Last week, the Trump administration and Congress proposed spending cuts that if enacted are likely to affect federally funded health insurance programs such as Medicaid and the Affordable Care Act (ACA). These cuts could disrupt cash flow for already vulnerable health care providers, bringing their financial problems into sharper focus as government payor programs face budget reductions.
This may lead to increased rates of insolvency among health care institutions, particularly those that rely heavily on reimbursement from such programs. And that could result in an increase in bankruptcy filings in the industry over the coming year.
House Seeks $880 Million in Cuts From Committee Overseeing Medicare and Medicaid
On Feb. 12, 2025, House Republicans requested that the Committee on Energy and Commerce “submit changes in laws within its jurisdiction to reduce the deficit by not less than $880,000,000 for the period of fiscal years 2025 through 2034.” The proposal is due by March 27, 2025.
The request did not name specific programs. According to Becker’s Healthcare, Medicare and Medicaid are “by far” the largest programs under the Committee’s jurisdiction. The Trump administration has said that Medicare cuts are off the table but has not ruled out cuts to Medicaid and ACA subsidies.
Some CMS Employees Let Go by Department of Government Efficiency
On Feb. 13, 2025, the Trump administration ordered the Department of Health and Human Services, which oversees the Centers for Medicare and Medicaid Services (CMS), to cut nearly all of its 5,200 probationary employees. The Trump administration said Friday that 3,600 employees were fired, and that CMS employees would not be included in the cuts. However, subsequent news reports suggest at least some CMS employees were terminated. While the full scope of these initial cuts remains unclear, material reductions in CMS staff could have wide-ranging impacts on providers, including delays in processing claims and payments.
ACA Navigator Program Funding Reduced by 90%
On Feb. 14, 2025, CMS announced a reduction in funding for the ACA Navigator program to $10 million. The program received $98 million in the 2024 plan year. Navigators help enroll individuals in ACA coverage, conduct public education and outreach, and provide Medicaid and employer coverage information for low-income populations. If fewer patients are enrolled in Medicaid, health care providers are likely to experience higher rates of unreimbursed care.
How Cuts Could Impact Health Care Providers
A health care provider’s reliance on government payor reimbursement, particularly Medicaid, is a predictor of financial distress. Providers that rely heavily on government payor reimbursement remain at serious risk of financial distress in 2025. This is often due to the growing chasm between the slow pace of reimbursement increases and the rapid pace of inflation, particularly over the past several years; increases in reimbursement denials; and other rate impacts from certain policies like sequestration.
The Trump administration’s plans to further reduce funding of federally funded health insurance programs may deepen the impact of these ongoing issues for distressed providers. Rick Pollack, President and CEO of the American Hospital Association, “urge[d] Congress to take seriously the impact of reductions in healthcare programs, particularly Medicaid.”
A recent report on rural health care providers published before last week’s activity by health care consulting firm, The Chartis Group, LLC, cautioned that, “[f]or rural providers operating on razor-thin margins, shifts in revenue — even if temporary — can have a disproportionate impact in rural settings where Medicare insurance is typically the largest healthcare payer.”
Follow our InSolvency blog for further updates regarding the impact on health care providers of potential cuts to federal health care reimbursement and insurance enrollment programs.