In meetings on Capitol Hill on Tuesday, the only thing that Democrats and Republicans agreed on was that a federal government shutdown was inevitable. 

For agencies and programs that depend on discretionary funding through annual appropriations acts, Congress and the president must enact interim or full-year appropriations. Although certain federal programs will remain untouched — Social Security payments, for instance, will continue to be issued — many other operations face sharp reductions. Non-essential activities across agencies will grind to a halt, and millions of federal employees, including military personnel, could miss paychecks.

Workers considered critical to public safety, such as air traffic controllers and law enforcement officers, must still report for duty, while others are placed on furlough. Thanks to a 2019 law, those furloughed employees are promised back-pay once the budget deadlock ends. However, the Trump administration has signaled that it plans to permanently lay off a significant number of federal employees.

The impact on government services varies widely. Businesses that rely on the federal government to process visas, fund clinical trials, and maintain contracts will see disruptions the longer the shutdown lasts. On the other hand, Medicare and Medicaid will largely operate as business as usual. 

Federal Contractors

Federal contractors have been here before, so many have already been taking proactive steps to mitigate risks and protect their contractual rights. A lapse in appropriations can halt funding, delay performance, and create uncertainty around ongoing contracts and new awards.  Some of the key steps that government contractors should consider taking include:

• Review contracts to identify which are funded with current appropriations and which may be affected by a funding lapse. 
   
• Pay particular attention to stop-work clauses, funding limitations, and notice requirements.
   
• Communicate with contracting officers – seek written direction before suspending or altering performance. Do not rely on informal guidance; only the contracting officer can provide binding instructions.
   
• Document impacts – maintain detailed records of delays, costs, and disruptions related to the shutdown. This documentation will be essential for potential claims or equitable adjustments.
   
• Protect your workforce – plan for how to manage labor costs if performance is suspended. Review options for reassignment, leave, or furloughs, while ensuring compliance with wage and hour requirements. (Unlike federal employees, contractors are not guaranteed back-pay.)
   
• Assess subcontractors and suppliers – flow down instructions and assess whether subcontractors or vendors are impacted, especially in supply chains that depend on government facilities or personnel.
   
• Plan for restart – be ready to resume performance quickly once funding is restored. Anticipate challenges such as backlogs, workforce recall, and coordinating with the government.

Subcontractors to prime government contractors will want to pursue similar steps, as will recipients and subrecipients under government grants.

Federal Judiciary

The Supreme Court would remain insulated from a brief shutdown, as it has access to funds generated through court fees, such as filing charges and other administrative payments.
For at least the first several weeks of a funding lapse, the broader federal judiciary would also continue functioning much as usual.

If a shutdown were to stretch on, courts nationwide would determine individually which operations could move forward. The salaries of Supreme Court justices and federal judges would remain untouched, since the Constitution prohibits any reduction in judicial pay during their service, according to the Congressional Research Service.

Federally Funded Programs

The life sciences and education industries face impacts, as federally funded clinical trials on new prescription drugs and other types of research could be delayed. 

During a government shutdown, how federal grant funds are distributed may determine whether, and to what extent, there is a funding gap for programs funded in whole or in part by federal funds. Some grant programs provide advance payments in the first quarter of the fiscal year, and payments made to grant recipients in advance of expenditures are referred to as "advance draw-downs." Thus, there may be instances where states already have federal funds to keep the program going during a shutdown. 

States may also be able to "draw-down" funds for state-administered programs funded in whole or in part by federal grants that have already been awarded before a government shutdown. States may do so for anticipated or actual expenditures made under the terms of the grant award or authorizing language of the federal grant program. These disbursements may be authorized before actual program expenses are incurred or as reimbursement for expenditures made by the state. If funds are accessible in advance of a government shutdown, the state may be able to continue program activities for a certain amount of time, depending upon the amount of funds that were available at the time of the shutdown. 

Note, however, when funds are reimbursed, the federal agencies will not process reimbursement requests during a government shutdown.

Medicare

Funding for Medicare benefits is considered mandatory spending and is not subject to the annual congressional appropriations process. Medicare payments will continue even in a lapse in appropriations and is therefore protected during a government shutdown.

In addition, while a government shutdown will affect scores of federal operations nationwide, generally Medicare claims processing will not be impacted. Some federal offices will be closed, and some federal workers furloughed, but initially the Centers for Medicare and Medicaid Services (CMS) will direct the Medicare Administrative Contractors (MACs) to continue to process all Medicare fee-for-service claims and payments. The Department of Health and Human Services has not provided specific details regarding its Office of Inspector General operations in its currently published contingency plans. We expect, however, as was the case in previous shutdowns, that HHS-OIG will continue its Medicare and Medicaid oversight and enforcement activities under its mandatory funding sources and will also likely continue operating its hotline and disclosure programs.

Medicaid

Medicaid is a federal entitlement to the states, which is categorized as mandatory spending. Although most mandatory spending programs bypass the annual appropriations process and automatically receive funding each year according to either permanent or multi-year appropriations in the substantive law, Medicaid is funded in the annual appropriations acts. Thus, Medicaid is referred to as an "appropriated entitlement."

However, Congress has provided advance appropriations for Medicaid that become available for obligation one or more fiscal years after the budget year covered by the appropriations act. Most recently, Congress provided advance appropriations for Medicaid in its 2025 Full-Year Continuing Appropriations and Extensions Act for the first quarter of fiscal year 2026 (which runs through December). 

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