Impact of Proposed Medicaid Cuts on Health Care Stakeholders

March 12, 2025  |  Cynthia Miller, MD, MPH, FACP – VP, Medical Director, Access Experience Team

On January 17, the House Budget Committee sent a list of spending and tax cuts to the House Republican Caucus that may be included in the budget reconciliation. The list includes several cuts that would impact Medicaid, including changes to the federal match rate floor, changes to the enhanced match rate, and work requirements, to name a few. This is not a surprise. Given that President Trump is looking for opportunities to offset proposed tax cuts while preserving Medicare and Social Security, reductions in the Medicaid budget are likely. It is important to predict the downstream financial and access implications of such reductions on hospitals, managed Medicaid plans, and manufacturers for planning purposes. But to appreciate fully how health care stakeholders will be affected, we will need to understand which areas of Medicaid will be restructured.

While it is too soon to know which areas of Medicaid will be affected, we can look at the proposals, their projected savings, and feasibility of implementation for clues. For example, lowering the Medicaid matching rate floor, currently at 50%, would potentially generate $387 billion in 10-year savings, predominantly impacting high-income states like California and New York, according to the list. However, it is important to note that if the floor is reduced, many states may be impacted.

Another example is the enhanced match rate for Medicaid expansion. Equalizing the match rate for the Medicaid expansion population would potentially save $561 billion over 10 years and affect expansion states, according to the list. Currently, 41 states have adopted Medicaid expansion, so this potentially impacts a large swath of the United States. Both the Senate and the House have Republican majorities to support the Trump administration and its priorities, however, there may be conflicting interests at the state level and the federal level that make passage of proposed Medicaid changes a challenge.

Finally, work requirements may be instituted for Medicaid. Several states had approved Section 1115 work requirement requests and approvals under the previous Trump administration that were either rescinded by Democratic governors or the Biden administration. Lessons can be learned from two pilots of work requirements, one in Arkansas and another in Georgia for the expansion population. Work requirements led to lower enrollment in Arkansas, and 18,000 people lost coverage in a 9-month period. In Georgia, 90% of money spent on the program went to administrative tasks and consulting rather than to health care costs, with a lower enrollment than expected. While work requirements seem appropriate in theory, the outcomes from these two pilots have been suboptimal.

Time will tell which areas of Medicaid are restructured and how great the impact will be; however, manufacturers can prepare for stakeholders’ response. Hospitals and health systems, particularly in rural areas, may be financially impacted by Medicaid cuts. Downstream impacts include an increase in uncompensated care and bad debt and reduced revenue, leading to a reduction in service and potential closures. As a result, even for patients who have insurance, access to care may be impaired. Strategies to reduce costs, such as consolidation and use of AI, may also play a role.

Restructured funding may lead to less enrollment and potentially more administrative burden (work requirements) for Medicaid managed care and state Medicaid programs. This may lead to increased utilization management and reduced benefits as states and managed care plans work with tighter budgets. This may also accelerate the transition from fee-for-service to value-based care. Value-based care would certainly be consistent with approaches previously deployed by Medicaid industry veteran Drew Snyder. Snyder, under consideration to lead Medicaid for CMS, was known for leading quality-based provider reimbursements during his near 7-year tenure as Mississippi’s Medicaid director.

All of these possibilities have potential downstream impacts on manufacturers. Product utilization and net cost recovery from contracting pressures may be reduced as hospitals and payers look to reduce spending and consolidate. The focus on total cost of care and value-based arrangements on a shortened time horizon may increase as payers look to optimize their returns on investment.

Manufacturers can support hospitals and payers by offering value-based arrangements, data on total cost-of-care reductions, and robust patient adherence programs. Communicating these assets in a way that resonates with Medicaid payers will be important to maintain market share. Maximizing evidence generation, creating targeted materials, and supporting customers’ quality improvement initiatives will ensure a manufacturer’s value proposition is highlighted.