🏥 Medicaid Madness

Centene, Molina, and healthcare implications from the Big Beautiful Bill passage

Happy Tuesday, Hospitalogists!   Lots to cover from Centene, Molina, and the One Big Beautiful Bill on my Very Awesome Healthcare Business Newsletter.   Let's dive in! Was this email forwarded to you? Subscribe Here BIG HEALTHCARE STORIES The most important news from the week Medicaid Marketplace Madness Centene and Molina each dropped big news this week that sent stakeholders scrambling and raised alarm bells about the managed care sector's near-term health. Starting with Centene it's safe to say their earnings call prep just got a whole lot messier. Not only is overall marketplace growth lower than expected, but Centene significantly misread the health status of its ACA population leading to a $1.8B hole in risk adjustment transfers that now won't materialize, and shaving about $2.75 off their EPS for 2025. Centene's now scrambling to re-file their 2026 rates to reflect a far less healthy ACA risk pool, translating to premium hikes as a course correction.   Then there's Molina, whose Q2 preview released Monday fell similarly in line. Molina's EPS is coming in at around $5.50, modestly below expectations, thanks to elevated medical cost trends across its service lines. In its release, Centene specifically called out behavioral health, home health, and high-cost specialty drugs as the main culprits of elevated cost trend on the Medicaid side of things. CEO Joe Zubretsky tactfully described the situation as a "temporary dislocation" between premium pricing and escalating medical costs, which is industry-speak for "we're getting squeezed and didn't see it coming fast enough."   Drilling down, Centene's issues are multi‑faceted: Medicaid redeterminations are set to knock millions of members out of coverage. Medicare Advantage profitability sits at a decade‑low thanks to aggressive CMS benchmark cuts and ballooning utilization (but the business to date is its best performing segment relatively speaking). Marketplace subsidies face political risk after 2025, raising the ceiling on future churn. More on this in a sec. Now add the company‑specific gut punch revealed last week: management over‑estimated ACA membership growth and wildly under‑estimated morbidity, leading to an $1.8 B shortfall in risk‑adjustment revenue. The debacle triggered the largest one‑day sell‑off in Centene's history. Centene isn't alone, either. As mentioned, Molina's warning this week shows the problem goes beyond one player. Even a specialized, Medicaid‑first carrier is feeling cost pressure across all three product lines and is guiding to the bottom of its long‑term margin range. And let's not forget about UnitedHealth, then the rebase happening with Humana and CVS.   Big picture: Regulatory headwinds (see below), mispriced risk, and sour public perception (AI denials, abysmal NPS) are colliding at the worst possible time for managed care. These businesses - even at scale - live on razor‑thin net margins. Any sustained mismatch between premium rates and trend forces an immediate reset - usually by raising premiums, trimming benefits, or exiting markets in the following year. Managed care's decade‑long victory lap is officially over. 2025 is shaping up as the year the sector relearns that underwriting discipline - and maybe a touch of humility - still matters. Passage of Big Beautiful Bill Bludgeons Healthcare with Biggest Funding Cut in History Implications of the one big beautiful bill's passage are massive for healthcare. The bill plans to cut funding - across federal and state sources - to Medicaid by $1.2 trillion+ (yes, with a T) over the next 10 years leading to 8.7M reduced enrollees (1 in 10 current Medicaid enrollees). This Manatt analysis is a nice overview of more specific provisions.   Grant Hesser had a great overview of Medicaid ramifications of this bill on payors and providers. And here's a quick TL;DR: Unprecedented Medicaid cuts across the board. Millions - 8.7M per Manatt - expected to disenroll (work requirements, eligibility, provider tax cut, federal match reduction) leading to fewer enrollees for managed care players and likely cuts to benefits for their members Cuts to the provider tax - worse in states that have expanded Medicaid "The taxes have been criticized as a gimmick that exploits federal taxpayers without requiring states to put any skin in the game. President Obama twice proposed clamping down on provider taxes, including in his 2013 budget, which would have reduced the maximum rate to 3.5%." - WSJ The most interesting part of all of this is the BBB's effect on red and purple states as it pertains to healthcare coverage. Longer-term political effects remain to be seen but I distinctly remember industry stakeholders not thinking the current administration would hit its own base: "On a percentage basis, red and purple expansion states will be hit hardest since many of them tend to rely heavily on provider taxes" - WSJ Higher uncompensated care costs, worse payor mix Cascading effect on Medicaid MCOs → lower provider reimbursement, fewer benefits Supplemental payment caps and reform "States that have expanded their Medicaid programs under Obamacare to include more low-income adults would have state-directed payment rates capped at 100% of Medicare rates; states that haven't adopted expansion would be capped at 110% of Medicare rates. The change will reduce federal spending by $149.4 billion over a decade, according to a CBO analysis." WSJ No talk of extending the enhanced ACA subsidies leading to further potential payor mix deterioration for providers (if you've seen something different give me a shout), a projected 5M+ decrease in marketplace enrollees sure to shift risk pools. $50B rural health transformation relief fund Cut down on fraud, waste, and abuse according to the White House "…there will be no cuts to Medicaid. The One Big Beautiful Bill protects and strengthens Medicaid for those who rely on it—pregnant women, children, seniors, people with disabilities, and low-income families—while eliminating waste, fraud, and abuse. The One Big Beautiful Bill removes illegal aliens, enforces work requirements, and protects Medicaid for the truly vulnerable." Big Picture: In the same year that major Medicaid / marketplace players including Molina and Centene are hemorrhaging value, UnitedHealth Group dropped its worst quarterly performance ever, and players like CVS and Humana are looking for a rebound, the largest Medicaid cut in history gets passed, and ACA commercial enrollment is expected to drop to boot. I'm not sure I'm smart enough to connect all of these dots! TOP READS & RESOURCES My favorite reads & resources from the week Ben Schwartz, Nick Aubin and I talked healthcare shop across a wide array of topics including health system transformation, longevity, and more! Check it out here. A better way to organize and leverage your managed care contracts so you can negotiate smarter: Clear Contracts from Turquoise Health.* Rock Health's 1H 2025 digital health market and funding overview: $6.4B through the first 6 months of 2025, heavily slated toward AI-first companies. *Sponsored, so that means you should click it and connect with Turquoise to help ya boy out MISCELLANEOUS MADDENINGS Random personal anecdotes and musings from me CFB 26 is live! Drop your gamertag if you want the smoke.   Also, I'm really enjoying Wimbledon this year. Let's go, Shelton & Fritz. Thanks for the read! Let me know what you thought by replying back to this email.   — Blake   Share Hospitalogy, Earn Rewards Have friends who'd love Hospitalogy too? Click the link below to share Hospitalogy with your friends and earn awesome rewards! PS: You have referred 0 people so far Share Hospitalogy! Get your brand in front of 44,000+ executives and healthcare decision-makers. Let's Partner → 🏥 Hospitalogy Membership I'm building a community of leaders in strategy, finance, and ops at hospitals and health systems to help us connect, learn, and grow together. Join the movement here. Workweek Media Inc.  1023 Springdale Road, STE 9E Austin, TX 78721   Want to ruin my day? Unsubscribe.