Two days before the One Big Beautiful Bill Act cleared Congress, the No. 1 insurer in the Affordable Care Act marketplace called in sick.
Centene, an S&P 500 member as well as the nation's largest Medicaid managed care provider, warned that beneficiaries of these programs were ringing up much bigger than expected medical bills. It also revealed that ACA enrollment had taken a surprise turn lower. The ailments sent Centene stock plunging 40% to an eight-year low as analysts slashed earnings estimates by more than half.
Health Care's Big Reversal
But don't blame Trump administration policies for the problems popping up in Medicaid and the individual insurance market known as Obamacare — at least not yet. The health care system is suffering a hangover from the push by President Joe Biden and fellow Democrats to expand coverage without much attention to costs.
While that reduced the ranks of the uninsured, it produced an epidemic of duplicate and possibly fraudulent coverage, further bloating federal deficits. After a coverage free-for-all during the pandemic, Biden finally took steps to verify income eligibility for Medicaid in 2023 and for ACA subsidies starting with 2025 coverage. The effects are now roiling health insurers.
Yet more wrenching health care changes lie ahead — for managed care, for hospitals, for the poor, for the 20 million people who get coverage via the ACA exchanges, and likely even for those who get employer coverage. President Donald Trump's Big Beautiful Bill signals a 180-degree shift in budget priorities. Health care subsidies are out of favor.
Since the ACA marketplace and Medicaid expansion launched in 2014, the two programs have added 1% of GDP to federal health care spending. Over that span, interest payments on the debt have soared by 1.9% of GDP. Now, as budget pressures build, the health care sector is about to get squeezed.
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Big Beautiful Bill To Boost Uninsured
The Big Beautiful Bill would grow the uninsured population by 11.8 million, the Congressional Budget Office estimates. Much depends on how states react. Fewer people will become uninsured if states replace lost federal Medicaid funds.
The CBO estimates that another 5.1 million people could lose coverage due to tighter ACA regulations and the coming expiration of Biden's expanded marketplace subsidies. The overall uninsured population increase of nearly 17 million could wipe out about 40% of ACA coverage gains.
Beyond that, underinsurance — coverage that won't protect the insured from major costs in a health emergency — is set to become a chronic issue as subsidies shrink and ACA marketplace premiums and deductibles jump.
As the ranks of the uninsured and underinsured swell, so too will hospitals' uncompensated costs for emergency care. Medical providers will try to pass on those costs to those who can pay, adding upward pressure on premiums for employer coverage. And for the growing number of employers who want to limit the cost and burden of providing health coverage, the One Big Beautiful Bill Act, or OBBBA, will provide more reasons to do so.
Medical Spending Waste, Fraud And Abuse?
Trump and other GOP leaders have said that the Big Beautiful Bill's $1.2 trillion in cuts to spending on Medicaid and ACA subsidies target waste, fraud and abuse. However, the level of Medicaid cuts sparked fierce intraparty criticism.
North Carolina Sen. Thom Tillis, one of three GOP senators to oppose the bill, warned before the vote that it would cost his state "tens of billions of dollars in lost funding." Painful decisions could follow, he said, "like eliminating Medicaid coverage for hundreds of thousands in the expansion population, and even reducing critical services for those in the traditional Medicaid population."
A week earlier, 16 House Republicans wrote to House Speaker Mike Johnson and Senate Majority Leader John Thune that the bill failed to "give hospitals time to adjust to new budgetary constraints."
The spending cuts are aimed at two Medicaid financing streams that have mushroomed. State-directed payments, which can boost provider reimbursement rates as high as those paid by commercial health insurance, grew from nothing in 2016 to a $110 billion annual run rate in 2024.
GOP budget cutters also had their knives out for state taxes on medical providers. Those aren't taxes in any real sense. The funds are recycled back to the providers via higher payments. Their only purpose is to enlarge the pie of matching federal Medicaid payments. Brian Blase, a first-term Trump economic advisor and president of the Paragon Health Institute, has labeled it "legalized money laundering."
The last time the Government Accountability Office checked — in 2018 — provider taxes funded 17% of state Medicaid payments, up from 7% in 2008.
Yet Republican leaders implicitly conceded that the twin crackdowns could have serious consequences. They established a $50 billion fund to bolster the finances of rural health systems hurt by the bill.
Centene Reality Check
Still, as Centene's June 30 earnings warning implied, the health care programs targeted by the Big Beautiful Bill aren't immune from wasteful and inappropriate spending.
