Last week, Congress passed and the President signed a $1.21 trillion federal spending package that provides full-year funding for the federal government through September, 2026. It included 5 separate appropriations bills including $116.6 billion for HHS, PBM reforms, telehealth and hospital-at-home funding, but only two-week temporary funding for the Department of Homeland Security due to Congressional disputes about immigration policy and ICE.
Meanwhile, provisions of the One Big Beautiful Bill Act aka OB3 (2025) including Medicaid cuts and termination of enhanced marketplace premium subsidies are in effect. Already, the impact of the subsidy cuts is being felt:
- Insurance premiums for marketplace enrollees increased 114% January 1, 2026
- Sign-ups for 2026 marketplace coverage declined by 1.2 million — or 5% — to 22.9 million, compared with 24.1 million in 2025. Most of the decline was in the 30 state exchanges fun by the federal government and the number is expected to increase. In tandem, 73% of enrollees are downgraded their coverage to bronze plans to reduce their premiums and out of pocket risks.
But the majority of OB3’s Medicaid cuts totaling almost $1 trillion over 10 years have not taken effect yet.
The reality is this:
2026 will be a transition year for the U.S. economy: the impact of the Fed’s monetary policies and Trump tariffs will be widely debated as state and Congressional primary campaigns begin next month. If affordability is the top concern to voters as pollsters predict, every candidate will be forced to express their views on solutions. While political rhetoric lends to opaque solutions and evasive answers to direct questions, voters are tired of BS. They associate it with both major parties and their luminary incumbents, and want straight talk. 2026 will be a transition year for the economy because voters will be paying closer attention to the economy and the prices they pay for essentials including healthcare.
And 2026 is a transition year for the healthcare economy: Major changes in regulatory policies impacting healthcare will originate in states either in response to federal directives or fiscal pressures. Federal policies will be directional but state responses and implementation will be more important.
Just as the aftermath of the SCOTUS decision in Dobbs v. Jackson Women’s Health (2023) shifted responsibility for abortion rights to states, most major issues impacting healthcare will be resolved in states. In 2026, states will be ground zero for healthcare. Beyond Medicaid, states have enormous impact on the health economy. They’re responsible for 1-the licensing and scope of practice limitations of licensed providers in the clinical workforce, 2-licensing, coverage and solvency requirements for health insurance plans, 3-eligibility, funding, quality and accessibility of public health programs including vaccinations, children’s health et al , 4-the numbers, types and sources of funding for healthcare facilities permitted to operate in the state including hospitals, clinics, retail pharmacies, school clinics, nursing homes and more and 5-state employee health plans. Most states (34) enjoy budget surpluses today but all suspect the health economies in their states will erode their solvency long-term. Most (35) have mechanisms in place to encourage competition and reduce oversupply vis a vis Certificates of Need et al, but they’re changing to accommodate shifting demand and opportunism by private equity. And most are holding Bipartisan hearings with hospital systems and insurers to develop policies that encourage competition. Healthcare’s ripe for state action.
The U.S. health economy is the country’s biggest: it is 18% of the country’s GDP, 28% of federal spending and its largest employer (21 million). But in states, it’s even more. Medicaid is big business: $936 billion in 2025. On average, 30.7% of state funds go to Medicaid (up 5.3% from 2024) but OB3 cuts mean they’ll have to pay more and/or cut benefits. The Affordable Care Act facilitated increased Medicaid enrollment by using federal funds to encourage state expansion; by contrast, One Big Beautiful Bill Act seeks to reduce Medicaid financial costs in states by reducing eligibility and imposing work requirements for requiring “able body adults.”
Voters think the health system is wasteful and self-serving. A Bipartisan majority in Congress share the view. The majority of voters believe it is more closely associated with Big Business than Community Health and Wellbeing. Distinctions between Big Not for Profits and Investor Ownership are blurry and industry opposition to price transparency, site neutral payments and cost-controls are seen as evidence of self-protection. So, if positioned appropriately, greater systemic reform of the health system would be welcomed. Leadership by states is, after all, a core tenet of federalism.
My take:
Every healthcare organization must closely monitor changing policies, regulations and appropriations in states. Discounting those possibilities at the state level is short-sighted, especially in 2026 when political drama is intense and affordability at the top of voter concerns.
