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House Committees Consider Policies to Meet Budget Reconciliation Instructions

This week, key committees in the House of Representatives released recommendations for legislative language that meets their federal savings and spending targets required in the fiscal year (FY) 2025 budget resolution. On May 11, 2025, the House Energy and Commerce Committee released legislation—and subsequently a substitute amendment—that contains several substantive Medicaid proposals designed to address eligibility and enrollment; financing; fraud waste, and abuse; and to institute mandatory work and community engagement requirements and cost sharing. The Committee completed its markup on May 14, 2025, voting to approve the provisions in the substitute amendment.

The release of text and committee markups are key steps in Congress’s budget reconciliation process; however, proposals may change during Senate proceedings.

Health Management Associates (HMA), and Leavitt Partners, an HMA company, are tracking these developments and analyzing the extensive health and health-related legislative text, including the Medicaid, Medicare, and Affordable Care Act (ACA) Marketplace proposals. Below, we review the status of congressional efforts and key policies.

Background

The budget reconciliation process is a powerful tool for enacting significant fiscal policy changes, as it allows for expedited consideration and passage of budget-related legislation. It has been used in the past to enact major tax reforms, healthcare legislation, and other important budgetary measures.

In 2025, Congress has been actively working to develop its budget bills through a series of steps. The House adopted a budget resolution on February 25, 2025, which sets the framework for federal spending, revenue, and the debt limit for fiscal year 2025 and outlines budgetary levels for the following years through 2034. The Senate passed an amended version of the budget resolution on April 5, 2025. The Senate’s amendments included reconciliation instructions that require $4 billion in gross deficit reductions and allow a $5.8 trillion net deficit increase. On April 10, 2025, the House agreed to the Senate’s amendments with a vote of 216−214. This agreement set the stage for the development of a reconciliation bill.

House Energy and Commerce Markup

On May 14, 2025, the House Committee on Energy and Commerce completed its second day of marking up legislative language to comply with the Concurrent Resolution on the Budget for Fiscal Year 2025, voting to advance the proposals out of committee. The committee’s proposal excluded certain significant structural reforms that had generated concern among some members and stakeholders, such as broad reductions in the federal matching rate (enhanced federal matching assistance percentage (FMAP)) for Medicaid expansion populations, per-capita caps on federal Medicaid cost growth, or reductions in the safe harbor threshold for state Medicaid provider taxes. The proposal does, however, contain more than a dozen provisions that would reduce federal health care spending by $715 billion with the funding reductions mostly focused on Medicaid, which the Congressional Budget Office projects will reduce the federal share of Medicaid spending, including:

Adding mandatory work and community engagement requirements for individuals ages 19−64 without dependents, subject to exceptions for pregnant women, people who are medically frail, people with disabilities, people in compliance with other government program work requirements, people living in areas experiencing a temporary hardship, and other individuals
Adding cost sharing for beneficiaries in the expansion population who earn more than 100 percent of the Federal Poverty Level, not to exceed $35 per item or service
Pausing implementation of several final rules published during the Biden Administration, including: the final rule published September 21, 2023, “Streamlining Medicaid; Medicare Savings Program Eligibility Determination and Enrollment”; the April 2, 2024 rule, “Streamlining the Medicaid, Children’s Health Insurance Program, and Basic Health Program Application, Eligibility Determination, Enrollment, and Renewal Processes”; and the May 10, 2024, final rule, “Minimum Staffing Standards for Long Term Care Facilities and Medicaid Institutional Payment Transparency Reporting”
Adding provider screening requirements
Increasing frequency of eligibility redeterminations for certain individuals and adding enrollee address verification policies
Reducing expansion FMAP for certain states that provide Medicaid coverage to undocumented individuals and families, regardless of the source of funding
Preventing certain spread pricing arrangements in Medicaid between states and pharmacy benefit managers
Restricting funding for certain essential community providers that furnish family planning services, reproductive health, and related healthcare services
Ending a temporary increased FMAP to new states adopting Medicaid expansion, revising policies governing the use of Medicaid provider taxes, and payment limits for state directed payments

Committee Markups

Various other House committees have begun holding markups for the reconciliation package. The Committee on Ways and Means conducted its markup on May 13, 2025, to discuss its portion of the reconciliation bill, which involves $4.5 trillion in deficit increases. The initial Ways and Means proposal did not include many significant healthcare proposals, but on May 12, 2025, the committee released a substitute amendment that includes several changes that would affect private insurance coverage and Medicare. Key provisions include:

Changes to Medicare and ACA premium tax credit (PTC) eligibility requirements related to immigration status
Improvements to ACA PTC eligibility verification checks
Changes to Health Savings Account flexibilities
Codification and renaming of individual coverage health reimbursement accounts, which serve as a defined contribution that employees can use to purchase insurance in the individual market

Other committees, such as the Education and Workforce, Judiciary, Armed Services, and Homeland Security Committees, also have conducted markups and approved their respective portions of the reconciliation bill.

Connect With Us

These steps are part of the ongoing process to finalize the budget and reconciliation legislation for FY 2025. Our federal policy experts with Leavitt Partners and across HMA are monitoring the legislative policies and ongoing negotiations in Congress and with the administration. They work with healthcare organizations and industry to plan for the range of scenarios and policies Congress is debating.

For more information about the impact of these policies, contact our featured federal policy experts below.

HMA helps support Section 1115 Demonstration initiatives across the country

Section 1115(a) demonstrations, informally known as 1115 waivers, are experimental, pilot, or demonstration projects that give states flexibility to design, test, and evaluate state-specific approaches to improve their healthcare programs and better serve eligible populations.

Approved by the Centers for Medicare & Medicaid Services (CMS), 1115 demonstrations provide alternative options to provide access, coverage, financing, and delivery of services under the joint federal-state funded programs Medicaid and the Children’s Health Insurance Program (CHIP). Across multiple administrations, HMA has helped states write, design, implement and evaluate their 1115 demonstrations aimed at improving program and population health outcomes. Stakeholders need to optimize their role in shaping and implementing 1115 initiatives with practical solutions and effective engagement strategies with states.

