Should legislators ultimately pass steep cuts to Medicaid, insurers operating in this market are likely to feel the squeeze, according to a new analysis from Fitch Ratings.
The budget bill that was passed in the House last week calls for $2 trillion in federal spending cuts to be identified over the next decade, with $880 billion of that coming from the Energy and Commerce Committee’s jurisdiction, which includes the Medicaid program.
The healthcare industry has roundly criticized cuts to the program, and multiple recent studies warn that it could significantly increase spending for states and lead many people to lose coverage.
The Fitch analysts said insurers likely wouldn’t see any major shifts in their businesses for 2025. However, should Congress make major changes to Medicaid—proposals include per capita caps, work requirements and rolling back the federal match for expansion—they could lead to pressure on margins.
For example, insurers have expressed concern that plans are not paid enough per Medicaid beneficiary to cover the costs of care. This puts pressure on a product that already operates on a thin margin, the analysts wrote.
Should the feds put an end to the match for Medicaid expansion, states that have expanded the program under the Affordable Care Act would likely struggle to continue to offer coverage at current levels. Medicaid managed care plans working in those states would have to adapt to the new normal, according to the analysis.
“Under current Medicaid rules, the focal point for the U.S. health insurance sector is state payment rate adequacy for Medicaid,” according to Fitch. “However, the emerging plans the new administration has for both MA and Medicaid are key to the sector’s outlook.”
Fitch’s analysts said rate setting for the coming year should start to account for the increased patient acuity that insurers have encountered since the post-COVID redeterminations wrapped up. Pressures related to the redetermination process could carry through the early part of 2025, according to the report, but should be “relatively short-lived.”
“However, funding cuts at the federal level could exacerbate and extend margin pressure,” they said.