially, but not closely, linked to the rural population, which means that first-year scholarships per rural resident are generally relatively low among states with the largest rural populations. For example, Texas has the largest rural population in the country – and the largest total grant in the first year – but will receive the smallest payment per rural resident ($66 in 2026). In contrast, states like Rhode Island, New Jersey, and Alaska, which have far fewer rural residents, will receive significantly higher amounts per rural resident ($6,305, $1,069, and $990 respectively, with Rhode Island being an extreme exception). Only a quarter of the $50 billion fund is distributed exclusively based on measures of state need, and only 5 percent of the fund is based on the rural population. Other measures of need, according to CMS, include the number of rural facilities, acreage, share of hospitals receiving Medicaid disproportionate share hospital (DSH) payments and other factors.

While lawmakers created this fund in part to help offset the impact on rural hospitals of budget cuts imposed by the Reconciliation Act, CMS has made clear that the funding is intended to benefit rural communities more broadly by transforming health care systems. Examples of state initiatives based on the subset of publicly available state applications and summaries posted on the CMS website include Make America Healthy Again (MAHA)-related initiatives (such as improving access to healthy foods and chronic disease prevention and management), expanding telehealth services and remote patient monitoring, rural workforce development programs, and supporting regional collaboration among providers.

CMS states that payments to hospitals and others for patient care cannot exceed 15% of total funds, although providers can benefit in other ways, such as investing in existing buildings and infrastructure (limited to 20% of total funds). It’s unclear how much of the money will benefit rural hospitals, directly or indirectly, and how much it will offset hospitals’ losses under the reconciliation bill. Additionally, it is not yet clear how much information will be publicly available to track the flow of state dollars to rural providers and other entities and to evaluate the effectiveness of state initiatives.