Medicaid and CHIP 1115 demonstrations allow states—and their stakeholders—to test new innovations to improve the health of enrollees and advance program efficiencies. These demonstrations require careful planning, political savvy, policy knowledge, and ongoing support through the application, approval, and implementation phases. In today’s environment, 1115 programs must be responsive to the policy priorities at the federal level and grounded in solutions that work in the state. Stakeholders need aligned engagement strategies and communications plans to achieve shared goals, including monitoring that drives continuous improvements after implementation.

HMA consultants bring extensive real-world and leadership expertise from decades of working with states and federal agencies prior to joining HMA. We offer the range of services and support needed to advance 1115 programs, including:

Strengthening healthcare safety net sustainability through financial and operational supports

Developing solutions for complex patient populations such as individuals who are justice-involved or have extensive behavioral needs including substance use disorder

Designing coverage strategies for critical social needs, such as community reintegration of vulnerable populations such as the justice involved, including when these require collaboration with agencies and programs beyond Medicaid

Supporting states in meaningful stakeholder engagement efforts, provider training and guidance, and other activities necessary for successful program implementation

Working with managed care organizations, health plans, providers, and other stakeholders to apply our expertise in implementing 1115 demonstrations

HOW HMA CAN HELP

Providing strategic and operational support to design demonstration programs
With several former state Medicaid directors and former CMS officials on staff, HMA helps states design successful new interventions to address the unique needs of their populations and ensures proposals meet CMS’ approval requirements and expectations, including aligning 1115 interventions with evolving federal priorities and objectives for the program. With HMA, states and stakeholders gain valuable insights on strategic engagement and partnerships.

Developing applications for 1115 demonstration proposals
HMA has supported a variety of 1115 initiatives in several states, including developing proposals for new, continuing, and amended 1115 demonstration programs. HMA consultants bring decades of experience in 1115 program design that covers all of the components critical to developing and operating 1115 programs – policy, actuarial and budgeting, operations, communications, project management, and IT.

Supporting federal negotiations for approval of state 1115 demonstration proposals
HMA helps states navigate the federal processes to secure approval for their 1115 initiatives. In many cases, HMA joins in active negotiations with the state agency to support federal negotiations. HMA has unique insight into federal approval parameters with former CMS officials.

Operational Support
We help stakeholders—including state agencies and their partners—manage the challenges of implementing new Medicaid or CHIP initiatives, with a focus on ensuring efficient integration and improvements in outcomes.

Evaluation and Assessment of section 1115 demonstrations
Federal regulations require evaluation of CMS-approved 1115 programs. HMA designs and conducts evaluation reports that meet federal requirements, such as hypotheses, data sources, and comparison strategies. HMA’s work on evaluation designs and evaluation reports has been held out by CMS as best practice models to other states for evaluating new policy interventions as well as for ongoing monitoring activities.

Developing materials for and supporting stakeholder engagement from design to implementation.
HMA works closely with states and their partners to engage stakeholders early in the 1115 process to ensure that communities and local organizations are involved in the planning and implementation of 1115 programs.

Project Spotlights

Behavioral Health Section 1115 Demonstrations

HMA has supported approved section 1115 demonstration programs testing new strategies for addressing substance use disorder (SUD), serious mental illness (SMI), and/or serious emotional disturbance (SED) through new flexibilities around the federal institution for mental disease (IMD) exclusion in seven states (Alabama, Colorado, Delaware, Indiana, Missouri, Ohio, and Oklahoma). In addition to initial and extension application support, HMA teams also support the evaluation and financial modeling components of 1115 demonstration development. In the last four years, we have delivered six evaluation designs, two midpoint progress assessments, two interim evaluations, and two summative evaluations approved by CMS. In general, HMA’s approved evaluation design plans use multiple evaluation methods, including a mixed-methods approach, drawing from various data sources, measures, and analytics, including quasi-experimental methods, to produce relevant and actionable study findings to conduct analyses. Additional 1115 demonstration program development activities include completing budget neutrality estimates and rate setting for new interventions proposed under demonstrations.

California (CalAIM) Justice-Involved Reentry Initiative

California is the first state in the nation to receive approval from CMS to provide detained and sentenced individuals with 90-day pre-release healthcare services and behavioral health linkages. HMA helps clients build administrative capacity, information technology, pre-release services, care management models, and Medicaid claiming infrastructure to meet their unique needs and leverage this significant state-federal demonstration opportunity. Our planning and implementation support spans the breadth of the CalAIM Justice-Involved Initiative including: the pre-release Medicaid application process, 90-day pre-release services, behavioral health links, Enhanced Care Management (ECM), and Community Supports services. In addition to California, HMA supported other states, such as Illinois and Maryland, with the design, approval, and/or implementation of justice-involved demonstrations approved by CMS. Learn more about CalAIM Justice-Involved Reentry Initiative Planning and Implementation Services.

Alternative Medicaid Coverage Section 1115 Demonstrations

HMA has supported multiple states in developing alternate approaches to Medicaid eligibility and enrollment tailored to their unique policy goals. For example, our consultants have worked with the Indiana Family and Social Services Administration on the program design, approval, and implementation of the Healthy Indiana Plan (HIP), Indiana’s alternative Medicaid expansion demonstration program. We also supported the Iowa Department of Health and Human services in developing the Iowa Health and Wellness Plan (IHAWP) 1115 demonstration which provides an alternative benefit design to traditional Medicaid expansion. HMA also supported the Kentucky Cabinet for Health & Family Services (CHFS) with a variety of services related to its section 1115 demonstration, Kentucky HEALTH, the first community engagement program in the nation approved by CMS.