Medicaid managed care member costs are running high for a second year since Biden restored income checks. One likely reason: As workers fell off the Medicaid rolls, the government stopped paying insurers to provide coverage to people who weren't using it.
Millions who lost their jobs and incomes early in the pandemic got a free ride from Medicaid even after they regained employment — and employer coverage. CBO estimates that the number of people with multiple sources of coverage more than doubled to 29 million between 2019 and 2023, before falling back to 21 million last year. Still, the Centers for Medicare and Medicaid Services (CMS) said Thursday that 1.6 million people simultaneously had Medicaid and ACA coverage in 2024. Another 1.2 million had Medicaid coverage in two states.
The big surprise from Centene was that higher costs and falling enrollment also are plaguing ACA markets. Yet it shouldn't have been a shock. Jefferies analyst David Windley predicted in February that the 24.2 million enrollees at the start of 2025 "could easily fall" below 20 million as the year progressed. The biggest reason: The restoration of income verification.
The first steps to deny marketplace coverage hit on May 1, affecting those who had failed for two straight years to file the IRS form reconciling their income with the subsidy received.
Windley also highlighted the Biden administration's crackdown on insurance brokers raking in commissions for zero-premium-plan sign-ups done without customers' knowledge. Last October, CMS said it had received 183,000 consumer complaints in 2024 about unauthorized enrollments. In response, CMS suspended 850 insurance brokers and agents from ACA marketplace activity.
The ACA's Fraud Incentive
ACA's income-based subsidies provide a big incentive to misstate income. A 35-year-old earning $31,000 (206% of the poverty level) in Dallas County pays $944 this year for silver coverage that could leave them on the hook for up to $9,100 in co-pays. Someone earning $22,000 (146% of the poverty level) gets a zero-premium plan with a maximum $1,800 out of pocket.
The biggest incentive to misstate income belongs to those who earn too much for Medicaid but too little to qualify for Obamacare subsidies. The Medicaid gap only exists in the 10 states that didn't sign onto the ACA expansion, which provides Medicaid for people earning up to 138% of the poverty level.
In Texas, parents who have children and earn above 16% of the poverty line can't get Medicaid, according to the Center on Budget and Policy Priorities. But they need to earn at least 100% of the poverty level to get ACA subsidies.
Paragon Health, which helped craft the Trump administration's ACA regulations, estimates that 6.4 million marketplace enrollees this year — more than one in four — inaccurately claimed incomes between 100% and 150% of the poverty level. The problem is especially acute in the 10 non-expansion states, which accounted for more than half of total enrollment.
Tougher Rules For Obamacare Coverage
While steps that were taken in 2024 to deter improper subsidy payments are causing upheaval in the ACA marketplace, regulations promulgated by the Trump administration and codified in the OBBBA significantly raise the bar.
The Big Beautiful Bill lets the IRS collect the full amount of excess subsidies, removing a cap on repayments. CBO estimates that will save the government $20 billion over 10 years.
ACA enrollees who didn't file tax returns proving their income is at least 100% of the poverty threshold will no longer have coverage take effect until they provide proof.
Medicaid Work Requirement
The 40 states plus D.C. participating in the Medicaid expansion will have to check income eligibility every six months and make sure that plan members comply with the OBBBA's required 80 hours per month of work, job training or community service. CBO has said the community engagement rule, which applies to single people and parents with children over age 13, will cut Medicaid spending by $325 billion over 10 years as 5.2 million lose coverage.
KFF, formerly the Kaiser Family Foundation, says nearly two-thirds of single Medicaid beneficiaries worked in 2023. Among the rest, nearly 30% attended school, had caregiving responsibilities or had a disability or illness. Those are all pathways for remaining eligible. Yet many "Medicaid enrollees who would remain eligible would be at risk of losing coverage because of the administrative burden and red tape," KFF said.
James Capretta, Milton Friedman Chair at the American Enterprise Institute, wrote in The Dispatch that when Medicaid work requirements were tested in Arkansas under the first Trump administration, the policy "failed to deliver any tangible positive results, and certainly did not justify the high administrative costs."
Capretta, who served in the George W. Bush administration's Office of Management and Budget, also highlighted the downside of the coverage losses. He cited a "major study finding that the Medicaid expansion reduced the mortality risk of the newly eligible by 21%."
