Proposed Medicaid cuts pair with explosive Medicare Advantage growth — providers must prepare.
Hospital operating margins are stable, but healthcare organizations are grappling with ongoing headwinds. Site-neutral Medicare reimbursements are making their way back into the news; operating expenses are elevated sector-wide; inflationary trends continue in pharmaceuticals and medical supplies.
Add in the ongoing confirmation hearings and process changes driven by the Trump administration, and providers in particular are feeling the pressure. U.S. healthcare organizations are waiting — and advocating — to see which regulations will have long-term staying power.
At the center of these considerations are discussions about the future of Medicaid and Medicare.
Proposed Medicaid cuts could lead to an $80 billion decrease in healthcare revenue, including $32 billion in hospital revenue in 2026 alone. Uncompensated care costs for hospitals are also predicted to increase by $6.3 billion if these cuts go through. At the same time, the popularity of provider-unfriendly MA plans is on the rise — just as the Medicare-eligible demographic begins to expand rapidly.
It’s the perfect storm. And it’s one providers must prepare for.
Proposed cuts to Medicaid will mean ripple effects through the revenue cycle.
Today, Medicaid covers one in five people living in the U.S., including 6 in 10 low-income workers, 4 in 10 individuals receiving opioid addiction treatment, and nearly half of all births in the U.S.
The House Republican budget plan adopted at the end of February directs the House Energy and Commerce Committee to make cuts of at least $880 billion in the next decade. With Medicare cuts ruled out by the GOP, 93% of the remaining funding under that committee’s jurisdiction is directed toward Medicaid, making it highly likely that any proposed cuts will fundamentally transform the existing Medicaid program.
An analysis from KFF found that the proposed reductions to federal Medicaid would be equivalent to 29% of state-financed Medicaid spending per resident — or the same as cutting coverage for 76% of child enrollees.
Proposed work requirements could also cut coverage for 5.2 million people. A reduced Medicaid population means an impact to state and local economies, decreased access to healthcare for vulnerable populations and increased financial burdens for healthcare organizations committed to providing a safety net for their communities regardless of coverage.
📢 TAKE ACTION: Don’t be caught unprepared. Now is the time to model the financial impact of these proposed cuts to Medicaid and address existing inefficiencies to close revenue gaps. In the meantime, make your concerns about Medicaid cuts heard by joining with advocacy organizations to keep representatives informed.
As Boomers age, concerns about MA reimbursements increase.
The Baby Boomer generation is rapidly aging into Medicare eligibility, with all Boomers turning 65 by 2030. At the same time, Medicare Advantage (MA) plan enrollment is growing steadily, with 32.8 million people enrolled in 2024, accounting for 54% of the eligible Medicare population. Enrollment in MA plans is forecasted to exceed 35 million beneficiaries in 2025.
However, traditional Medicare and Medicare Advantage are not apples-to-apples, especially where providers are concerned. MA plans are broadly recognized as reimbursing providers at lower rates than traditional Medicare, posing significant financial challenges for hospitals and health systems trying to stay solvent.
Despite contracting at the same rate or higher, MA plans only reimburse hospitals around 90% of Medicare once the cost of underpayments, delays and denials is factored in. Indeed, Ensemble data shows that MA plans issue five times more first-pass denials than traditional Medicare.
However, despite recent promises to bring close scrutiny to these plans, many remain concerned about Dr. Mehmet Oz’s historical vocal advocacy for MA plans, including a shift to a hypothetical “Medicare Advantage for All.” Oz, whose nomination recently cleared the Senate Finance Committee, is expected to lead the Centers for Medicare and Medicaid Services (CMS) under the Trump administration.
Traditional Medicare covers around 80% of a hospital’s actual costs; MA plans reimburse at just 90% of traditional Medicare. At a time when more than half of the Medicare-eligible population is enrolled in MA plans, settling for 74 cents of every dollar owed is simply not sustainable for providers. Nor is it favorable for the federal government, which will spend $84 billion more on MA enrollees in 2025 than if those same enrollees were covered by traditional Medicare.
📢 TAKE ACTION: Providers should get ahead of revenue cycle concerns and opportunities now, rather than waiting until the “gray tsunami” of Baby Boomers shifting to Medicare Advantage fully arrives. Ensure your payer contracts are airtight and that your team is fully capable of combatting AI-driven delays and denials — including by using technology of your own to do so at scale.
Providers need a partner. Now.
Don’t wait for your revenue cycle to shift or established processes and funding sources to become destabilized before you respond. Getting ahead of market headwinds is no small feat, but a proven end-to-end revenue cycle management partner can help you do so seamlessly. From proactively evaluating current contracts and investing in technology so you can focus time and internal resources on patient care, an RCM partnership puts you one step closer to a financial future that’s stable — regardless of shifting market dynamics.
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AI in Action
With a recent shift in federal policy toward deregulating artificial intelligence, there has been more activity at the state level to regulate the development and use of AI in healthcare.
Many of these proposed state regulations aim to prohibit the use of AI without any human oversight. This is a safeguard we support to ensure the ethical, effective application of AI in healthcare.
We believe AI with human oversight has the power to eliminate administrative barriers standing between patients and providers. Ensemble’s approach to AI aims to:
Our experts will continue to track proposed legislation that impacts the use of artificial intelligence in the healthcare sector. We are committed to sharing this information — as well as information around our continued efforts to put AI to use for the benefit of providers.
Regulatory Updates