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State Medicaid Non-Emergency Medical Transportation Contracts: Key Provisions, Standards, and Considerations

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Federal statute requires states to provide non-emergency medical transportation (NEMT) to Medicaid beneficiaries who have no other means of getting to medically necessary healthcare facilities. Though NEMT programs must meet certain federal requirements, states have considerable flexibility in the design and operation of their NEMT program. As a result, states vary widely in their NEMT procurement and contract standards, metrics, reporting, and enforcement of requirements for NEMT brokers, MCOs, and transportation providers. Health Management Associates, Inc. (HMA), examined NEMT-related requests for proposals (RFPs) and contracts for five states and interviewed state Medicaid officials, transportation brokers and providers, MCOs, advocates, and subject matter experts (SMEs). The goal was to synthesize the information gathered to help inform states and other stakeholders about key NEMT standards, challenges and successes, and considerations for developing RFPs and contracts.

Download the toolkit and the report.

HHS Begins Reorganization: Actions Focus on Efficiency, Establishment of Administration for a Healthy America

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On March 27, 2025, the US Department of Health and Human Services (HHS) Secretary Robert F. Kennedy, Jr. announced significant changes in the department with respect to staffing and organizational restructuring. This reorganization is consistent with President Trump’s February 11, 2025, Executive Order (EO) 14210, “Implementing the President’s Department of Government Efficiency Workforce Optimization Initiative.”

HHS is moving rapidly to implement its plans. On April 1, 2025, HHS initiated actions to reduce the federal workforce across the agencies and remake the department. In addition, the Senate is expected to vote on a budget resolution this week, which could have significant impacts on federal healthcare spending, including for the Medicaid and Medicare programs.

In the coming weeks and months, HHS intends to make additional announcements about how the department will be restructured. It will be critical that healthcare organizations and stakeholders track these developments closely. Organizations seeking to participate in the development of new federal policies and initiatives must know which offices within HHS will maintain authority over key policy areas. Further, to adapt to changes in funding and policies, it is vital that healthcare leaders remain informed.

Because many changes have already begun, the remainder of this article explains what is known to date about the HHS restructuring and other developments and actions relevant to providers, life sciences firms, insurers, safety net clinics, state and local agencies, and other interested stakeholders. This information can help stakeholders consider how best to proceed.

The Reorganization Plan

EO 14210 required agencies to develop reorganization plans and submit them to the Director of the Office of Management and Budget within 30 days and to “promptly undertake preparations to initiate large-scale reductions in force.” The broader HHS reorganization plan seeks to implement a new departmental focus on “ending America’s epidemic of chronic illness by focusing on safe, wholesome food, clean water, and the elimination of environmental toxins.”

The reorganization calls for the following:

Consolidating the 28 HHS divisions into 15
Reducing the HHS regional offices from 10 to five
Centralizing the human resources, information technology, procurement, external affairs, and policy functions of the department
Reducing the full-time staff at HHS by 10,000

When combined with other efforts, including early retirement and pre-reduction in force (RIF), HHS’s staffing levels of 82,000 full-time will be reduced to 62,000. The announcement listed specific workforce reduction plans for the Food and Drug Administration (FDA), the Centers for Disease Control and Prevention (CDC), the National Institutes of Health, and the Centers for Medicare & Medicaid Services (CMS).

Following the March 27 announcement, additional details regarding the restructuring have continued to emerge, including:

The Biomedical Advanced Research and Development Authority (BARDA) reportedly will be combined with Advanced Research Projects Agency for Health (ARPA-H) under a new Office of Healthy Futures.
The Administration for Strategic Preparedness and Response (ASPR) will be reorganized as a part of CDC.
Programs currently under the Administration for Community Living (ACL) are slated to be reassigned to other agencies; for example, programs that support older adults and people with disabilities will move to the Administration for Children and Families (ACF), Assistant Secretary for Planning and Evaluation (ASPE), and CMS.

HHS Plans for New Agencies that Mirror Policy Priorities

The reorganization includes the establishment of a new Administration for a Healthy America (AHA), which will combine the following offices and agencies:

Office of the Assistant Secretary for Health, which includes the Office of the Surgeon General, the Office of Women’s Health, and several programs focused on health promotion, chronic disease prevention, and vaccines
Health Resources and Services Administration (HRSA)
Substance Abuse and Mental Health Services Administration (SAMHSA)
Agency for Toxic Substances and Disease Registry (ATSDR)
National Institute for Occupational Safety and Health (NIOSH)

According to HHS, the changes are intended to “improve coordination of health resources for low-income Americans and will focus on areas including, Primary Care, Maternal and Child Health, Mental Health, Environmental Health, HIV/AIDS, and Workforce development.” The department also noted that transfer of SAMHSA to the new AHA will “break down artificial divisions between similar programs” and improve operational efficiency.

HHS also intends to establish a new Assistant Secretary for Enforcement position, which will be responsible for leading efforts to address waste, fraud, and abuse at the Departmental Appeals Board, Office of Medicare Hearings and Appeal, and the Office for Civil Rights.

HHS will merge the ASPE and Agency for Healthcare Research and Quality (AHRQ) to establish a new Office of Strategy. The new office will support research “that informs the Secretary’s policies and evaluates the effectiveness of federal health programs.” This office will also include some of the “critical programs that support older adults and people with disabilities” that are currently within the Administration for Community Living.

Developments on Workforce Reduction Plans

On April 1, 2025, HHS began issuing formal termination notices to a significant number of federal employees across several agencies, including the FDA, SAMHSA, and CDC. The workforce actions reportedly include a full dissolution of some offices, for example, SAMHSA’s Office of the Director for Centers for Mental Health Services, Office of Behavioral Health Equity, The Policy Lab, among others, and CMS’s Medicare Medicaid Coordination Office.

