The recent budget resolution passed by House Republicans may increase margin pressure for U.S. health insurers operating in Medicaid.
Final outcomes will depend on the level and scope of spending cuts. Lower enrollment and revenue risk may follow, according to Fitch Ratings.
The bill includes $2 tn in spending cuts over 10 years. Of that, $880 bn would come from programs under the Energy and Commerce Committee, which manages Medicaid and shares oversight of Medicare and the Affordable Care Act (ACA), among others.
Health insurers are unlikely to face material impact in 2025 from current legislative proposals. A full repeal of the ACA received less attention during the 2024 election (see How Many Medicaid Enrollees Disenrolled from U.S. Health Insurance Program?).
Medicaid State Fact Sheets by KFF
However, former President Trump and other Republicans have supported adjustments to the ACA, including changes to product design, high-risk pools, and reduced public exchange subsidies. These changes may reduce enrollment.
Both parties continue to support Medicare, though Republicans favor the Medicare Advantage (MA) program, reflecting broader support for private sector participation.
This may benefit insurers with large MA exposure, especially as pressure on entitlement funding grows.
Medicaid spending and structure differ by state. Factors include enrollment size and profile, service use, pricing, state policies, and provider payment rates.
In 2022, Medicaid cost $804 bn. The federal government contributed 71% ($573 bn), per KFF. States with the largest populations—California, New York, Texas, Pennsylvania, and Ohio—receive the most federal funding.
Republicans have proposed further cost shifts to states. These include block grants or per-enrollee caps, aimed at giving states more control over eligibility and benefits.
Other proposals involve limiting provider taxes and adjusting the federal medical assistance percentage. While Speaker Johnson and President Trump say they won’t cut benefits for eligible individuals, they intend to reduce spending by targeting fraud and waste.
If federal cuts proceed, states may need to lower Medicaid coverage, reduce services or provider payments, raise state taxes, or cut other spending.
States that expanded Medicaid under the ACA or rely more heavily on federal funding could face more pressure.
Health insurers focus on payment rate adequacy under current Medicaid rules. The administration’s approach to Medicaid and MA will influence sector performance.
Insurers active in Medicaid have reported that rates often fall below the cost of care, compressing already thin margins.
Rate negotiations with states should eventually reflect higher acuity levels seen after redetermination. Margin pressure from redetermination may ease by mid-2025. However, new federal cuts could deepen and extend this pressure.