The U.S. Constitution is the country’s framework for its governance: federalism is our foundational structure. Article 1, Section 8 of the Constitution enumerates the responsibilities of Congress, Article 2 the responsibilities of the President and Article 3 those of the Supreme Court. In none of these is oversight of the health system assigned. By interference and perhaps default, that responsibility is states. It suggests the framers saw the evolution of the health industry as a key element in “promoting the general welfare” in the Preamble for which states are primarily responsibility. Notwithstanding the creation of Medicare and Medicaid in 1965 as part of LBJ’s Great Society, the fiduciary most responsible for protecting the public’s health and guiding its evolution through clinical, technologic and demand cycles are states.
The potential that states might develop an efficient and effective system of health wherein health and social services programs are integrated, investments in prevention and treatment are balanced and business practices are transparent is plausible. The potential that a federal role will be necessary is certain, but the transformation of the health system is likely better pursued by forward looking states than national politicians. Like a state’s education system and its standard of living, it’s health system can be a key differentiator for economic development and fiscal sustainability.
Paul
PS: I’m aware of a few state-sponsored health system transformation initiatives in the past: they failed for a variety of reasons. But a state is in the enviable position to bring healthcare’s special interests and its most important customers to the table IF legislative leaders and governors in both parties commit to non-partisan process and key players in federal healthcare support without prejudice the end game–a system of health in a state that’s accessible, affordable, comprehensive and innovative. It’s not a pipe-dream: states can do more!
Resources
- Trump signs $1.2T spending package that funds HHS, enacts PBM reforms, telehealth and hospital-at-home measures
- Increases in Total State Spending by Fiscal Year
8NASBO | 2025 State Expenditure Report nasbo.org - National Academy for State Health Policy www.nashp.org
Sections in today’s report
- Quotables
- Economy
- Insurers
- Physicians
- Polling
- Population Health
Quotables
Hospitalogy on UHG-HCA strategies: “HCA’s headwinds are policy-driven and potentially reversible (grandfathered CMS approvals, Texas ATLIS reinstatement, Rural Health Transformation Fund), and they have meaningful answers to these challenges. UNH’s headwinds are structural and multi-year (utilization isn’t going down, funding isn’t going up, Optum needs years to fix, vertical integration strategy was a financial engineering farce, PBM reform on the horizon).
The HCA-UNH dynamic is a microcosm of the broader payor-provider landscape entering 2026:
For hospitals and health systems: Price makers have leverage while everyone else is looking to survive. Meanwhile, paradoxically, payors are struggling with medical cost trends they can’t bend coupled with dismal government support. BUCAs are getting attacked from multiple angles between PBM, MA rates, and risk adjustment. Dollars are flowing into specialty drugs. Ambient scribing and CDI AI initiatives give them the short-term upper hand.
For payors: The vertical integration arbitration game is up. Owning providers doesn’t automatically translate to better economics. We’re going to see an emphasis on the whole ‘integration’ part in 2026 (what took Optum so long to pare down to 3 EMRs anyway?). We’re also going to see an intense focus and capital deployment on the AI and technology front. Downcoding, prior auth, price transparency, and other levers will come into play in a major way.”
Keckley note: Blake Madden’s take on the two most watched investor-owned companies in healthcare is directionally spot on. But market conditions change: both companies have fierce critics in Congress: to date, UHG’s have landed major blows while HCA has dodged bullets. But they’re coming.
Healthcare’s Dance with Dragons: The Great Payor-Provider Power Struggle of 2026 Hospitalogy February 5, 2026
Johnson on Interoperability and Epic Systems: “Epic needs to remain a vital, if smaller component, of the healthcare ecosystem. The government-led movement to achieve health data interoperability creates a role for companies, like Epic, that source patient health data.
With a unified data infrastructure, intelligent self-learning platforms will generate insights and engage end-users as never before. In the process, U.S. healthcare will become more balanced (with health), more equitable, and easier to access with better outcomes at lower costs.
As this new era of health and wellbeing unfolds, Epic cannot and will not become healthcare’s digital front door. As this reality becomes apparent, the U.S. system will save Epic from itself.”
Keckley note: David’s writing is well-researched and his writing well-worth consideration by healthcare leaders. Recent works: “Market vs. Medicine: America’s Epic Fight for Better, Affordable Healthcare,” “The Customer Revolution in Healthcare: Delivering Kinder, Smarter, Affordable Care for All” and “The Coming Healthcare Revolution: 10 Forces
that Will Cure America’s Healthcare Crisis”
“Healthcare’s Epic Struggle” 4Sight Health February 3, 2026 www.4sighthealth.com
Endpoint’s Bayer on Trump Rx launch: ‘When President Donald Trump unveiled his anticipated direct-to-consumer drug platform on Thursday, he said he’d done what other politicians had promised but never delivered. “They all failed,” he said. “It was all words as usual.”