What’s Next

In the coming weeks HHS will put in place a structure for the new AHA and other planned new entities. Many questions remain about the impact on specific agencies and authorities as well as reassignment of responsibilities for programs and functions that were carried about by affected federal employees and offices.

Congressional committees are seeking additional information about the HHS restructuring. The US Senate Committee on Health, Education, Labor, and Pensions (HELP) requested that Secretary Kennedy testify at a hearing on April 10, 2025, to discuss the proposed reorganization plan. Providers, health centers, life sciences firms, insurers, health systems, state and local agencies and other healthcare stakeholders and partners should take steps to work through challenges and avail themselves of opportunities to strengthen healthcare systems and improve health. Examples include:

Identify the HHS agencies and offices that are now responsible for policies and procedures that impact your business.
Establish a plan for tracking developments—including litigation—and processes to brief key organizational leaders and act on information, when needed. Healthcare providers, insurers, community groups, and state and local governments will benefit from information as it becomes available regarding changes to agencies and their portfolios and decision makers for policies governing Medicare, Medicaid, child-specific programs, aging and disability programs, mental health and substance use programs, among many others.
Immediately assess current federal discretionary funding and reimbursement policies that may be at risk for your organization, your key partners, and collaborators. Consider potential impact of the policy changes that Congress is separately negotiating, which would significantly affect Medicare and Medicaid. Identify changes that may minimize risk for your organization and position it to engage in new initiatives.
Familiarize your organization with federal oversight and enforcement priorities and incorporate flexibility into compliance plans. Identify opportunities to mitigate vulnerabilities going forward.
Engage now—with your community, your peers, and other experts—to identify opportunities for improvement and plan to build out the strategy, infrastructure and funding to support this work. Think creatively, act decisively.

Connect with Us

Health Management Associates, Inc., experts know the federal landscape and have an intimate knowledge of the dynamics in states and communities. Our policy team is working with clients to help them understand what is happening within HHS and Congress that is ushering in significant policy and funding changes. Our teams are advising stakeholders on the implications for Medicare, Medicaid, and other public programs; strategies to advance their objectives in this new environment; and working with healthcare organizations and state and local government to understand immediate impacts on local financing.

For details about these federal level developments contact one of our featured federal policy experts listed below.

New Insights on Medicaid Spending: An Analysis of Disaggregated Managed Care Spending

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Medicaid is a federal/state health insurance program that served more than 86 million lower-income people in fiscal year (FY) 2021. The combined federal and state spending for Medicaid totaled $717 billion that year, $420 billion of which was spent on providing care to Medicaid managed care organization (MCO) members, and $297 billion on services provided to fee-for-service enrollees.

While the role of managed care in Medicaid has grown tremendously over the past decade, with MCOs covering nearly three-quarters of Medicaid enrollees, detailed cost information has not been estimated for the people with MCO coverage. These data historically have been available only for fee-for-service (FFS) Medicaid because of limitations on federal data sources.
This lack of data blocks our understanding of the relative magnitude of the cost drivers in the program and contributes to an uninformed debate about policy reforms to control the growth of spending and improve quality of care.
Obtaining and using cost data by provider type for MCOs can help answer questions such as how much funding do MCO enrollees with diabetes, asthma, and/or hypertension consume? Of these patients, how many also have behavioral health conditions? How many MCO enrollees have six or more emergency department (ED) visits during a year and/or multiple inpatient hospital stays, and what does their resource consumption look like?

Health Management Associates (HMA) has developed a reliable methodology that can be applied to all 50 states, which approximates spending for the major categories of health services that MCOs cover, including: inpatient and outpatient hospital care, physician and other professional services, skilled nursing facilities, clinics, pharmaceuticals, and other services. HMA can determine prices for these services, which, combined with data on the number of encounters, yields reliable cost figures. These cost estimates will be useful in identifying unmet medical needs, gaps in our delivery systems, and areas of high spending where efficiencies and timely care management can be added to slow the growth in total health spending.

The Medicaid Pivot: New Developments in Section 1115 Demonstration Policy

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This week, our In Focus section examines new federal policy developments affecting Medicaid Section 1115 demonstrations. The Centers for Medicare & Medicaid Services (CMS), on March 4, 2025, rescinded two guidance letters issued by the prior Presidential Administration that defined and provided the framework for state Medicaid programs to cover health-related social needs (HRSNs) using Section 1115 authority.

Though specific Medicaid priorities under the Trump Administration are nascent, Health Management Associates’ federal and state experts are monitoring these developments. This article describes the withdrawn policy, known implications for states with approved and pending proposals, and the imperative to plan for a variety of scenarios and future opportunities.

Background on HRSN Initiative in Section 1115 Demonstrations

CMS-approved Section 1115 demonstrations allow states to pilot alternative methods to improve the accessibility, coverage, financing, and delivery of healthcare services under joint federal-state funded programs, specifically Medicaid and the Children’s Health Insurance Program (CHIP).

Addressing health disparities and promoting integrated care in Medicaid became a key focus of the Biden Administration. In November 2023, CMS introduced a Medicaid and CHIP Health-Related Social Needs Framework, giving state Medicaid agencies the opportunity to address the broader social determinants of health (SDOH) that affect their enrollees, leading to better health outcomes. The agency published an update to the guidance in December 2024. The new initiatives were not intended to replace other federal, state, and local social service programs, but rather to coordinate with those efforts.

Key Takeaways for States

The following critical components of the March 2025 announcement and the present policy landscape should inform state Medicaid agency and stakeholder response and future planning work.

First, this guidance does not affect states with a current, active Section 1115 demonstration, state plan, or 1915 waiver programs that include HRSN. States with HRSN demonstrations will maintain their approved programs; however, states and their partners should prepare for shifts in federal reporting, oversight, and evaluation expectations. Separately, states may wish to re-evaluate their resource allocation and consider adjustments that may be needed to better align with a new federal policy environment.

