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Insurers face higher costs, may cut Medicaid coverage

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States struggle with Medicaid work verification protocols

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Medicaid changes could leave 7.8 million uninsured by

2034, CBO

says

By Amina Niasse

NEW YORK, July 14 (Reuters) - President Donald Trump's

spending bill is set to raise administrative costs and make

managing costs more difficult for insurers like UnitedHealthcare

and CVS Health's Aetna that operate Medicaid health plans,

experts say.

As a result, those insurers will likely pull back their

Medicaid coverage and invest more in existing markets to retain

their healthier members, experts said.

States contract with insurers, including UnitedHealth Group's ( UNH )

UnitedHealthcare, CVS Health's ( CVS ) Aetna, Centene ( CNC )

and Molina, to operate Medicaid plans that are

jointly funded by state and federal governments.

Almost all of Molina's and nearly half of Centene's ( CNC )

insurance business is composed of Medicaid members. That portion

is smaller for Aetna and UnitedHealthcare which operate large

commercial businesses.

Seven industry experts say the bill's funding cuts and its

stipulation requiring states to verify patients' work status

deliver a blow to insurers.

The provision in Trump's One Big Beautiful Bill Act requires

low-income adults, in states that have expanded Medicaid

coverage under the Affordable Care Act, to prove every six

months that they meet work requirements in order to maintain

coverage.

State Medicaid departments, grappling with scant operational

teams, will have a difficult time carrying out verification

protocols, five industry experts said.

"The expectation is that states are going to have to be ready by

2026 or 2027, and that's a fast turnaround window," said Nikita

Singareddy, CEO of healthcare platform Fortuna Health.

A spokesperson for Centene ( CNC ) said it would work with federal

and state partners to help patients navigate change.

A spokesperson for CVS Health ( CVS ) declined to comment.

UnitedHealth Group ( UNH ) and Molina did not immediately respond to a

Reuters request for comment.

For insurers, the disruptions could result in more sick people

enrolled in the Medicaid plans they operate on behalf of the

government because those who are more ill are likely to complete

the verification process because they have an immediate need for

healthcare, industry experts and an investor said.

The Congressional Budget Office estimated Medicaid policy

changes in the bill could leave 7.8 million people uninsured by

2034. Mass disenrollments could begin in 2027 on a rolling

basis, according to an expert at a state policy organization.

The White House did not immediately respond to a request for

comment.

States may choose to pay companies operating health plans at

lower rates due to funding cuts, said Eric Levine, a principal

consultant at Avalere Health.

Following the COVID-19 pandemic, insurers have said the

rates they are paid by states have not caught up to actual cost

of care.

Disenrollments of healthy people may exacerbate this

misalignment, leading to inaccurate rates paid to plans and

squeezed profit margins, according to a spokesperson for a

national insurance trade organization and an investor.

'ANOTHER PERIOD OF RETRENCHMENT'

If insurers find the fallout from these changes daunting,

they are likely to exit certain markets or pull back on bidding

or competing for footprints in new areas.

"Insurers will continue to be more cautious about not just

entering any new states, but retrenching just in the states

where they have the highest market share, most scale and more

profitable business," said Jeff Jonas, a portfolio manager at

Gabelli Funds, which owns shares of UnitedHealth Group ( UNH ).

In an effort to keep healthier patients that drive profits

enrolled, insurers may employ plan design changes ahead of the

bill's finalization, adding perks that can make enrollment more

appealing.

This could help insurers retain and attract healthy members,

according to Matt Salo, CEO of Salo Health Strategies and

founding director of the National Association of Medicaid

Directors and two other policy experts.

Hosting volunteer events and job or educational search

services are strategies insurers may use to engage members and

reduce losses, said Levine.

Health plans are also expected to boost transportation

benefits and other social-need benefits for low-income

Americans. Jonas and a spokesperson for a national health

insurer say this programming will boost administrative costs in

the short-term.