But the president’s new site, TrumpRx, doesn’t yet appear to match his promises. Only 43 drugs are available on TrumpRx, from about a third of the drugmakers that have agreed to participate in the program. In some cases, generic versions are available elsewhere, which are often cheaper.
The website, which was slightly delayed from a planned January launch, is meant to provide coupons to customers willing to pay for their drugs with cash. It included drugs from the first five companies to strike “most favored nation” agreements with the White House — Pfizer, AstraZeneca, EMD Serono, Eli Lilly and Novo Nordisk. Pfizer products make up the majority of the online portfolio, with more than 30 drugs included…
The main draws of TrumpRx from a demand standpoint are the weight loss drugs from Lilly and Novo, and fertility medications from EMD Serono. Most of those drugs currently don’t have generics. Still, discounts to those drugs alone would not represent the massive overhaul to the drug pricing system that the White House has claimed…”
TrumpRx launches with few drugs, many with generic competitors Endpoints February 6, 2026 availablehttps://endpoints.news/trumprx-launch-falls-flat-for-some-citing-generic-access
Governing: States play bigger role in 2026: “The budget decisions that states make in 2026 are likely to be defined by an increasingly perilous long-term fiscal outlook. For some states, the coming year might represent their last opportunity to prepare before budget stress begins in earnest. For others, budget shortfalls have already begun, and lawmakers will need to contend with short-term problems and get ready for long-term ones.
State policymakers have been in information-gathering mode for months, assessing the 2025 federal reconciliation bill’s implications for their budgets, awaiting federal guidance, and forecasting revenue and spending amid a perplexing economy that combines sky-high stock prices with slowing job growth. Now come the tough decisions about how to bring state budgets back into balance State Budget Stress Intensifies in 2026 as Federal Aid Fades.”
With pandemic-era aid gone and long-term structural challenges looming, 2026 budget debates will test lawmakers’ ability to balance short-term gaps and future risk. Governing January 26, 2026https://www.governing.com/finance/state-budget-stress-intensifies-in-2026-as-federal-aid-fades
Halamka, Tripathi on CMS’ Interoperability Neglect of Consumers: “Since the ONC’s founding in 2004, one of its core aims has been to deploy modern technology to give patients more agency in their own health care decisions. That objective became even more central with the 2016 introduction of interfaces in certified EHR systems that enabled patients to access their information using an app of their choosing. Emergence of a thriving ecosystem of patient apps has been halting, however, because of factors that undercut both supply and demand, such as misaligned economic incentives for health care providers that favor process over outcomes and lack of privacy protections for health care information once it’s in a patient’s control and therefore beyond the boundaries of HIPAA. Our current health care payment model substantially dampens the incentive for health care organizations or life science companies to invest heavily in cultivating a patient-driven health tech ecosystem.
Furthermore, U.S. consumers have shown little interest in paying for such technologies themselves, and it’s still too early to tell whether consumer AI will increase their interest. The CMS initiative unfortunately does not address the fundamental lack of business drivers and privacy and security protections for patient-controlled data, which are the biggest barriers to a rich market for patient-controlled technology. We are encouraged by the recent announcement of the ACCESS (Advancing Chronic Care with Effective, Scalable Solutions) voluntary payment model, which intends to boost the use of digital technologies to improve patient outcomes. However, innovation models have limited scope and 10-year duration, and as of early December 2025 no details had been released about payment levels and patient outcome measures, making it difficult to predict how much of an effect ACCESS will have on the overall economics of health care delivery.”
The Next Chapter in Health Care Interoperability John D. Halamka, M.D., and Micky Tripathi, Ph.D. New England Journal of Medicine February 7, 2026 https://www.nejm.org/doi/full/10.1056/NEJMp2511798?query=WB
Arnold Ventures on Hospital OP Identifier Requirement in Bipartisan FY26 Funding Bill. “By requiring off-campus hospital outpatient departments to obtain a separate National Provider Identifier (NPI), Congress has taken another step forward to help lower health care costs, strengthen transparency, and ensure patients have access to quality care.
“This bipartisan billing transparency legislation requires hospitals to disclose where care is provided — whether within a hospital or at an offsite outpatient clinic — rather than obscuring the site of care to receive higher hospital prices for the same services. This will help protect patients from unjust facility fees, lower costs for individuals and businesses, and save taxpayers more than $2.2 billion.