States seeking any amendment or extension of their demonstration program—even if unrelated to HRSN—should expect this activity to trigger a CMS review of the HRSN component of the 1115. States will need to consider the strategic advantages and necessity of such requests relative to the implications to their HRSN initiative. They also should consider planning for nonrenewal of their HRSN programs in advance of the demonstration’s current expiration date.

Pending state HRSN Section 1115 demonstration proposals are not expected to be approved. The Section 1115 option for federal matching funds to provide up to six months of housing supports, nutrition supports, and associated infrastructure capacity funding no longer aligns with the Trump Administration’s objectives for Medicaid and CHIP. Stakeholders interested in these concepts should consider alternative strategies and investment options.

What to Watch

Notably, CMS did not rescind the 2021 State Health Official Letter RE: Opportunities in Medicaid and CHIP to Address Social Determinants of Health (SDOH) (SHO# 21-001) published during the first Trump Administration. States and their partners should monitor CMS’s actions and signals for the agency’s posture toward SDOH proposals.

A new group of states proposing alternative and revised demonstration concepts and innovations is likely to emerge. These states may provide early signals of the nature and breadth of the Section 1115 demonstrations CMS is willing to consider. With regard to SDOH, states and their partners should consider aligning proposals with the approaches outlined in the 2021 guidance for regular federal program authorities (e.g., 1915(i) state plan options, 1915(c) waiver options) as well as certain managed care authorities.

In addition, states and Medicaid stakeholders should watch for other Medicaid and CHIP policy priorities advanced through demonstration and other authorities, including efforts to address substance use disorders (SUD) and reentry initiatives that focus on supporting individuals who are transitioning from incarceration back into society. SUD and reentry initiatives can intersect with Section 1115 demonstrations and other authorities, such as managed care, in a variety of ways. The intersection of these issues can provide another area of common ground and opportunity to continue work on state reentry initiatives, though likely with new and modified federal parameters.

Connect With Us

HMA is monitoring other developments in Congress and from the White House and agencies affecting federal Medicaid and CHIP policy changes. The complexity and nuances associated with potential future statutory and regulatory changes necessitate thoughtful and immediate impact analysis, scenario planning, and preparations that will allow organizations to pivot if and when policy changes occur. HMA colleagues have expertise in all of the components critical to staying informed, engaged, and prepared for changes to Section 1115 programs—from the policy knowledge to actuarial/budgeting talent, to communications and project management skills, as well as the necessary IT infrastructure.

For questions about these developments and your organization’s plan to adapt to new federal Medicaid policy priorities, contact our featured experts below.

2025 State of the State Addresses, Part 2: Evolving Healthcare Priorities Across the Nation

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This week, our In Focus section reviews priorities outlined in recent State of the State addresses, building on an earlier article: A Closer Look at Gubernatorial Healthcare Priorities: 2025 State of the State Address Overview. We examine specific proposals from the governors of Illinois, Indiana, New Mexico, and South Carolina, as detailed in the Health Management Associates Information Services (HMAIS) report, 2025 State of the States Overview. These states offer examples of the trending policy changes and investments governors intend to make, providing valuable insights into the evolving healthcare landscape.

Key Trends in Governors’ Budgets

State of the State addresses provide insights into governors’ priorities, reflecting state budgets, multiyear initiatives, and changes in federal policies and funding. These priorities signal strategic shifts healthcare stakeholders must navigate to remain aligned with the evolving state and federal policy landscapes. Common themes that Health Management Associates (HMA) is tracking this year include healthcare affordability, Medicaid work requirements, workforce shortages, and enhanced oversight of healthcare entities.

Highlights by State

Illinois Gov. J.B. Pritzker delivered a 2025 State of the State Address on February 19, 2025, during which he presented his executive budget proposal for fiscal year (FY) 2026 and discussed strengthening oversight of healthcare entities like pharmacy benefit managers (PBMs) and health insurers. Governor Pritzker introduced the Prescription Drug Affordability Act, which seeks to further regulate PBMs, reduce drug costs, and protect independent pharmacists. More specifically, it would give the state Department of Insurance full statutory authority to examine PBM records and require these organizations to comply with annual auditing and reporting requirements. The governor also called for a ban on prior authorization for behavioral healthcare and proposed requiring insurance companies to reimburse patients for reasonable travel costs for medical appointments when the distance they must travel exceeds network adequacy requirements.

Pritzker’s budget allocations include:

$191.8 million to support the Certified Community Behavioral Health Clinic (CCBHC) Medicaid Demonstration Program
$27.9 million to maintain the state’s maternal and child home health programs
$27.7 million to support nonhospital facilities that provide psychiatric care to people younger than 21 years old
$132 million for Medicaid-like coverage for undocumented adults ages 65 and older
A shift in funding from the state’s Exchange to a State-Based Marketplace, which would end use of the federal platform

In addition, the budget plan eliminates funding for Medicaid-like coverage for undocumented adults ages 42−64, which cost approximately $420 million in one year.

Indiana Gov. Mike Braun delivered his address on January 29, 2025, during which he discussed his support for state legislation that would address healthcare costs. Governor Braun urged the legislature to pass multiple bills, including:

House Bill (HB) 1003: Specifies that the state’s Medicaid Fraud Control Unit (MCFU) may investigate provider fraud, insurer fraud, and duplicate billing and would require more healthcare price transparency, stop anticompetitive practices that drive up prices, and put an end to surprise billing
Senate Bill (SB) 3: Would mandate that third party administrators, PBMs, employee benefit consultants, and insurance providers acting on behalf of plan sponsors have a fiduciary duty to the plan sponsors
HB 1004: Would bolster oversight of nonprofit hospital financials

The governor also encouraged the legislature to support efforts focused on PBM reforms.

