The state of government-sponsored insurance in 2025: How Trump and a GOP-led Congress are approaching Medicare, MA, and Medicaid

Roughly half of the U.S. population gets health coverage through some form of government-sponsored insurance. And with control of both the executive and legislative branches, Republicans can now—at least in theory—deploy a mix of executive action, rulemaking, and legislation to make a significant mark on the public pay landscape. So where do things stand today? This post will examine the state of government-sponsored insurance in 2025: we’ll talk about what was expected based on promises and comments made on and off the campaign trail—and what has actually happened in the first 100 days (or so) of the new administration and Congress.

A quicker refresher: How Trump has talked about Medicare and Medicaid

During his 2024 presidential bid, President Trump promised repeatedly to “protect” Medicare. This included an explicit vow not to cut Medicare benefits, while also taking aim at Medicare drug prices.

Although Medicaid didn’t feature prominently on the campaign trail, it has quickly become a top issue in the early days of the administration as Republicans in Congress have sought potential ways to pay for the President's tax plan. Much more to come on this later in the post—but with growing concerns about what major cuts to Medicaid could mean for core voters and red states, the President has issued a stark warning to Congress: "Don’t f--k around with Medicaid," while still leaving the door open to potential cuts by caveating "The only thing we're cutting is waste, fraud or abuse."

The state of government-sponsored insurance in 2025: What's happening with Medicare?

President Trump entered office with a relatively stable (and recently bolstered) Medicare Trust Fund, meaning that his administration is not currently facing outsized pressure to constrain Medicare spending.

And indeed, Medicare spending has not been a major focal point early on, with a couple of important caveats:

• As our Chief Education Officer Amanda Berra detailed in a recent blog post, there have been a number of subtle policy shifts/emerging political issues related to value-based payment, in Medicare and elsewhere. More on that here for those curious.

• A recent CBO report noted that the current version of the House budget reconciliation rule would prompt automatic cuts to Medicare given its impact on the federal deficit. Republicans may be able to establish a workaround/exemption as they continue to refine the bill.

That being said, as was widely expected, President Trump’s main actions related to Medicare since returning to office have centered on drug pricing; most notably through a sweeping executive order signed earlier this month, on May 12th. This order, “Delivering Most-Favored-Nation Prescription Drug Pricing to American Patients,” revives and expands on an attempt under the previous Trump administration to lower U.S. drug prices to match the lowest prices paid by other developed countries. The EO sets a 30-day deadline for pharmaceutical companies to voluntarily comply or face regulatory and trade actions, including potential tariffs.

The order marks an escalation of Trump’s previous attempt in some notable ways. It actually extends beyond Medicare to include Medicaid and private insurers, and it calls for a direct-to-consumer purchasing mechanism to bypass intermediaries (this could take the form, for example, of government-mediated online platforms or pharmacies allowing consumers to purchase drugs at MFN pricing). The order also tasks the U.S. Trade Representative and Commerce Secretary with addressing foreign practices that may shift R&D costs onto U.S. consumers; for example, by using tariffs and trade negotiations to pressure foreign governments to raise their drug prices in order to ensure a more equitable distribution of drug R&D costs globally.  

What are the chances this order will become reality? Trump’s previous (and more limited) attempt was blocked in federal court and ultimately rescinded during the Biden administration. The even more far-reaching nature of this EO means that it will certainly prompt vigorous lobbying activity on the part of the pharmaceutical industry and a slew of legal challenges. Still, it is an important signal that the President would like to continue to prioritize drug pricing, and points to a desire to embrace an even more expansive approach than the Biden administration, even amidst continued implementation of drug pricing policies established during Biden’s tenure (e.g. the IRA’s drug price negotiation model, caps on out-of-pocket spending, etc.), many of which Trump also championed on the 2020 campaign trail.

What would this mean for the industry?

