The great Medicaid reshuffling: which business models will survive Trump’s healthcare overall?

Disclaimer: The views and opinions expressed in this essay are solely my own and do not reflect the views, opinions, or positions of my employer or any affiliated organizations.

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Abstract

On July 4, 2025, President Trump signed the “Working Families Tax Cut” legislation into law, introducing the most significant Medicaid and CHIP reforms since the Affordable Care Act. This legislation fundamentally alters the economics of serving Medicaid populations through community engagement requirements, financing reforms that restrict state funding mechanisms, immigration-related eligibility restrictions, and operational changes around enrollment and payment systems. For healthcare technology companies, these changes create clear winners and losers. This analysis examines how different business models will perform under the new regulatory environment, focusing on which companies will benefit from increased state administrative burdens, which will suffer from reduced coverage and reimbursement, and which existing models face existential threats from financing restrictions. The core thesis is straightforward: companies that reduce state administrative costs or serve commercially insured populations will thrive, while those dependent on Medicaid expansion populations, state directed payments, or provider tax financing face significant headwinds. Understanding these dynamics is critical for angel investors evaluating early-stage healthcare companies over the next 24 to 36 months.

Table of Contents

- The Medicaid Reduction Reality

- Business Models That Will Flourish Under New Rules

- Business Models Facing Existential Threats

- The Gray Zone: Models That Might Survive With Adaptation

- Investment Implications for Early Stage Health Tech

- What This Means for Your Portfolio

The Medicaid Reduction Reality

Let me be direct about what just happened. This legislation is designed to reduce Medicaid enrollment and federal spending, full stop. The framing around “safeguarding Medicaid and CHIP for the most vulnerable Americans” is political rhetoric that obscures the actual intent and impact. When you require community engagement for adult expansion populations, restrict immigration-based eligibility, reduce retroactive coverage periods, implement six-month renewals instead of annual renewals, and systematically eliminate state financing mechanisms, you are engineering a reduction in both enrollment and per-beneficiary revenue.

The numbers tell the story. Medicaid expansion states must implement community engagement requirements starting January 1, 2027, requiring 80 hours monthly of work, community service, or education for adults in the expansion population. States will conduct renewals every six months instead of annually for this group. Retroactive eligibility drops from three months to one month for expansion adults and two months for everyone else. The immigration provisions eliminate federal funding for most qualified noncitizens except lawful permanent residents, Cuban and Haitian entrants, and COFA migrants starting October 1, 2026.

On the financing side, provider tax revenue is frozen at July 4, 2025 levels, with expansion states facing a gradual reduction from current levels to 3.5 percent of net patient revenue by fiscal year 2032. State directed payments get capped at 100 percent of Medicare rates for expansion states and 110 percent for non-expansion states. The statistical test loophole for health care related taxes that let states preferentially tax high-Medicaid providers gets closed. Budget neutrality for 1115 demonstrations now requires Chief Actuary certification.

What does this add up to? Probably 3 to 5 million people losing Medicaid coverage over the next 24 months, with the heaviest losses in expansion states. States will also see their effective match rates worsen as provider tax and state directed payment restrictions reduce their ability to generate federal dollars without increasing state general fund commitments. This creates a doom loop: reduced enrollment means reduced revenue means reduced provider payments means reduced access means sicker remaining populations means higher costs per beneficiary means more pressure to cut rates or benefits.

For investors, this is not a “wait and see” situation. The policy direction is clear, the implementation timeline is aggressive, and the impact on business models is predictable. Some companies will benefit enormously from these changes. Many will not.

Business Models That Will Flourish Under New Rules