“We applaud Congress for the inclusion of this important policy and look forward to working together to continue making health care more affordable for all Americans.”
Mark Miller Arnold Ventures www.arnoldventures.org/newsroom/billing-transparency-in-spending-package-will-save-taxpayers-billions
Economy
Gibbons Report: Chapter 11 Bankruptcy filings since 2019: Key takeaways: “Healthcare bankruptcy filings* declined 21% in 2025 to 45 cases, representing a second consecutive annual decline following the 2023 peak of 79 filings.
Healthcare bankruptcy filings* in 2025 were front-loaded, with 17 (~38%) of the year’s filings* in Q1 2025. • About two-thirds (67%) of healthcare bankruptcy filings in 2025 reflected “middle market” sized companies ($10m–$100m liabilities), up from 60% in 2024. • Very large healthcare filings* (>$500m liabilities) declined to six cases in 2025 from nine in 2024. Quarterly filings varied, falling to zero in Q4 2025 after recording in 4 filings in Q3 2025; their highest quarter in the prior two years.
Healthcare bankruptcy filings* declined across most subsectors in 2025, with the exception of Senior Care and Hospitals, which increased 18% (from 11 to 13 filings) and 60% (from 5 to 8 filings), respectively. • Pharmaceutical bankruptcy filings* in 2025 were approximately half of 2023 levels (10 filings compared to 20); however, the subsector continues to account for roughly one quarter of total healthcare filings*. • Clinics/Physician Practice filings rose from one case in the first half of 2025 to five in the second half, but totaled fewer filings in 2025 (six) than in 2024 (ten).”
Analysis of Chapter 11 Healthcare Bankruptcies 2019-2022 January 22, 2026
Insurers
KFF analysis of prior auth in 2024: Medicare Advantage insurers processed 52.8 million prior authorization requests in 2024, up 6.4% from the prior year. Highlights of report:
- In 2024, the majority (98.6%) of prior authorization requests from Medicare enrollees come from Medicare Advantage members
- The number of requests per Medicare Advantage member declined slightly to 1.7 in 2024.
- Medicare Advantage carriers fully or partially rejected 7.7% of prior authorization requests that year.
- UnitedHealthcare (12.8%), Centene (12.3%), Aetna (11.9%) and Kaiser Foundation Health Plan (10.9%) rejected an above-average share of preapproval applications.
- Elevance Health, Centene and Humana processed more prior authorizations per member than average.
Medicare Advantage Insurers Made Nearly 53 million Prior Authorization Determinations in 2024 | KFF
Physicians
Study: Physician Participation in Medicaid: “To assess patterns of Medicaid participation among physicians, we linked physician enrollment files to Medicaid administrative claims from the period 2019–21, focusing on five physician specialties: cardiology, dermatology, ophthalmology, primary care, and psychiatry. We examined the proportion of Medicaid-enrolled physicians with any claims activity and the volume of unique Medicaid patients and encounters per physician. We found that although 68–89 percent of physicians were enrolled in Medicaid, nearly 28 percent delivered no care to Medicaid beneficiaries in 2021. Participation in Medicaid varied widely by specialty: More than 40 percent of psychiatrists were “ghost” physicians who saw no Medicaid enrollees in a given year, whereas primary care physicians were most likely to be high-volume “core” participants. Although most physicians maintained stable participation over time, approximately one-fifth of ghost providers and one-third of “peripheral” providers (those seeing 1–10 Medicaid enrollees per year) transitioned to a higher-engagement group between 2020 and 2021. Taken together, our findings demonstrate that given relatively limited and variable Medicaid participation, targeted policy efforts—particularly in specialties such as psychiatry—may help strengthen physician engagement and reduce access gaps.”
‘Ghost’ Physicians: More Than One-Quarter Of Physicians Enrolled In Medicaid Delivered No Care To Beneficiaries In 2021 https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2025.00703?journalCode=hlthaff
Polling
KFF Tracking poll: From its KFF Health Tracking Poll (January 13-20, 2026) survey of 1426 U.S. adults::“As the latest KFF Health Tracking Poll shows, affordability is the public’s biggest concern, with the cost of health care ranking as their top economic worry. Key Takeaways:
The biggest issues: “The cost of health care, including paying for health insurance and out-of-pocket expenses, tops the list of the public’s economic anxieties, rising well above other necessities. Two-thirds of the public (66%) say they worry about being able to afford health care for them and their family, ranking higher than utilities, food and groceries, housing, and gas. In addition, most adults (55%) say their health care costs have gone up in the past year, including at least one in five who say they have increased at a faster rate than food or utilities. A majority (56%) of the public say they expect health care costs for them and their families to become even less affordable in the coming year.”