• Drugmakers would obviously face the most immediate and significant impact, with the administration aiming for price reductions ranging from 59% to 90% on some drugs. Pharmaceutical companies warn this could reduce profits by up to $1 trillion over a decade and potentially limit funding for research and development. The sector’s stock prices have already seen volatility in response to the announcement.

• Pharmacy Benefit Managers (PBMs) and wholesalers would also potentially be affected, given the mandate to bypass intermediaries and establish a direct-to-consumer purchasing mechanism.

• Health Plans (especially Medicare and Medicaid plans) could see reduced drug spending if lower prices are realized, but may also face operational uncertainty as the details and enforcement mechanisms of the order remain unclear.

• Health Systems and Providers might benefit from lower drug acquisition costs, but could also see disruptive changes to formularies, reimbursement, and patient access, depending on how manufacturers respond and which drugs are targeted.

The state of government-sponsored insurance in 2025: What's happening with Medicare Advantage?

The new administration was widely expected to take a lighter hand on MA relative to the previous one. And at first blush, it may look like things are trending in that direction: the first MA rate update under the current Trump administration included a more-generous-than-expected average increase of 5.6%. But it's critical to note that this update was due entirely to refreshed data on FFS Medicare spending trends (a core input into the MA reimbursement methodology), which came in higher than originally anticipated. In other words, the update did not represent a shift in policy from the new administration. And in fact, Trump's CMS opted to maintain several Biden-era reforms that will continue to constrain plan revenues, including updated risk adjustment models and stricter audit and quality rating requirements. These changes aim to curb overpayments but have tightened margins for plans.

This payment update arrives amidst the backdrop of intensifying financial pressure on MA plans as rising utilization—especially for costly specialty drugs and GLP-1 medications, hospitalizations, and long-term care—outpaces reimbursement growth. This environment has led to an uptick in plan exits and consolidation; notably, about 5% of Medicare Advantage enrollees were in plans terminated for 2025, well above the usual benchmark of 2–3%.

Recent industry turmoil highlights the extent of these pressures. UnitedHealth Group, the country’s largest MA provider, has reported unexpectedly high medical costs—particularly in MA—for several quarters in a row, which for Q1 2025 translated to its first quarterly earnings miss in over a decade, a sharp profit forecast cut, and a 50% plunge in share price. The subsequent resignation of CEO Andrew Witty and the announcement of a federal investigation into alleged Medicare fraud related to diagnosis coding drove its share price down even more (it has since partially recovered, likely due to a perceived overcorrection).

Overall, despite widespread expectations of relief on MA under the Trump administration, MA plans and providers continue to face significant headwinds. And the administration has not yet signaled any major policy shift from the Biden administration, despite the higher-than-expected rate increase for 2026.

What does this mean for the industry?

• Health Plans, especially large national insurers, continue to be under acute pressure as rising costs and regulatory headwinds squeeze margins. The 2026 rate announcement will provide some relief, but is unlikely to be sufficient. Profit maintenance will be a top priority for plans, meaning continued focus on utilization management and forecasting, pressure on provider rates, and potential pullbacks on benefit design and market participation.

• Health Systems and Providers may see increased pressure from plans to renegotiate contracts, restrict networks, or take on more risk. Some providers have already begun to proactively reevaluate their MA contract portfolio as they’ve experienced a sharp increase in claims denials.

• Drugmakers could be indirectly affected as MA plans seek to control utilization costs, potentially by tightening formularies.

The state of government-sponsored insurance in 2025: What's happening with Medicaid?

Of all the major public payers, Medicaid is facing the most dramatic uncertainty and potential transformation, with the sheer size of President Trump's tax bill all but forcing Congress to make cuts of Medicaid (especially given the President's promise not to touch Medicare or Social Security). Trump may have directed lawmakers not to [mess] with Medicaid, but notably left open the door to cuts grounded in waste, fraud, abuse, which is a pretty big loophole. And so the latest House reconciliation bill represents the most sweeping set of potential changes to the program since its expansion under the ACA and the largest single cut to Medicaid in the program's history.

