The United States healthcare system faces potential significant changes as the federal government transitions to new leadership in 2025. With Donald Trump returning to the presidency and Republicans holding majorities in both chambers of Congress, proposed modifications to Medicaid —a program serving over 90 million Americans as of 2024—warrant careful examination.
Recent legislative proposals and administrative actions signal several potential changes to the federal-state healthcare program. Drawing from policies implemented during the previous Trump administration (2017–2021) and current Republican proposals, this analysis examines five key areas likely to see reform:
- Funding structure: Transition to block grants or per-capita funding models
- Eligibility requirements: Reinstatement of work requirements and stricter verification processes
- State authority: Expanded state flexibility in program management
- Managed care: Regulatory changes affecting healthcare delivery systems
- Program integrity: Enhanced oversight and cost containment measures
These changes could significantly impact healthcare access for millions of Americans, state budgets, and healthcare providers, and have broader ramifications for the industry. Our analysis explores the potential implications of these reforms based on historical precedent, current proposals, and stakeholder perspectives.
Funding structure: Proposed transition to block grants or per-capita funding models
The current Medicaid program operates as a federal-state partnership where federal funding automatically adjusts to match state expenditures based on qualifying healthcare services. With federal Medicaid spending reaching approximately $600 billion in fiscal year 2024, Republican leadership could propose fundamental changes to this financing structure through two primary mechanisms: block grants and per-capita caps. Block grants would provide states with fixed federal funding amounts adjusted annually for inflation, while per-capita caps would establish fixed funding amounts per enrollee category, with separate caps for major eligibility groups including children, adults, elderly, and disabled populations.
Under either approach, state Medicaid agencies could face significant financial constraints that could necessitate substantial program modifications. Analysis suggests states might respond by reducing provider reimbursement rates, increasing cost-sharing for optional services, limiting benefits such as dental and vision coverage, or implementing stricter utilization management protocols. Economic modeling indicates potential federal funding reductions of $700 billion to $1.2 trillion over ten years, with impacts varying significantly by state based on current expansion status and demographic factors. These reductions would be particularly challenging during economic downturns or public health emergencies when Medicaid enrollment typically increases.
The success of such funding reforms would largely depend on states’ capacity to absorb funding shortfalls and manage Medicaid program changes effectively. Critical considerations include the impact on healthcare providers and local economies, effects on vulnerable populations, and the administrative costs associated with implementing new funding models. While proponents argue these changes would improve program efficiency and state flexibility, critics warn they could substantially reduce healthcare access for millions of Americans and shift significant financial burden to state governments, or to unintended industry participants.
Medicaid eligibility reform
The potential reinstatement of work requirements represents a significant shift in Medicaid eligibility policy. During Trump’s previous administration, several states received Section 1115 waivers allowing them to implement work requirements for able-bodied adults aged 18 to 64, mandating 80 hours monthly of work, volunteering, or educational activities. While these requirements were ultimately blocked by federal courts, the new administration has signaled interest in reviving similar policies. Historical data from Arkansas’s brief implementation of work requirements in 2018 showed approximately 18,000 beneficiaries lost coverage within the first three months, highlighting the potential impact of such policies.
State authority
Beyond work requirements, the administration is expected to grant state Medicaid agencies broader authority in determining eligibility criteria and managing benefits. These changes could include stricter asset tests, more frequent eligibility verifications, and modified income calculations. States may gain the ability to adjust copayments, implement premiums for certain populations, and modify benefit packages without federal approval. The Biden administration's expanded eligibility measures could face rollback, particularly those implemented during the COVID-19 public health emergency and subsequent coverage retention policies.
Regulatory changes to Medicaid Managed Care
Medicaid Managed Care programs are also likely to undergo significant transformation. The administration’s approach suggests a move toward reduced federal oversight of managed care organizations (MCOs), potentially scaling back requirements for network adequacy and performance monitoring. While this deregulation might lower administrative costs for MCOs, it could affect beneficiary protections and access to services. These changes may also have unintended consequences on businesses delivering Medicaid benefits across the United States. MCOs may continue to see greater opportunities in Medicaid, as state Medicaid agencies look for partners for financial risk sharing.
Program integrity and leadership changes
The administration’s approach to Medicaid program integrity has taken an unprecedented turn with the Department of Government Efficiency’s (DOGE) involvement in federal healthcare program payments. Led by Elon Musk, DOGE’s attempts to access CMS payment and contracting systems have sparked significant legal challenges. While two senior CMS officials are coordinating with DOGE to identify “opportunities for more effective and efficient spending,” a coalition of state attorneys general has challenged DOGE’s authority to access sensitive data. The February 8 federal court injunction blocking DOGE’s access to Treasury Department systems highlights the ongoing tension between executive branch initiatives and legal constraints on administrative authority.
Congressional budget proposals have placed additional pressure on Medicaid spending. The Senate Budget Committee’s blueprint demands $1 billion in savings from programs under the House Energy and Commerce Committee’s jurisdiction between fiscal years 2025 and 2034, while House Republicans have proposed a more aggressive target of $800 billion in reductions. Although these resolutions don’t specify exact mechanisms for achieving these savings, Medicaid’s size within the committee’s portfolio makes it a likely target for substantial cuts.
The appointments of Robert F. Kennedy Jr. as Secretary of Health and Human Services and Dr. Mehmet Oz as CMS Administrator represent the potential for significant fluctuations in Medicaid’s future direction. Neither nominee has extensive experience in government healthcare program administration, and their confirmation hearings provided limited insight into their policy priorities. Kennedy’s noncommittal response regarding Medicaid reform during his confirmation hearing has left stakeholders uncertain about the administration’s specific plans. The combination of new leadership, aggressive budget targets, and novel oversight mechanisms through DOGE suggests a period of significant uncertainty for the Medicaid program.
Looking ahead: Key uncertainties and strategic considerations
The future of Medicaid stands at a critical juncture, with several interconnected uncertainties shaping its trajectory. The program’s transformation hinges on three primary factors: the administration’s ability to implement its agenda through executive action, Congress’s capacity to enact structural reforms, and states’ responses to new federal flexibility and financial constraints. While the Republican majority provides a pathway for reform, the absence of a supermajority means that even modest Democratic opposition could impede legislative changes. As a result, the administration may rely heavily on executive actions, budget reconciliation, and state-level policy changes to achieve its objectives.
Near-term uncertainty centers on the ongoing legal challenges to DOGE’s oversight authority and the policy priorities of the new HHS and CMS leadership. The Kennedy-Oz administrative team’s approach to Medicaid management remains largely undefined, creating operational uncertainty for states and healthcare providers. Meanwhile, the ambitious budget reduction targets set by congressional Republicans suggest significant program changes are likely, though the specific mechanisms for achieving these savings remain unclear.
The longer-term sustainability of proposed reforms faces substantial questions. Block grants or per-capita caps would fundamentally alter federal-state healthcare partnerships that have existed for nearly sixty years. States’ capacity to maintain current coverage levels under constrained federal funding remains uncertain, particularly during economic downturns or in face of public emergencies. The potential impact on healthcare providers, especially safety-net hospitals and rural facilities or suppliers operating on thin margins, could reshape healthcare delivery systems in ways that are difficult to predict. There may indeed be unintended consequences across the industry.
These uncertainties underscore the importance of careful monitoring and analysis as Medicaid reforms unfold. Stakeholders—including state governments, healthcare industry stakeholders, providers, and beneficiary advocacy groups—will need to remain actively engaged in both policy development and implementation to help shape outcomes that balance fiscal constraints with healthcare access and quality.
