Outlook for U.S. Entitlement Spending Among Government Cuts
By: Gary Taylor, Ryan Langston, Rick Weissenstein, Christian Borgmeyer, William Spivack
Apr. 08, 2025 - 2 minutes
Overview:
- The re-election of President Trump and the latest House budget resolution are contributing to talks of material cuts to healthcare entitlements, primarily Medicaid.
- Medicaid covers 79 million people, including 47% of all U.S. children across a diverse mix of states.
- We do not believe there is congressional consensus nor yet a financial imperative to materially reduce U.S. healthcare entitlement programs.
- Barring a borrowing crisis, our stress-test identifies 2030 to 2035 as the earliest plausible period in which Congress would be compelled to make material cuts.
U.S. Healthcare Models Highlight Federal Budget Stress and Medicaid Exposure
We built a comprehensive, interactive U.S. healthcare entitlement "stress-test" model. This model utilizes key demographic, tax, interest rate and GDP variables in order to identify periods of maximum federal budget stress. We also built a comprehensive state Medicaid exposure model. We compiled in a single, sortable format by state: the total Medicaid enrollment, penetration, spending, per capita, per enrollee, federal matching percentage, total federal balance of payments, state directed payment reimbursement and publicly-traded hospital exposure. Additionally, we compiled and reviewed historical healthcare entitlement reduction efforts, comparing and contrasting with the current fiscal and political environment.
Funding versus "Rate" Cut
We note the proposed Medicaid cuts are to funding and not to Medicaid rate but could functionally have a similar impact in the short-term. We see three broad categories of potential impact:
- changes in eligibility and enrollment,
- changes in the scope of covered services, and
- reductions in programmatic funding.
Financial & Industry Model Implications
The possible Medicaid funding/enrollment reductions outlined herein would negatively impact nearly every payer and provider in our coverage. Hospitals are potentially exposed to multiple avenues of funding reductions, and some have traded off nearly -20% since the election. Medicaid managed care organizations (MCOs) are exposed to potential degradation in the risk pools related to enrollment reforms, but funding reduction exposure appears more moderate. We have included a sensitivity analysis of the following:
- the EPS impact to payers, and
- EBITDA impact to providers.
What to Watch
Watch for creative accounting gimmicks in the Senate to elude reconciliation requirements that fiscal measures do not contribute to the Federal deficit beyond a ten-year window. House Energy & Commerce and Senate Finance are the key committees with jurisdiction over Medicaid spending.
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Managing Director, Health Care - Facilities & Managed Care Research Analyst, TD Cowen
Managing Director, Health Care - Facilities & Managed Care Research Analyst, TD Cowen
Vice President, Health Care - Health Care Facilities/Providers, Managed Care, and Emerging Payor/Providers Research Analyst, TD Cowen
Vice President, Health Care - Health Care Facilities/Providers, Managed Care, and Emerging Payor/Providers Research Analyst, TD Cowen
Managing Director, Washington Research Group - Health Care Services & Pharmaceutical Policy Analyst, TD Cowen
Managing Director, Washington Research Group - Health Care Services & Pharmaceutical Policy Analyst, TD Cowen