Governor Braun’s proposed budget for the 2025−27 biennium recommends a general fund appropriation of more than $5 billion in FY 2025−26 and $5.3 billion in FY 2026−27 for the state Office of Medicaid Policy and Planning. Moreover, the state is still managing the effects of a nearly $1 billion shortfall it identified in the Medicaid budget in FY 2024. The Indiana Family and Social Services Administration predicts total Medicaid expenditures will reach nearly $21 billion in FY 2025, up 6.4 percent from $19 billion in 2024 and will likely increase by at least another $1 billion in both 2026 and 2027.

New Mexico Gov. Michelle Lujan Grisham delivered her 2025 State of the State Address on January 21, 2025, wherein she discussed the new state Health Care Authority (HCA), which launched in July 2024. According to Governor Grisham, the HCA has helped the state to increase Medicaid provider rates, create a Health Care Affordability Fund, and expand the Health Care Professional Loan Repayment Program. To continue with HCA’s work, the governor announced that in March 2025, the state will be sending more than $1 billion to New Mexico hospitals through the Medicaid provider tax. She also recommended that the state legislature approve $50 million in additional funding for the Rural Health Care Delivery Fund, which supports getting new and expanded primary, behavioral, maternal and child, and specialty healthcare services into rural areas.

In her proposed FY 2026 budget, the governor recommends:

$13 million in recurring funds to increase reimbursement rates up to 150 percent of Medicare rates
$5.3 million for the Program of All-Inclusive Care for the Elderly (PACE)
$2.5 million for increased assisted living facility rates
$2.9 million to increase behavioral health rates for non-Medicare equivalents
$30 million annually over three years to expand Medicaid services, including medical respite for people who are homeless, food support for certain individuals who pregnant, infrastructure to provide medical services to people who are justice-involved, and infrastructure to provide housing and food supports.

In addition, the budget recommends a $100 million special appropriation to address behavioral health needs, which will fund the 988 program, an investment to secure a federal match for the CCBHC Initiative, more drug and alcohol treatment services at the New Mexico Behavioral Health Institute, and medical and behavioral health providers at the Corrections Department.

South Carolina Gov. Henry McMaster delivered his 2025 State of the State Address on January 29, 2025, in which he discussed the state’s siloed health and human services delivery system, which he said creates a difficult landscape to navigate for people with physical disabilities, special needs, and mental health issues. Governor McMaster said the state must make immediate changes to the Department of Mental Health and Department of Disabilities and Special Needs and proposed making the boards of commissioners that run the departments directly accountable to the governor.

The governor’s proposed FY 2025−26 budget highlighted his priority of reimplementing Medicaid work requirements through a Section 1115 demonstration waiver, which the state previously had in place during President Donald Trump’s first administration. Governor McMaster has already requested an expedited approval of the demonstration, which would expand Medicaid eligibility to 100 percent of the federal poverty level (FPL) for parents who are working or going to school. Under South Carolina’s existing eligibility rules, parents no longer qualify for Medicaid if they earn more than 67 percent of the FPL. The work and school requirements would only apply to parents with incomes of between 67 percent and 100 percent of the FPL.

The budget also recommends approximately $79 million in recurring funds to support the state’s Medicaid program. Those funds would be allocated as follows:

$5.7 million toward increasing behavioral health provider payment rates
$5.4 million toward increasing opioid use disorder provider reimbursement rates
$10 million toward reducing waiting lists for home and community-based services
$2.4 million toward intensive partial hospitalization and outpatient behavioral health programs

In addition, the budget recommends funding for the Department of Public Health and $1.6 million in nonrecurring funds and $625,000 in recurring funds for the Healthy Moms, Healthy Babies program and its mobile maternity care vehicle.

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HMAIS has prepared a comprehensive report summarizing each State of the State address and governors’ proposed budgets, which is available to HMAIS subscribers. It also comprises a section highlighting trends in the issues covered in each speech, including maternal health, substance use disorder, Medicaid work requirements, prescription drug prices, and provider rates.

HMA supports healthcare stakeholders in responding to these developments, offering strategic guidance and expertise to help navigate the evolving policy landscape and align with the shifting priorities outlined in these addresses. Contact one of our experts below for more information about the report or to connect with one of HMA’s state policy and market experts.

Spotlight on Development of President Trump’s Children’s Health Strategy

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This week, our In Focus section highlights President Trump’s Make America Healthy Again (MAHA) executive order, which is designed to address the challenges driving chronic diseases in the United States. Our article delves into the key components of the order, presents a data snapshot about the state of children’s health, and discusses implications for stakeholders seeking to prepare for and inform the transitions impacting the future of children’s health.

Presidents can use executive orders to communicate their priorities and set a framework and timelines for federal agency actions. Historically, these orders have provided strong signals for the initiatives and policy direction that federal departments and agencies will pursue. Health Management Associates (HMA), experts are monitoring the MAHA directive and several other executive orders, alongside other Trump Administration actions.

Executive Order: Making Children Healthy

On February 13, 2025, President Trump signed an executive order establishing the Make America Healthy Again Commission, chaired by US Department of Health & Human Services (HHS) Secretary Robert F. Kennedy, Jr. The commission, which builds on the Secretary’s prior work, is charged with combating “critical health challenges facing citizens, including the rising rates of mental health disorders, obesity, diabetes, and other chronic diseases.”

Initially, the commission will focus on studying and addressing childhood chronic diseases. The order directs the commission to release within 30 days an assessment that summarizes what is known about the childhood chronic disease crisis, identifies gaps in knowledge, and includes international comparisons. This report will serve as the foundation for developing a strategy to improve the health of children, which is due within 180 days of the order.