The proposal, which passed through the House on May 21, includes several notable provisions impacting Medicaid:

• Stricter eligibility and verification: The bill introduces more stringent eligibility checks, including mandatory citizenship verification, new requirements that expansion enrollees re-prove their eligibility every six months (instead of annually), and reduced retroactive coverage (limiting to one month prior to application, down from three months). These requirements are intended to reduce improper payments but are also expected to increase administrative burden and churn.

• Work requirements: Able-bodied adults without dependents would be required to work for at least 80 hours per month to maintain Medicaid eligibility, with exceptions for pregnant women and certain hardship cases. Recent experience suggests such requirements primarily result in coverage losses rather than increased employment. For example, in Arkansas—the only state to implement a true Medicaid work requirement with employment consequences—18,000 individuals lost coverage across the course of nine months (in 2018 and 2019). And a 2023 CBO report estimated that a nation-wide implementation of work requirements would produce coverage losses in the range of 1.5M. Proponents of work requirements do point do slight employment gains tied to work requirements as part of the Clinton administrations reforms to the welfare program, although it's important to keep in mind that those requirements were implemented during a time of strong economic and job growth and amidst large increases in federal child care funding.

• New out-of-pocket costs: The bill would reduce the threshold for premiums and enrollment fees from 150% of the poverty level to 100%, and introduce out-of-pocket fees of up to $35 per visit for some (non-emergency, non-preventative) services for those same enrollees.

• Targeted funding reductions: The bill includes reductions in federal Medicaid funding to states that cover individuals residing in the U.S. without legal status.

• No per capita caps or full block grants (for now): Unlike earlier proposals, including those floated in 2017 and Project 2025, the current bill does not impose per capita caps or convert Medicaid to a block grant system for all states.

It’s important to note that the most significant changes—including work requirements and major funding reductions—would not take effect until 2029; i.e. after the next election. This delay is widely seen as a strategic move: it minimizes immediate political risk for lawmakers, gives states and stakeholders more time to prepare, and leaves open the possibility that future Congresses or administrations could revisit or reverse the changes before they take effect.

What does this mean for the industry?

• State Medicaid Agencies will need to navigate decisions about eligibility, benefits, and provider rates as federal funding declines. Blue states—which are both are likely to have expanded Medicaid and to use state funds to cover immigrants regardless of status—would face the most immediate financial impact. And one red state that current covers undocumented immigrants—Utah—has a "trigger law" in place that would force the state to end expansion if the federal match rate dropped. And given how widespread Medicaid expansion has become (41 states, including DC, have expanded), both red and blue states will see considerable coverage losses and increases in the uninsured rate.

• Health Plans operating Medicaid managed care plans will see increased enrollment volatility, increased administrative burden from new eligibility checks, and potential rate pressure as states seek savings.

• Health Systems and Providers—especially safety-net hospitals and community clinics—could see a surge in uncompensated care.

• Drugmakers may see reduced Medicaid drug spending and tougher rebate negotiations, especially if states tighten formularies or dial up utilization management efforts.

Parting thoughts: The state of government-sponsored insurance in 2025

With both MA and Medicaid under pressure, the typical response—by provider organizations, health plans, and life sciences companies—would be to shore up subsidies from another business lines (whether through other sources of payment—such as employers—or other sources of revenue altogether). But we have serious doubts as to whether the historical approach will approve effective, especially in the face of emerging cracks in plans' approach to vertical consolidation (as exemplified by UHG's recent woes)—and given that employers have just been subject to several years of large price increases in the wake of the pandemic. This is one of the major themes that we'll be exploring as part of our next State of Healthcare update.

In the meantime, members have access to our current 2025 State of Healthcare, and reach out to their account representatives to schedule a live or in-person presentation. Not a member? Schedule time with us to learn more about how to join, and what's included in membership: https://www.unionhealthcareinsight.com/overview.