Healthcare Leaders: Impact of New Legislation

Executive Summary

Recently passed federal legislation introduces the most significant Medicare Advantage, Medicaid, and ACA changes in decades. These range from increased MA audits to Medicaid funding and eligibility changes - projected to reduce coverage for millions and reshape the payer landscape. Key provisions include tighter income verification, work requirements, reduced provider payment flexibility, and the expiration of ACA premium subsidies. These changes will directly affect Medicaid Managed Care Organizations (MCOs), Medicare Advantage (MA) plans, ACA marketplace carriers, and commercially focused payers serving lower-income populations.

Medicare Advantage

Sequestration Cuts

Beginning in 2026, Medicare will see a 4% budget cut, a projected $500B reduction over eight years. MA plans will feel this in reimbursement compression, constrained benefit design, and tougher negotiations with providers.

Prior Authorization Reform

New mandates require:

Faster turnaround times

Electronic submission systems

Annual transparency reports on denials

Plans using AI to support utilization decisions will face heightened scrutiny from CMS and Congress.

Full-Scope CMS Audits

CMS will now audit all ~550 MA plans annually, not just a sample. This expands exposure to clawbacks from aggressive coding or inflated risk scores.

Part D Reforms

MA plans must integrate the new $2,100 cap on Part D out-of-pocket costs for 2026 (codifying CMS' April guidance). This is a win for consumers, but requires plans to rework cost-sharing and pharmacy contracting strategies.

Medicaid Eligibility & Enrollment Disruptions

• New mandates require semi-annual income redeterminations and work or education verification for adult Medicaid beneficiaries starting in 2027.
• Estimates project 8.7 to 11.8 million individuals may lose Medicaid coverage over the next decade due to these requirements.
• Implication for payers:
• Increased churn and disenrollment will disrupt care continuity.
• Administrative costs tied to re-enrollment support and compliance are expected to rise.
• Risk pool volatility will require careful recalibration of rates and reserves.

Changes to Medicaid Financing Mechanisms

• States will face limits on provider taxes and directed payments - two tools traditionally used to draw down federal match dollars.
• Expansion states, particularly those relying heavily on these mechanisms, may see Medicaid funding drop by 15 - 21%.
• Hospitals, especially rural and safety-net facilities, will see reductions in supplemental Medicaid payments.
• Implication for payers:
• States may scale back or renegotiate MCO contracts due to constrained funding.
• Margin pressure will increase, particularly in rural and high-cost geographies.
• Plan-provider relationships may be strained as providers push back on rate reductions.

Marketplace Coverage Impact

• Enhanced ACA premium subsidies, originally expanded in 2021, are set to expire in 2026.
• Without intervention, premiums will rise substantially for middle and lower-income Americans not eligible for Medicaid.
• Implication for payers:
• Expect reduced enrollment in ACA marketplace plans and higher risk concentration.
• Commercial carriers will need to prepare for potential coverage gaps and seek to create transitional or limited-benefit plans.
• Marketing and outreach strategies will need to adjust quickly to shifting eligibility rules.

Strategic Considerations for Payers

Challenge > Impact on Plans > Recommended Response

Medicare Audits > Clawbacks, reputational risk > Tighten coding policies and documentation review

Part D cost caps > Margin Compression > Restructure pharmacy costs

Income verification complexity > Heightened disenrollment, loss of continuity > Invest in eligibility navigation tools

Medicaid funding compression > Lower capitation rates, MCO contract renegotiation risks > Renegotiate with flexibility and downside protection

Hospital payment declines > Network instability, increased provider attrition > Strengthen alternative care delivery partnerships

ACA subsidy expiration > Lower exchange participation, higher attrition rates > Create bridge plans, adjust risk scoring models

Administrative and compliance load > Greater demand for documentation and member education > Automate workflows & expand community outreach

Broader System Disruptions to Monitor

• Rural access challenges: Hospitals in several states are already warning of potential service cuts due to projected revenue losses.
• State Medicaid adjustments: As federal match dollars become harder to draw, some states may limit eligibility or benefits beyond federal requirements.
• Emergency room spikes: Coverage loss will likely lead to increased emergency department utilization among previously insured Medicaid populations.
• Uncompensated care increases: Providers may face more non-reimbursed care, adding pressure to already thin margins.

Recommendations for Health Plans

1. Proactively partner with state Medicaid agencies

• Offer solutions to streamline eligibility redeterminations and mitigate member loss.

2. Diversify provider networks

• Expand into urgent care, telehealth, and community-based models to offset potential provider exits.

3. Invest in digital infrastructure

• Prepare for a surge in documentation, verification, and compliance reporting.

4. Develop transitional coverage models

• Bridge the gap for individuals cycling between Medicaid and commercial eligibility with short-term plans.

5. Engage in data-driven advocacy

• Collaborate with state regulators and stakeholders to develop sustainable policy solutions and funding mechanisms.

6. Fill critical leadership gaps

• The headwinds will be strong. Look around the table at your leadership team. If anyone is less than a high-performer, you can't afford to carry their weight in this new environment.

Conclusion

The coming years will bring significant shifts to the payer landscape. Legislative changes to Medicaid eligibility, MA financing structures, and ACA subsidies will require health plans to rethink enrollment strategies, product offerings, and operational resilience. For MCOs and ACA marketplace carriers in particular, now is the time to strengthen administrative agility, deepen provider partnerships, and prepare for a fundamentally leaner and more complex coverage environment.

Please feel free to schedule some time on my calendar if you'd like to discuss any of the above further.

© Steve McGovern and Executive Search Insights, 2025. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Steve McGovern and Executive Search Insights with appropriate and specific direction to the original content.