Capretta told Investor's Business Daily that the Big Beautiful Bill shouldn't be mistaken for health care reform. "The GOP bill is aimed at lessening the number of people who receive subsidization for enrollment in health insurance, which will lower federal costs but won't address the underlying problem of high premiums for coverage."
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Hospitals Squeezed On Multiple Fronts
Peeling back state-directed payments is estimated to save $149 billion, gradually reducing Medicaid reimbursement rates in the 40 expansion states to 100% of Medicare rates. A Manatt Health analysis indicates that Medicare rates are "often a half or even a third of average commercial rates." The GOP policy "hits hospitals, pediatric providers, and rural providers particularly hard" because a relatively high share of their patients are on Medicaid.
At the same time, the Trump budget cuts $191 billion in spending by limiting state taxes on medical providers.
The Trump budget cuts $155 billion in rural area Medicaid spending, dwarfing the $50 billion rural health fund, a KFF analysis found. Twelve states with large rural populations that expanded Medicaid would each see cuts in excess of $5 billion. Kentucky alone will lose $12 billion.
Rural hospitals were already in tough shape. Rand data indicates that 39% of all hospitals had negative operating margins in 2023, including 44% in rural areas.
Hospitals in non-expansion states will take a hit from the drop in ACA enrollment, which accounts for 4% to 10% of revenue, JPMorgan analyst Benjamin Rossi and colleagues wrote in a July 15 note. They added that ACA reimbursement rates, which typically fall between Medicare and commercial rates, "serve as a favorable tail wind" for HCA Healthcare, Tenet Healthcare and Universal Health Systems.
ACA Subsidies Expiring, Premiums Rising
One of the biggest coming health care changes isn't in the Trump budget. ACA exchange enrollment more than doubled from 2020 to 2025 after Democrats boosted premium subsidies. But the extra subsidies expire at year-end. There's no indication that Republicans will renew them, at a 10-year cost of around $325 billion.
The enhanced subsidies made comprehensive coverage free for those earning up to 150% of the poverty level. They'll still be in line for free coverage in 2026, but only bronze coverage. That will provide limited benefits until $10,600 in out-of-pocket costs are paid.
For low-earners with chronic conditions who can't get by with a high deductible, silver-plan costs will jump by about $800 a year per person, or 3.6% of income. That's according to a KFF calculator.
Costs escalate up the income scale. Single $35,000-a-year earners will see silver plan costs roughly double to $2,400 as enhanced subsidies end. Previously free high-deductible bronze coverage would cost a single 40-year-old $1,000.
Those earning just above 400% of the poverty level — the ACA subsidy cutoff in 2026 — face the biggest shock. A 55-year-old earning a bit over $60,000 would have seen their annual premium jump by $5,250 this year, more than doubling to $10,400.
Yet 2026's actual increases could be worse. Centene and other insurers have signaled plans to boost premiums because of this year's cost surprises and a likely exodus of relatively healthy customers squeezed by lost subsidies.
When the Trump administration published its final 2026 ACA marketplace regulations last month, CMS estimated that they would reduce premiums by 5%. But early ACA rate filings tracked by Georgetown University's Center on Health Insurance Reforms, which include the impact of subsidy expiration, show the average unsubsidized premium is set to rise 17.1% in Maryland, 21.2% in Washington and 23.7% in Rhode Island.
The big cost increases looming for higher earners could fall heavily on small business owners. Some 4.2 million small-business owners and self-employed workers had Obamacare, a 2024 Treasury Department report estimated.
The Future Of Health Care?
While ACA marketplace affordability is about to take a big hit in 2026, the Trump budget's impact on employer-sponsored health insurance premiums will likely come over time. As Medicaid cuts phase in and the ranks of the uninsured mount, costs likely will be pushed onto paying customers.
The trend of employers shifting costs to workers and narrowing their plans' choice of medical providers is likely to continue. But so might another newer trend set in motion by Trump's first-term regulation creating Individual Coverage Health Reimbursement Arrangements, or ICHRAs.
Centene CEO Sarah London has called ICHRAs "the future of health care coverage for individuals and families." Essentially, they allow employers to meet their coverage mandate by providing tax-free funds to help cover ACA premiums.
Bronze coverage meets employer obligations to offer affordable coverage. The Big Beautiful Bill just created another reason for firms to sign up. It made bronze plans eligible for Health Savings Accounts that let people amass savings for future health needs tax-free.
But with premiums set to spike, now may not be the perfect time to shift workers to the ACA marketplace.
