Cain Brothers Newsletters: Industry Insights
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Moving Forward with Medicaid
May 13, 2026 – Banker Commentary by Mike Elizondo
Medicaid managed care has been a challenging prospect. States, insurers, and providers have, and still are, confronting the combined effects of post‑pandemic enrollment contraction, population-wide medical cost increases, and growing tension over whether payment rates are sufficient. After years of growth fueled by federal policy (particularly emergency pandemic policy), the segment appears to be stabilizing around a smaller and materially different population, and the new realities of Medicaid are forcing difficult conversations about the viability of the program in total.
To understand today, let’s start with yesterday. During the COVID‑19 public health emergency, states were required to keep most Medicaid beneficiaries continuously enrolled in exchange for enhanced federal funding. As a result, enrollment grew rapidly to all-time highs. When that continuous eligibility requirement ended, states were required to resume eligibility redeterminations, and by early 2026 national enrollment had fallen nearly 20% from peak levels.
This enrollment decline uncovered a hidden acuity disparity that had an outsized impact on Medicaid managed care. Many in the sector believe that a large portion of the individuals losing Medicaid coverage were lower utilizers or were disenrolled for procedural or administrative reasons rather than income ineligibility. Those who remain enrolled tend to be more medically complex with a higher prevalence of health care needs. For Medicaid managed care organizations, that shift translated into higher per-member costs and, ultimately, depressed margins.
These dynamics have put pressure on a rate‑setting system that bases forward‑looking rates on historical data. Medicaid managed care capitation rates must be actuarially sound under federal rules, but they are often based on periods that lag real‑time changes in utilization and acuity. Many rates implemented over the past 24 months were built on experience that did not fully capture the current per-member cost patterns. Some states have responded via retroactive rate adjustments and mid-year rate increases, but broad-based national increases have not materialized. Constrained fiscal realities because of H.R. 1 (the One Big Beautiful Bill Act) have made state legislatures and governors consider how to fund Medicaid. Lobbying on the part of managed care plans is high. Despite this, today the segment remains cautiously optimistic.
Recent earnings results from some of the largest Medicaid managed care companies highlight progress. Centene reported an improvement in Medicaid margins in the first quarter of 2026, driven by a combination of rate and revenue increases and progress in medical cost management. The company raised its full‑year earnings outlook. Molina Healthcare presented a more cautious picture. While Molina reported that Medicaid medical cost trends in the first quarter were modestly favorable to expectations, it reaffirmed rather than raised its full‑year guidance, citing the need for additional data.
Yet, while the structural changes to the program challenged plans, these seem to be largely behind us. Additionally, the rate environment should begin to normalize as lower cost periods fall from actuarial calculations and higher cost periods.
I believe the segment is coming out of an unprecedented period of financial difficulty, but Medicaid (and Medicaid managed care) has been an indispensable part of healthcare coverage for millions of Americans. I expect it will continue to be and expect the program will find more solid footing in the near term.
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