Data Snapshot: Childhood Chronic Conditions

Evaluating existing data and identifying gaps in data for children are critical initial steps toward developing a comprehensive and evidence-driven federal policy agenda. At present, 90 percent of the $4.5 trillion in annual US healthcare expenditures are used to provide services to people with chronic and mental health conditions. Many of the risk factors for developing these conditions begin in childhood and some are preventable. For example:

Obesity affects 20 percent of children and 42 percent of adults, putting them at risk of chronic diseases such as type 2 diabetes, heart disease, and some cancers. More than one in three young adults ages 17−24 are too heavy to join the US military. The youth obesity rate from 2017−2020 was 19.7 percent, a 42 percent increase from the rate in 1999−2000. Lifestyle choices, combined with social and environmental factors like access to healthy foods and neighborhood walkability and safety can significantly reduce the risk of developing obesity.
In 2022, diabetes and the complications associated with it accounted for $413 billion in total medical costs and lost wages in the United States. While few children have type 2 diabetes, nearly one in five adolescents (12−18 years old) have prediabetes and may develop diabetes in adulthood. Like obesity, both personal choices and adverse social and environmental factors can increase the lifetime risk of developing diabetes.
Approximately 4.9 million children in the United States have asthma, which is incurable but can be managed. Asthma is one of the main causes for missed school days among children. Many US schools have poor indoor air quality, which can expose children to allergens, irritants, and triggers such as mold, dust, and pests. Conditions in children’s homes also can exacerbate asthma.

How Federal Programs Impact Children’s Health

Numerous federal programs directly and indirectly affect children’s health. Examples include:

Nationally, more than 38 percent of children have Medicaid coverage, with rates exceeding 50 percent in some states and territories (e.g., Louisiana, New Mexico, Puerto Rico). Medicaid’s requirement to cover Early Periodic Screening, Diagnostic and Treatment (EPSDT) has long been the vehicle for addressing the chronic healthcare needs of children on Medicaid. For example, for children with asthma, in addition to covering medications to prevent and treat exacerbations, some states will reimburse providers for conducting home health assessments to identify and remediate triggers in the home. In addition, federal funding through both Medicaid and US Department of Education supports school nurses and school-based health centers, which can be critical resources in addressing the chronic healthcare needs of students, such as the administration of Insulin or providing inhalers to children experiencing asthma.
To receive funding through the National School Lunch and School Breakfast programs, schools must provide meals aligned with the “meal pattern” established by US Department of Agriculture, which specifies the amount of food among various groups and an age-based maximum for calories, saturated fat, and sodium. Under current guidelines, by 2027, school meals also will be expected to comply with limits on added sugars.
Participants in the Special Supplemental Nutrition Assistance Program for Women, Infants, and Children (WIC), which provides participants with certain foods to meet their nutritional needs, have a lower risk for preterm birth, low birthweight infants, and infant mortality.

Federal programs affect children’s home and school environment in other ways, and the health implications of those funding choices may not be explicitly recognized or prioritized. For example:

Housing assistance programs in some cases prevent families from experiencing homelessness but may place them in living situations where exposure to environmental hazards such as mold, pests, or pollution and neighborhood factors like crime and lack of walkability may adversely affect their health.
Some federal agriculture programs are specifically designed to make nutritious foods available (e.g., Gus Schumacher Nutrition Incentive Program, or GusNIP), while others support agriculture without specifically bringing a health lens to those programs.

Implications for Stakeholders

The President has directed that the strategy address “appropriately restructuring the Federal Government’s response to the childhood chronic disease crisis, including by ending Federal practices that exacerbate the health crisis or unsuccessfully attempt to address it, and by adding powerful new solutions that will end childhood chronic disease.” Though we do not know what the Make our Children Healthy Again Assessment and Strategy will recommend, we anticipate it will present both opportunities and risks for organizations focused on children’s health. As the commission begins its work, organizations can take the following actions:

Consider policy opportunities: Review your organization’s strategic plan as well as your operational and policy priorities and consider how they may fit into this framework. This could be the time to suggest changes to federal grants you receive or federal regulations or requirements that negatively affect your ability to keep children healthy.
Prepare for potential funding disruptions: It is possible that programs you rely on will have changes in scope or funding levels. Review your offerings for children with chronic conditions and identify substitutes or complements to your main priorities. Consider partners you might work with to keep work going that may not have the same level of federal support in the future.
Be prepared to share the real-world impacts of policy changes: Begin gathering data, stories, and compelling information to share about chronic conditions affecting children that can be used in future public comment opportunities, shared with the media, and discussed with your federal, state, and local representatives. Think about how to talk about these issues in a clear and compelling way that will resonate with each of those audiences.
Find partners and allies: As you consider the policy opportunities and risks, think about other organizations that share your interests and how you can work with them in complementary ways. It can be compelling to policymakers when stakeholders who might not naturally be aligned on other issues can unite around a specific policy area.

Connect with Us

Healthcare stakeholders with a commitment to healthy children and healthy adults have an opportunity to support the specific policies and funding opportunities that may emerge from the MAHA order. To learn more about these policy changes, the impact on your organization, and actions your organization can take, contact our one of our featured experts below.

State Cost Growth Benchmarking Programs: An Evaluation of Eight States’ Experiences and the Lessons Stakeholders Have Learned

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Background

In 2024, Health Management Associates (HMA) evaluated programs implemented by eight states (California, Connecticut, Delaware, Massachusetts, New Jersey, Oregon, Rhode Island, and Washington) aimed at controlling healthcare cost growth. In recent years, these states have tried to address the trend of escalating healthcare costs using an approach referred to as cost growth benchmarking (CGB). This is the act of setting a target for annual healthcare cost growth and measuring actual performance against the target. Since 2018, the Peterson-Milbank Program (PMP) for Sustainable Health Care Costs has invested in state-based CGB efforts by funding program development, implementation, and technical assistance. HMA evaluated the Peterson Center on Healthcare’s cost growth benchmarking efforts across the eight states.

Methodology

HMA’s evaluation for the Peterson Center on Healthcare included a detailed landscape review for each of the eight states and interviews with 45 state officials, providers, payers, and other stakeholders in these states. The HMA team synthesized findings from the landscape review and the key informant interviews and produced an internal evaluation report.