On health insurance and navigating the health system: “KFF polls have demonstrated that beyond costs, insured people report a whole host of issues navigating the health care system. This report looks at which aspects of accessing care and health insurance are the biggest problem for insured adults and finds that prior authorizations – or the process of having to get insurance approval before accessing certain tests, treatments, or medications – are having an outsized impact on insured adults.
One in three insured adults in the U.S. say they find prior authorizations a “major burden” to getting health care. An additional four in ten (37%) say the process is a “minor burden,” bringing the total share of insured adults who find the process burdensome to about seven in ten (69%).
About one in three insured adults (33%) say they have had a health insurance company deny coverage for a certain health care service treatment, or medication prescribed by their doctor in the past two years….Overall, nearly half (47%) of insured adults say they have had a certain service, treatment, or medication either denied or delayed in the past two years, rising to nearly six in ten (57%) among those with a chronic condition.”
Population Health
CMS: ACO Participation in 2026: Last Wednesday, the Centers for Medicare & Medicaid Services (CMS) released its 2026 ACO participation highlights:
- 3M Medicare beneficiaries are enrolled in an ACO for 2026– up by 4.4% from 13.7 million in 2025.
- For 2026, CMS approved 134 applications for the Medicare Shared Savings Program (MSSP), including 72 new participants and 62 returning participants bringing total participation to 511, up from 476 accountable care organizations in 2025.
- CMS said that the MSSP ACOs include more than 700,000 providers and other organizations serving 12.6 million people with traditional Medicare, a 12.3% increase from 2025.
- ACO REACH includes 74 participants, encompassing 125,909 providers and organizations and covering 1.7 million beneficiaries. NOTE: The ACO REACH model ends this year to be replaced by the LEAD, or Long-Term Enhanced ACO Design, model. The 10-year voluntary demonstration officially begins on Jan. 1 and will run through Dec. 31, 2036.
- 74 entities contracted to participate in the Kidney Care Choices model, including 7,534 providers and organizations as well as 237,000 traditional Medicare beneficiaries with chronic kidney disease and end-stage renal disease.
- There are also 23 ACOs that are jointly participating in the Medicare Shared Savings Program and ACO PC Flex Model, which is designed for primary care providers within MSSP. These participants serve 359,720 Medicare beneficiaries
2026 Medicare Accountable Care Organization Initiatives Participation Highlights | CMS
Fair Health Atlas: chronic disease prevalence in US: The Fair Health Atlas report on chronic disease prevalence is based on its analysis of commercial healthcare claim records to measure prevalence and costs associated with 44 chronic conditions. Highlights:
- Of 44 common chronic conditions studied, hyperlipidemia, or high cholesterol, was the most
common in the commercially insured population, with a crude prevalence1 of 21.2%.
• Some chronic conditions frequently co-occur. In the commercially insured population, 33.4
% of patients had hyperlipidemia, hypertension, obesity or some combination of these, and
4.3% had all three. Half the patients with any one of these conditions had more than one.
• The majority (57.5%) of commercially insured patients had at least one chronic condition.
Many patients had more than one chronic condition. For example, 11.5% of patients had
two conditions, and 9.1% had three.
• The number of chronic conditions per commercially insured patient per year drives healthcare spending. The average allowed amount for a patient with no chronic conditions was $1,590, while the average allowed amount for a patient with one chronic condition was $3,039. The average allowed amount continued to rise per number of chronic conditions, reaching $21,730 for10 or more chronic conditions—13.7 times higher than for a patient with no chronic conditions.
• Of the 44 chronic conditions studied in the commercially insured population, lung cancer had the highest average allowed amount per year ($22,740) and ADHD the lowest ($4,175). Acute myocardial infarction, non-Alzheimer’s dementia and Alzheimer’s disease had the highest median number of comorbidities (six) and pneumonia and autism the lowest (one). Acute myocardial infarction had the highest average number of co- occurring chronic conditions (6.19) and autism the lowest (1.63).
Chronic Conditions in the United States Fair Health February 2, 2026 Fair Health Atlas