Analytic Approach

The landscape review captured the state’s CGB program chronology, governance structure, growth targets, enforcement authority, and performance against the target. The interviews examined the contextual factors, stakeholder influence, implementation developments, capacity to control costs, facilitators and barriers to developing cost control capabilities, and the lessons learned based on the states’ experience. The interview discussion guide included a scoring component which enabled quantitative analysis in addition to the qualitative findings. HMA analyzed these findings by state, category of interviewee (state officials, payers, providers, or others) and implementation stage (early vs. more recent adopters).

Findings

States’ efforts to engage and gather stakeholders, establish cost growth targets, collect and report data, and identify cost drivers have been successful, but states have had challenges to date in developing policies aimed at containing costs.

Utility

The findings from this analysis can be useful to the existing states in enhancing their CGB programs and to states interested in launching new CGB initiatives.

Medicare Hospital Inpatient Device-Intensive Payment Policy

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Medicare’s fee-for-service (FFS) payment system includes payment policies that support providers’ use of innovative medical device technologies. The continued evolution of these policies is necessary to keep pace with current and future medical innovation. In this report, HMA summarizes models testing the implementation of a newly proposed policy for the hospital inpatient system which aims to eliminate systemic bias that may slow hospitals’ adoption of innovative technologies. HMA concludes that targeted policies that eliminate the use of the hospital wage index to standardize device costs can result in more accurate reimbursement for hospitals and increase beneficiary access to innovative technologies.

Highlights from HMA Analysis of Specialty Services in Medicaid

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This week, our In Focus section highlights key insights from a new Health Management Associates (HMA), white paper, Concentration of Specialty Services in Medicaid. Experts from HMA and Wakely, an HMA company, used the national Transformed Medicaid Statistical Information System (T-MSIS) database to learn more about specialty provider networks and examine the provision of specialty services across various states.

The analysis, released in January 2025 with support from the Robert Wood Johnson Foundation, focuses on three representative services that are relatively common, potentially difficult for Medicaid beneficiaries to access, significantly affect quality of life, typically accessed as elective procedures, and unlikely to be provided by other clinicians, such as primary care or mid-level practitioners.

T-MSIS Analysis Overview

T-MSIS analytic files are a comprehensive resource for Medicaid encounter, beneficiary demographics, program enrollment, service utilization, and payment data. Individual states compile their Medicaid claims data and submit monthly files to the Centers for Medicare & Medicaid Services (CMS). As each state submits data individually, numerous state-specific variations occur in data availability and quality. Currently, T-MSIS data are available for 2016−2023. HMA data scientists have permission to use the T-MSIS files for healthcare services research.

This paper examines services in 10 states that met a threshold of data integrity in the T-MSIS dataset for 2022. Other important design aspects of the analysis are as follows:

The three service procedures included in the analysis are total knee replacement (TKA), cataract removal, and impacted tooth extraction.
Selected states represented a diverse sample of geographic, socioeconomic, and other demographic factors.
The analysis includes non-dually eligible adult populations, ages 22−64 years.
The data cover all services provided in 2022 for each procedure and the providers who rendered the service; facilities are excluded.

Concentration of Specialty Providers

Table 1 summarizes findings about the concentration of specialty services.

table of percentage of procedures rendered by top ten percent of providers

The authors further analyzed the provision of services and, building on a previous study, examined network concentration. Findings were as follows:

When looking at the same procedure across states, no consistent pattern emerged regarding which states had the highest and lowest concentration of services in the top 10/25 percentile of providers.
However, when looking at the same procedure across multiple states, TKA tended to have the lowest concentration of services among those studied.
Regardless of procedure and state, the 50 percent of providers with the lowest number of procedures tended to provide fewer than 10 percent of the total services combined.

These findings suggest that the specialty networks within each state are highly nuanced, and state policymakers need to look at individual specialty networks when considering health policy. State policymakers and managed care organizations (MCOs) need to examine each specialty individually to assess the distribution of services and access to care.

Looking Ahead

Timely access to healthcare services is critical for ensuring optimal health outcomes. The report authors’ analysis of T-MSIS data showed significant concentration of selected specialty services among providers, which may affect appropriate access to these services.

The analysis of concentration of specialty services among Medicaid specialty providers can guide MCOs and state policymakers in developing strategies to improve network adequacy, including clarifying the level of network adequacy and developing policies to assess and regulate access to specialty care. Addressing gaps in access to specialty care can contribute to better health outcomes for Medicaid beneficiaries and may be aligned with provisions in value-based contracts.

Connect with Us

Medicaid consumers, providers, MCOs, and states all have an interest in ensuring access to specialty care for Medicaid beneficiaries. The methodology applied in the analysis for the HMA white paper can be applied and adapted for future analysis to monitor network stability and to compare access among various payers.

For details about this analysis, its implications for state and local policies, and additional research using T-MSIS, contact our experts below.

Webinar Replay: Medicaid in Motion – Navigating Post-Election Policy Changes and Opportunities

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This webinar was held February 26, 2025.

During this webinar, our experts as discussed the latest developments in Medicaid financing and policy. With Congressional leaders and new U.S. Department of Health and Human Services officials focusing on Medicaid, significant changes are on the table during the budget reconciliation process. These changes create both risks and opportunities for Medicaid stakeholders. Learn what Congress and the Administration are considering and how it impacts Medicaid markets.

Learning Objectives:

Understand recent and potential federal statutory and regulatory policy changes affecting Medicaid.
Identify potential impacts of these policy changes on Medicaid programs, payers, healthcare providers, industry, and beneficiaries.
Explore changes in Medicaid funding structures and reimbursement mechanisms resulting from federal policy updates.
Discover feasible practices and strategies to adapt to the evolving federal policy landscape.

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House Committees Consider Policies to Meet Budget Reconciliation Instructions

HMA helps support Section 1115 Demonstration initiatives across the country